/ Company Law Compliances

Conversion of Partnership Firm into LLP

Convert Partnership Firm to LLP – Documents Required Procedure

Convert Partnership Firm to LLP – Documents Required, Procedure

Introduction

  • Partnership, Limited Liability Partnership, Private Limited Company, One Person Company, Sole Proprietorship, Public Company –When it relates, to business a country like India offers a series of alternatives. As a businessman, you have the option of choosing amongst various business models. However, before making a decision, you should be aware of the advantages and disadvantages of each option. You must determine which form will be most beneficial to you and your corporation.
  • Each of these forms has its own set of criteria, benefits, and drawbacks. When it regards to partnerships, one of the most significant disadvantages is that it exposes its partners to unlimited liability. This feature puts the partners’ own assets in danger. There are firms and companies with restricted obligations that can help to mitigate this danger.
  • Limited Liability Partnership and Private Limited Company are their names. Nowadays, entrepreneurs are converting their partnerships to these two types of businesses in order to minimize the risks that partnerships entail. But how does this transformation happen?
  • In recent years, there has been a greater move from traditional partnerships to Limited Liability Partnerships (LLPs). The rationale for this is that LLPs provide greater freedom, as well as unrestricted partners and other benefits. However, the actual reason for the transition is that LLPs provide a significant benefit in terms of limited liability.
  • When it comes to LLPs, the strain on the partner’s personal assets is alleviated because they are a mix of a partnership and a private limited company. Small and medium-sized organizations find that this organizational structure is ideal for their needs.

partnership Firm benefit

The benefits of a Limited Liability Partnership (LLP) exceed the disadvantages of a standard partnership. The main reasons for a partnership firm to convert to an LLP are limited liability, perpetual succession, and unlimited partners.

The Advantages of Converting a Partnership to an LLP

The following advantages can be obtained by converting a partnership to an LLP:

  • Increased in Investment: The amount of money invested in the LLP would increase if the partnership was converted to an LLP. The entity’s reputation would improve as a result of the conversion, causing additional investors to invest in the LLP.
  • Perpetual Succession: The departure or death of a partner does not result in the partnership firm’s dissolution. The LLP would be subject to the perpetual succession principle.
  • Liability Restriction: When a partnership is converted to an LLP, the partners are automatically granted limited liability status. Limited liability would provide the firm’s partners with some independence. The partners’ liability is separated from the firm’s liabilities.
  • Management’s Choice: In comparison to a regular partnership firm, converting a partnership to an LLP increases the degree of flexibility and decision-making process in an LLP.
  • Direct Foreign Investment (FDI): The Indian government has eased the rules on foreign direct investment in limited liability partnerships (LLPs). When compared to a partnership, an LLP allows for more FDI.

Main Differences Between a Partnership and an LLP

Differences between LLP and Partnership Firm

Basis of Difference Partnership Firm Limited Liability Partnership
Applicable Act Limited Liability Partnership Act, 2008 The Indian Partnership Act, 1932
Registered to Ministry of Corporate Affairs(MCA) registered the LLP Registrar of Firms registered the Partnership Firm
Liability One of the most significant distinctions between an LLP and a partnership is the liability of the partners. Because the partner and the firm are seen as independent legal entities. As a result, the partners’ liability is limited to the amount invested in the business. Because the firm and the partner are not regarded different legal entities. As a result, partners are personally liable for the partnership’s unlimited liabilities.
A number of partners and requirements ·  No. of Partners required is minimum 2 and no limit for maximum partner

·  Any minor cannot be partner

 ·    No. of Partners required is minimum 2 but not more than 20 are allowed.

·    Any minor can be partner
Agreement between partners The LLP Agreement regulates the LLP’s operations, management, decision-making procedures, and other activities. The partnership’s operation, management, and decision-making procedures, as well as other activities, are governed by the partnership deed.
Transferability /Conversion ·         Shares can be easily transferred to another person after obtaining the required consent from all the Partners in an LLP.

