Sep 212019
 

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
Firm
Income-tax
Company
-Income-tax at New rates
Beneficial
status
25000007800057200Individual
30000009360068640Individual
5000000156000114400Individual
75000065000234000171600Individual
1000000117000312000228800Individual
1500000273000468000343200Individual
2000000429000624000457600Individual
2200000491400686400503360Individual
2300000522600717600526240Individual
2400000553800748800549120Company
2500000585000780000572000Company
2600000616200811200594880Company
5000000136500015600001144000Company
7500000235950023400001716000Company
10000000321750031200002288000Company
11000000372255038438402768480Company
20000000695175069888005033600Company
21000000794625073382405285280Company
50000000192562501747200012584000Company
60000000253792502096640015100800Company
100000000424768503494400025168000Company
110000000467512503843840027684800Company

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.

Jun 112014
 

The Income-tax Department has released the Return filing utility ITR-3 for filing returns in respect of Individuals/HUFs being partners in firms and not carrying out business or profession under any proprietorship for the A.Y.2014-15 (Financial Year 2013-14).

Source :- www.incometaxindiaefiling.gov.in

 

Jul 072013
 

Know your last Date for filing Income-tax Returns for F.Y.2012-13 (A.Y.2013-14)

Table below gives you information on due dates for filing Income-tax returns for the Financial year 2012-13, (Assessment year 2013-14) in respect of all types of assessees.
Sl NoApplicable AssesseesDue date for filing Returns
1Salaried Employees, assesees having Income from House Property, Interest Income, Capital Gains, Business Income, where their accounts are not required to be auditedJuly 31, 2013
2Assesees who are required to furnish report u/s. 92 E of the Income-tax Act, 1961November, 30 2013
3Other Non Corporate assessees (Proprietorship firms, Partnership firms,etc.,) whose accounts are required to be audited under Income-tax act (Turnover exceeding 100 Lakhs in case of Business & 25 Lakhs in case of Profession) or who have disclosed Profit less than 8% of the Turnover (section 44AD) or assessees who are required to get their accounts audited under any other Law.September , 30 2013
4In case of assessees being working partners of the firm covered under Sl No 3 aboveSeptember , 30 2013
5For all other Corporate assesseesSeptember , 30 2013

B S Sridhar & Co., Contact us @ 91-44-45540180 / 91-90804 33131. 

For Quick Response email :- sridharca@gmail.com

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