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.

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 :-


New Rate of Service Tax @ 14% applicable from 1st June 2015

The following are few of the important changes will be applicable from 1st June 2015 in respect of Service Tax :-

1) Rate of Service tax has been changed from 12% to 14%

2) Education Cess & Secondary Education Cess removed

3) The definition of ‘chit’ has been omitted from the abatement notification 26/2012

4) Negative List – Process amounting to manufacture or production of goods excludes alcoholic liquor for human consumption withdrawn.

5) Admission to exhibition of cinematograpic film, circus, dance, theartical performance, including drama or ballet, recognised sporting event exempted.

6) Award function, concert, pagent, musical performance, sporting event other than recognised sporting event exempted provided consideration is not more than Rs. 500/-



TNVAT – Changes proposed in Budget 2015-16

The State Budget for the year 2015-16 was presented in the Legislative Assembly today. There were certain proposals proposed in the budget presented. The following are the proposed Changes in TNVAT :-

1) Electricity Tax on generating plants using Biomass (excluding bagassee) will be withdrawn to give a boost to green energy producers.

2) Input Tax Credit reversal imposed at the rate of 3 per cent on the inter-state sale of goods as per proviso to section 19(2) (v) of Tamil Nadu Value Added Tax Act 2006, which was introduced with effect from 11.11.2013 will be withdrawn henceforth to make the manufacturing industries in Tamil Nadu more competitive with their counterparts in the neighbouring States.

3) Clause (c) under Section 19(5) of TNVAT Act, 2006 will henceforth be withdrawn to enable the dealers to claim Input Tax Credit on the inter-State sale of goods without ‘C’ form. This measure will eliminate additional burden on the dealers effecting inter-State sale of goods without ‘C’ form.

4) Fishing accessories like fishing ropes, fishing floats, fishnet twine, fishing lamps and fishing swivels will be exempted from the present levy of VAT.

5) Mosquito nets of all kinds will be exempted from the present levy of VAT at 5%.

6) Works contract relating to sizing of yarn will be exempted from the present levy of VAT.

7) VAT on cardamom will be reduced from the present levy of 5% to 2%.

8) VAT on LED lamps of all kinds will be reduced from the present levy of 14.5% to 5% to encourage the use of energy saving devices.

9) VAT on air compressors, pump sets up to 10 hp and their parts thereof will be reduced from the present levy of 14.5% to 5% to encourage MSME Sector and to benefit the agriculturists in the State.

10) VAT on cellular telephones (mobile phones) will be reduced from the present levy of 14.5% to 5%.

The above changes will be effective from the date when these are published in the Gazette.



MCA releases draft notification for Exceptions/Modications relating to Private Limited Companies

The Ministry of Corporate Affairs has published a draft notification in its website relating to the Exceptions/Modifications/Adaptations with regard to provisions in the Companies Act, 2013 relating to the Private Limited Companies. Suggestions/Comments on the proposed draft notification may be addressed/sent latest by 1st July, 2014 through email at It has been requested that the name, Telephone number and address of the sender should be indicated at the time of sending suggestions/comments.

Source :-


The Draft Notification is reproduced below :-

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Important amendment in New Companies Act relating to Company Information

As per Section 12 of the Companies Act, 2013, (applicable from 1st April 2014) , every company shall print the following information compulsorily on all its business letters, bill heads, letter papers, letterheads, notices, and other official publications :-

1)      Name

2)      Registered office address

3)      Coporate Identity Number

4)      Telephone Number

5)      Fax Number, if any

6)      Email, if any

7)      Website address , if any

Other provisions of Section 12 :-

–          Every Company shall have , from the 15th day of its incorporation and at all times thereafter, a registered office capable of receiving and acknowledging all communications and notices.

–          Every company to paint or affix its name and registered office address outside the office and every place of business

–          Every company to have its name legibly engraved on seal and printed on promissory notes, bills of exchange

–          In case of change of name, the former name is also required to be printed outside the office and on the letterheads, etc.

–          In case of a One Person Company, the words ‘One Person Company’ to appear in brackets below the name wherever printed, affixed or engraved.

–          Notice of any change of Registered Office within the same city to be given to ROC within 15 days (earlier, 30 days)

–          Penalty for any default in complying with the section – Company and every officer in default liable to a penalty of INR 1,000/- per day (maximum INR 100,000).

New FCGPR form for FDI Reporting notified

The Reserve Bank of India vide its RBI/2013-14/490 A.P. (DIR Series) Circular No. 102 dtd 11th Feb 2014, has amended the form for reporting the Foreign Direct Investment (FDI) .

The new form requires the following additional details of the investments :-

1) Brownfield/Greenfield investments

2) Date of Incorporation of investee company

Henceforth , the new reporting format needs to be followed and the New form FCGPR shall be submitted for reporting of FDI.

The relevant circular along with New Form FC-GPR is reproduced below :-

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New DIN 1 form notified

The Ministry of Corporate Affairs vide its Notification No GSR 298(E) dtd 5t June 2012 has notified new DIN1 form for making application for allotment of Director Identification Number (DIN) for directors of Indian Companies.

Click here to download the new DIN 1 form.