New Corporate Income tax rate 22%- Should Proprietory/Partnership/LLP consider to convert themselves?

The announcement of the finance minister regarding the reduction of rate of Income-tax in respect of Domestic Companies to 22% has created lot of interest amongst all entrepreneurs to go into corporate form of business considering the tax benefits. The below table is a comparison of tax liability for various types of Organisations for different types of Income :-

Net IncomeIndividual
-Income-tax at New rates

Note :-

The turnover is assumed to be less than 400 Crores

The income as specified here for Individuals is after considering the 80C,80D and other eligible deductions.

The above table shows the tax payable by various types of organisations for different income levels. But wait, please consider the following also before taking a decision on moving to Corporate form of organisation (Domestic companies) :-


Profit withdrawl from Business

In case of Proprietorship/Partnership/LLP firm, withdrawl of Profits from the business is easy. Just write a Cheque/Transfer the funds. But in case of domestic company, its not easy like that and also involves additional cost. If you want to withdraw as a Director Remuneration, TDS as applicable has to be deducted and declared as Income in your personal hands. On the other hand, if you want to take the profits as Dividends, Dividend Distribution tax (around 18%) has to be paid and also dividend is taxable in personal hands if it exceeds Rs. 10 Lakhs.


Withdrawl of money as a Temporary/Long term Loan

In respect of Proprietorship/Partnership firms, there is no restriction in Proprietor/Partner taking a loan from the firm. Its very simple. But when it is a Corporate entity, Directors / their relatives /interested people cannot take loan from the Company.


Borrowing of Money required for the Company from outsiders

If the business is in need of funds, the Proprietors/partnership firms can borrow amount either temporarily or for a long term from the outsiders/friends. But in case of Corporate entities, borrowing from outsiders if not allowed. The directors/relatives of directors/Shareholders can lend to the company but with some restrictions on the same.


Privacy of Financial Information

In case of Proprietorship/Partnership firm (Not LLPs) , your financial statements (Balance sheet/ Profit & Loss account, Share holder/director information) are a private one. Unless approved/provided by the Proprietors/Partners, it will not be available to public/outsiders. But in case of corporate entities, your financial statements and other information will be available in the Public portal , which will be accessible by all without any control from your side.


Borrowing/Lending within Group companies

If you have more than one business entity, borrowing/lending between the entities is very easy and no major restriction is imposed on the same, if it is either Proprietorship or Partnership firm. But in case of a corporate entity, lending to other group companies Inter corporate loans is subject to restrictions , conditions and Compliance.


Meetings and Documentation

In case of Corporate entities, you need to conduct Annual General Meetings and Board meetings at periodic intervals. The proceedings in the meeting are to be maintained in a Minutes book mandatorily. In case of Proprietorship/Partnership firms, there is no such requirement.


Ease of Changes in organisation

There might be situations where you may change your main place of business (registered office) or change your partners or change in the profit sharing ratio or increase your Capital in your company, etc…,. In case of Proprietorship/Partnership firms, these are very easy and does not require any approval. But in case of corporate entities, all the changes require approval from Registrar of Companies and involves compliance cost for the same.


Basic Exemption & Differential tax slabs

In respect of Proprietorship firms, the Income is chargeable @ 5%,20% or 30% as applicable with basic exemption. The final effective rate in case of Proprietorship firms (say Income upto Rs.23 Lakhs) may be beneficial compared to Fixed Corporate tax rates.


Audit of accounts

In case of Proprietorship/Partnership firms, only if your turnover exceeds certain limit, you are required to get your books of accounts audited. But in case of corporate entities, irrespective of your turnover, you need to get your books of accounts audited every year.


Additional Compliances

In case of Corporate companies, some of the additional compliances to be done on a regular basis are :-

  • Annual return filing with ROC
  • Financial statements filing with ROC
  • DIR KYC Compliance – KYC for directors
  • TDS applicability irrespective of your Turnover/Income
  • Digital signature for directors
  • Certification/Report from professionals like CA/CS

These compliances will involve time & additional cost.


Cost of Compliance

In case of Proprietorship/Partnership firms, the cost of Compliance is very less compared to Corporate entities, where cost of Compliance is relatively high. Cost of compliance includes, filing fees, Interest/Penalties, Professional fees for compliance , etc.,

The corporate form of entity comes with a lower taxation compared to others but with the above

restrictions/requirements. If you can skilfully navigate through these hardships, the destination (Lower tax rate) is enjoyable.

Last date for filing ROC forms extended

Since there was a revision in the Annual forms AOC -4, and to give sufficient time to the stakeholders regarding the content of the forms, the Ministry of Corporate Affairs has extended the last date for filing the Annual Returns and Financial statements which will become due on or after 01st April 2016 , to 29 th October 2016.

Accordingly, these Annual returns and Financial Statements (AOC 4 & MGT 7) can be filed upto 29th October 2016 without any additional fees.

The relevant notification from MCA is attached herewith

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Waiver of additional fees by ROC

The Ministry of Corporate Affairs (MCA) portal for down for updation during the period from 25th March 2016 to 27th March 2016. The portal resumed operations from 28th March 2016 onwards. However, there were many issues faced by the stakeholders while filing the forms and they are being sorted out now by the Ministry.

In view of the above, the MCA has decided to waive the additional fees in respect of forms due for filing between 25th March 2016 to 30th April 2106. All forms falling due during these dates need not pay any additional fees. However if these forms are filed after 10th May 2016, this relaxation is not applicable.