·         The transferee cannot become partner automatically.

LLP cannot be converted back to the partnership but can be converted to Private Limited Company or Limited Company easily.

 ·         Shares can be transferred to another person after obtaining the required consent from all the Partners in a Partnership.

·         Transferability of the partnership a is a lengthy process.

·         Conversion of partnership to LLP or Private Limited Company is a burdensome process
Compliances Compulsory to file the annual return to Ministry of Corporate Affairs. You can get LLP Annual filing with Rajput Jain & Associates at just Rs 2499/- No requirement of annual return filing
Registration Cost Get LLP Registration online for Rs. 7999/- only. Get partnership registration online for Rs.2199/- only.

Documents for Conversion of Partnership to Limited Liability Partnership (LLP)

For the conversion of a partnership to an LLP, the following documents are required:

  • Proposed Limited Liability Partnership (LLP) Name
  • Information on the partnership firm’s Partnership Deed
  • Digital Signature Certificate of the Respective Partners
  • LLP’s Authorised Capital
  • Registered office details of the partnership limited entity
  • Identification Documents of the Partnership- Voter ID and other related information
  • Utility Bill of the Partnership Firm- Electricity Bill/ Water Bill or any other Bill
  • Evidence or Proof of the Partnership’s Registered Office (Lease deed/Ownership Documents) of the property
  • Permanent Account Number (PAN) of all the Partnership’s Partners
  • Audited Partnership Information
  • Statements such as the Partnership’s Bank Details
  • The Partnership Business’s Main Objectives
  • If the premises are rented, a letter of authorization from the owner is required.

Document required after incorporation of LLP

  • Copy of Incorporation ceritificate of LLP
  • Document require to submitted for Fill LLP

Conditions for Converting a Partnership Firm to a Limited Liability Partnership (LLP)

  • Section 55 of the Limited Liability Partnership Act 2008, read with Schedule II of the Act, governs the conversion of a partnership firm to an LLP.
  • All of the firm’s partners must be LLP partners, which means no new partners can join or existing partners cannot leave while the application is being processed.
  • Before submitting an application, all partners must have a valid Digital Signature Certificate (DSC) and at least two partners must have a DPIN.
  • The converting partnership firm must be registered under the Partnership Act of 1932.
  • The consent of all partners must be acquired.
  • The LLP’s partners must be the same as the partnership firm’s. After the conversion is complete, any partner who chooses to be removed from the LLP may do so.
  • All Designated Partners must obtain a Director Identification Number (DIN)/Designated Partner Identification Number (DPIN).
  • Procedure for Converting a Partnership to a Limited Liability Partnership (LLP)

Processing Step for converting Partnership Firm into LLP

1st Step:  Approval of Name and Digital Signature Certificate (DSC)

Approval of name

  • Create an account and then log in to the MCA site.
  • Select the “RUN – LLP” option under the MCA Services menu.
  • Reserve Unique Name is States for RUN.
  • Select the option “Conversion of Firm into LLP” from the selection list.
  • There are two proposed names for the LLP to be given after that.
  • Any supporting papers may also be supplied in PDF format, followed by a click on the “Submit” button.
  • The page is redirected to a payment gateway, where the form’s fees of Rs. 200 must be paid.
  • The reserved name then has a 90-day validity term.

Digital Signature Certificate (DSC)

  • The Designated Partners of the LLP must have their individual Digital Signature Certificates in order to move past the Name Incorporation stage.
  • To enable a successful submission, each e-form requires the Designated Partners’ DSCs to be affixed to the applicable forms.