The relevant circular is provided below :-

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Due date for ROC Returns (AOC-4 & MGT-7) Extended only for Tamilnadu & Puducherry

Due to the recent heavy rains and floods in the State of Tamilnadu & UT of Pondicherry and as per various representations received, the Ministry of Corporate Affairs has decided to relax the additional fees payable on e-forms AOC-4,AOC(CFS), AOC-4(XBRL) and e-form MGT-7 upto 30th January 2016, wherever additional fees is applicable.This will be applicable only for the companies having their registered office in the state of Tamilnadu and UT of Pondicherry.

This is as per the General Circular No 16/2015 dtd 30th Dec 2015 issued by the Ministry of Corporate Affairs.

The relevant circular is reproduced below :-

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Source :-


Last date for ROC filings extended till 30th Dec 2015

The Ministry of Corporate affairs vide its General Circular No 15/2015 dtd 30/11/2015 has relaxed the additional fees and has extended the last date for filing of the Annual Returns & Financial statements (MGT -7 & AOC-4) both XBRL and non XBRL filings. As per this circular, these filings can be done till 30th Dec 2015 without any additional fees.

The relevant Circular is reproduced below :-

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Important Relief to Pvt Ltd Companies regarding Loan from Directors,relatives…

The Companies Act, 2013 had imposed certain restriction on acceptance of Deposits from Members, Directors & relatives. These were covered by Companies Acceptance of Deposits rules. There was no clarity on the deposits,loans accepted by the Private Limited Companies prior to 1st April 2014.

In order to clarify the same, the Ministry of Corporate affairs (MCA) has issued a new Circular No 5/2015 dtd 30th March 2015. The Clarification is as follows :-


The amounts received by private companies prior to 1 st  April, 2014 shall not be treated as ‘deposits’ under the Companies Act,2013 and Companies (Acceptance of Deposits) Rules, 2014 subject to the condition that relevant private company shall disclose, in the notes to its financial statement for the financial year commencing on or after 1st April, 2014 the figure of such amounts and the accounting head in which such amounts have been shown in the financial statement.

However, any renewal or acceptance of fresh deposits on or after 1st April, 2014 shall, however, be in accordance with the provisions of Companies Act, 2013 and rules made thereunder.

The relevant notification is reproduced below :-

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Company Law Settlement Scheme 2014 extended again..

As you are aware, the Ministry of Company Affairs (MCA) had announced a scheme Company Law Settlement Scheme (2014) (CLSS 2014) to facilitate corporate entities having backlog in filing the Annual Returns and Balance sheets with the Registrar of Companies. As per the scheme, a concession in the additional fees and also immunity from prosecution was also given for corporates who make use of this scheme. The last date for the scheme was earlier fixed at 15th Nov 2014.

In view of the request from various stakeholders, the MCA has further extended the last date for filing the returns under CLSS 2014 to 31st of December 2014.

The corporates who are yet to file their Annual returns and Financial statements for earlier years can make use of this last opportunity.

The relevant Circular is reproduced below :-

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Company Law Settlement Scheme 2014 Last date extended…

In view of the various representations received from the various stakeholders, the Last date for availing the Company Law Settlement Scheme has been extended to 15th November 2014.

Originally, the scheme was to end on 15th October 2014. The stakeholders were put on hardship due to slowdown in the MCA portal . In view of the same, the MCA has extended the deadline.

The stakeholders can make use of this opportunity and file all the backlog Forms and can avail the benefit of the CLSS scheme.

The relevant circular from MCA is reproduced below :-

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Company Law Settlement Scheme 2014 – Opportunity for Companies

The Ministry of Corporate Affairs vide its Circular No 34/2014 dtd 12th August 2014 has introduced a new scheme for Companies for filing their backlog Annual Returns.



This scheme is applicable for defaulting companies which have made a default in filing of annual Statutory Documents.



This scheme shall not apply :-

1)      to companies against which action for striking off the name under sub-section (5) of section 560 of the Companies Act, 1956 has already been initiated by the Registrar of Companies or

2)      where any application has already been filed by the companies for action of striking off name from the Register of Companies or

3)      where application has been filed for obtaining Dormant Status under section 455 of the Companies Act, 2013, or

4)      to vanishing Companies.



The defaulting companies can file the documents which were due for filing till 30th June 2014.

Only the following forms can be filed under this scheme:-

1)      Form 20B – Form for filing annual return by a company having share Capital

2)      Form 21A – Particulars of Annual Return for the Company not having share capital.

3)      Form 23AC, 23ACA , 23AC-XBRL and 23ACA-XBRL – Forms for filing Balance Sheet and Profit & Loss Account.

4)      Form 66 – Form for submission of Compliance certificate with the Registrar.

5)      Form 23B – Form for intimation for Appointment of Auditors.



The Companies which are opting for this scheme will be :-

1)      Granted immunity from prosecution for non filing of annual returns

2)      Reduced additional fees of 25% of the actual additional fees payable for filing the documents under this scheme.

3)      In addition, inactive companies, who are filing documents under this scheme can get their companies declared as “dormant company” by filing a simple application at reduced fees.



This scheme shall be in force from 15th August 2014 to 15th October 2014.



The Application for seeking immunity in respect of belated documents filed under the scheme shall be made electronically in the e-form CLSS 2014. This e form shall be made available in the MCA21 portal from 1st September 2014 onwards. This form can be filed not later than 3 months from the date of closure of this scheme (ie.,) 15th October 2014. There will not be any fees payable on this form (CLSS 2014).

Click here to send an enquiry to us (or) filing forms under CLSS 2014.

The relevant Circular issued by MCA in this regard is reproduced below

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