2nd Step: Submitting Forms to the ROC

Form 17 (Application and Statement for conversion of a firm into LLP)

The application form must include information such as:

    • The RUN – LLP form’s Service Request Number (SRN).
    • Proposed Limited Liability Partnership (LLP) name
    • The firm’s name, address, registration, and partnership agreement.
    • Information of the number of partners and the capital investment required.
    • Information of secured creditors

The following attachments must be submitted:

    • Statement of Consent of the Firm’s Partners.
    • A Chartered Accountant in Practice’s certification of the firm’s assets and liabilities.
    • A copy of the most recent acknowledgement of ITR.
    • A list of all secured creditors, with their permission.
    • Any further supporting data (optional).

Fill out FiL LLP (Form for incorporation of LLP)

Following must be filled out on the application form.

    • Details of the RUN – LLP, which will be auto-filed,
    • The LLP’s registered office address and email address.
    • The Registrar’s Office
    • The nature of the company’s operations.
    • Information about the partners, including their DINs, DPINs, and PANs.
    • The amount of money put in by the LLP’s partners.

Required as an attachment

  • Proof of address of the LLP’s registered office..
  • Consent of the subscriber.
  • A letter of authorization from the property owner as well as a copy of the utility bills (not more than 2 months old).
  • Approval from any regulatory authority, if applicable.
  • Information about any LLP/Company in which a designated partner also serves as a director/partner.
  • The applicants’ proof of identification and address.

Where the LLP’s name is identical to that of an existing Company/LLP, a copy of the existing LLP’s Board Resolution or Consent serves as a No Objection Certificate.

The proposed designated partners must e-sign both forms and have them approved by a Cost Accountant, a Company Secretary, or a Chartered Accountant, all of whom must be in full-time practice. The amount of the charge will be determined by the amount of capital commitment.

3rd Step: Obtaining a Certificate of Registration

On approval of the application, the Registrar will issue the LLP’s Certificate of Registration.

4th Step: Form a Agreement of Limited Liability Partnership (LLP)

Within 30 days of the LLP’s incorporation, the LLP Agreement must be presented in Form LLP-3. It must include the following information:

  • The LLP’s name
  • The names of the designated partners and other partners
  • The capital contribution and profit sharing ratios
  • The LLP’s rules
  • Partners’ rights and responsibilities

5th Step: Intimation to the Registrar of Firms

Within 15 days after the date of formation, the Registrar of Firms must be notified of the conversion into an LLP and the LLP’s associated details in Form – 14.

The following papers must be presented with the form:

• A copy of the LLP Incorporation Certificate; and

• A copy of the incorporation documentation filed in Form FiLLLP.

Once all of these stages have been completed, the conversion from a partnership to an LLP is complete in every way. It should be noted, however, that the existing licenses and permits do not transfer to the LLP. For post-conversion, they must be administered freshly.

Documentation To be Filed

  • All partners must file a statement with the Registrar, specifying the firm’s name, registration number (if any), and the date it was registered under the Indian Partnership Act 1932 or any other law.
  • The incorporation document, along with a statement in the prescribed form signed by a chartered accountant/company secretary/cost accountant/advocate who is involved in the formation of the LLP and anyone else who subscribed to the incorporation document, must be filed with the Registrar, attesting to the fact that all incorporation requirements have been met.

Registration

  • The Registrar may accept or refuse to register the LLP after obtaining the necessary paperwork. The Registrar will issue a certificate of registration if all documents are deemed to be correct and in compliance with the act’s stipulations.
  • The LLP must notify the Registrar of Firms with which it is registered in Form 14 within 15 days after registration. In the case that the Registrar refuses to register you, you can file an appeal with the tribunal.

Registration’s Effect

  • An LLP is formed under the name specified in the certificate of registration.
  • All of the firm’s assets, obligations, rights, and privileges will be transferred to the LLP.
  • The firm will be dissolved, and if it was registered under the Indian Partnership Act 1932, it will be deleted from the records; all outstanding processes against the firm will be enforced against the LLP.
  • Any ruling or judgment, whether favorable or unfavorable, may be enforced against the LLP.
  • All current contracts and agreements to which the firm was a party will remain in effect with the LLP as a party.
  • Any current appointment or authority bestowed on the firm must be treated as if it were bestowed on the LLP.

Liability of Partners Prior to Conversion

Each partner will be equally and severally accountable for all of the firm’s liabilities and obligations accrued prior to the conversion. The LLP will indemnify any partner who fulfills his or her obligations.

Notice of Conversion

The LLP must provide for a 12-month period, which must begin no later than 14 days following registration: –

  • In every official correspondence of the LLP, a declaration indicating it was converted from a firm to an LLP as of the date of registration specified, as well as the name and registration number(if any) of the firm from which it was converted.
  • If the LLP violates the aforementioned rule, it would be subject to a minimum fine of Rs 10,000 and a maximum fine of Rs 1,000,000. If the default continues, the minimum fine is Rs 50 per day, and the maximum fine is Rs 500 per day.

LLP Form No. 17

  • This is an application and statement for a firm’s conversion to an LLP. The form is split into two sections: Part A is for the application, while Part B is for the statement.

Part A, Information to be Provided: Application

  • If the Reserve Unique Number (RUN) form has previously been filed, the SRN. If not, the LLP’s suggested name.
  • The firm’s name and address.
  • Information about the firm’s registration under the Indian Partnership Act of 1932 or any other law.
  • The date of the agreement, which contains information on the firm’s founding.
  • The firm’s total number of partners.
  • Information on all partners’ consent.
  • Information on the LLP’s shareholders, which include all of the LLP’s partners and no one else.
  • Information from a tax return filed under the Income Tax Act of 1961.
  • Information on any pending court, tribunal, or other authority proceedings.
  • Whether the Registrar has previously rejected a conversion application. If so, the SRN as well as the grounds for the refusal must be provided.
  • Information about any ongoing convictions, orders, or judgments in favor or against the firm by any court, tribunal, or other authority.
  • Whether any secured creditors exist. If yes, whether all secured creditors have given their agreement to the conversion.
  • Is there any kind of clearance or approval needed for the LLP conversion? If the answer is yes, whether or not the approval has been acquired.

Part B: Statements

  • The declaration’s contents
  • The partner’s consent to the firm’s conversion to an LLP.

The partner must acknowledge that he or she is jointly and severally accountable for all liabilities incurred prior to the conversion.

He or she must state that: – All of the requirements of the LLP Act 2008 and the rules have been met. – That all of the firm’s partners are also LLP partners, and no one else. That all of the necessary permits have been received. – That all secured creditors have given their consent. – To the best of his knowledge and belief, all information supplied in the form is accurate. 

Attachments

  • A firm’s Statement of Assets and Liabilities fully certified as truthful and correct by a practicing Chartered Accountant.
  • A statement of the company’s partners’ consent.
  • A list of all secured creditors, together with their permission to convert.
  • A copy of the most recent income tax return’s acknowledgement.
  • Any authority or body’s approval.
  • Any optional attachments, if applicable.

The e-form must be digitally signed by a designated partner and include the designated partner’s DIN/DPIN as well as a PAN number if none of the designated partners have a DIN.

A Chartered Accountant, Company Secretary, or Cost Accountant in full-time practice shall do the certification. It is necessary to choose an associate or fellow, and a membership number/certificate of practice number must be provided. Form 14 is used to submit notification to the Registrar.

The following details must be provided: –

  • The firm’s name.
  • The company’s main address.
  • Information about the firm’s registration under the Partnership Act of 1932 or any other statute.
  • Information on the LLP into which the firm has been converted is also required.
  • A copy of the LLP’s certificate of incorporation must be attached, and the form must be digitally signed by the partner.

Learn more about converting a partnership to a limited liability partnership (LLP).

Refer to the following articles for more information on converting a partnership to an LLP:

  • Partnership to Limited Liability Partnership (LLP) conversion
  • The Difference Between an LLP and a Partnership Firm
  • Why Convert a Partnership Firm to an LLP

IFCCL can assist you with the entire conversion procedure and make it a lot easier for you. Included in the Package

  • The procedure for converting a partnership to a Limited Liability Partnership (LLP).
  • End-to-end documentation
  • Liaison with regulatory authorities for this procedure
  • Certificate of No Objection from required IT authorities
  • Submitting documentation to the appropriate authorities

Frequently Asked Questions on Convert Partnership Firm to LLP

Q.: Why is it necessary to convert a partnership to limited liability partnership (LLP)?

  • Given all of the foregoing disadvantages of a regular partnership, converting a partnership to an LLP is the best alternative available. An LLP is a separate legal entity that exists independently of the firm’s partners.
  • Because the partners’ responsibility is limited, creditors will not pursue them for any debts or dues owed to the partnership firm.
  • A limited liability partnership (LLP) combines the advantages of a typical partnership and a private limited company. As a result, this type of hybrid entity is appropriate for people that require a great deal of flexibility.

Q.: What is the partnership’s strength at the moment of conversion?

  • The number of partners must be the same at the time of conversion. There must be no increase or decrease in the number of partners in any way.

Q.: What is the maximum number of names that can be reserved for the LLP?

  • The name of the LLP must be reserved in advance by the firm’s partners as part of the conversion process. This name reservation procedure or process can be completed online. The partnership would be allowed to reserve a maximum of six names. For the partnership firm, these names must be listed in order of preference. During the conversion of partnerships, the registrar may also request that the LLP apply for a new name.

Q.: What are the requirements that an LLP must follow when it comes to naming?

The partners must adhere to the following guidelines while naming the partnership:

  • The name must not be infringing on any intellectual property rights in India.
  • The LLP’s name must be unique and distinctive in character;
  • it must not mislead anyone, especially the general public; and it must not violate any Indian public or constitutional law.

Q.: What does it mean to contribute capital to an LLP?

  • The amount of capital contribution must be stated by the respective partners when converting a partnership into an LLP.

Q.: Is it necessary for a director to have a DIN in order to administer an LLP?

  • In most cases, an LLP will have partners. A director identification number is required for any director who is selected to carry out the LLP’s responsibilities (DIN). The independent directors of an LLP must comply with such standards.

Q.: Why should you choose an LLP over a partnership firm?

Apart from the major distinctions, the LLP has a few characteristics that make it a better choice than a traditional partnership firm:

  • Management Freedom/Leeway: The partners are granted a reasonable amount of flexibility in running the LLP’s operations and day-to-day activities. The Limited Liability Partnership Act of 2008 has little impact on the LLP Agreement, which implies that the Act is rather flexible in terms of how the agreement can be written.
  • Perpetual Succession: Unlike ordinary partnerships, the LLP continues to exist even if one of the partners dies.
  • Attractiveness to Investors: LLPs are attractive to foreign investors and venture capital funds because they have a corporate structure and are more organized than regular partnerships.
  • Multidisciplinary LLPs: An LLP allows professionals from multiple disciplines to collaborate, which is a unique trait and an advantage in and of itself.

Q.: What are the conditions for becoming Partner of LLP?

There are some pre-requisites condition must be followed for becoming partner of Limited Liability Partnership Firm:

  • The age of Partner is more than 18 years
  • The partner must not have any form of disqualifications
  • The partner must not be criminally liable
  • The partner must not be insolvent

Q.: Who can be partner in the partnership Firm ?

Who can be partner in the partnership Firm

/ CFO Services

TAXATION & COMPLIANCES GUIDE FOR FREELANCERS

freelancing income tax india

A guide to understanding your income and income tax returns

A 9 to 5 job does not attract to everyone. Some people prefer a bit of flexibility so that they can explore other interests, spend more time with family, or simply avoid a repetitive routine. That is why people freelance from the convenience of their own home, a trendy café, or a coworking space. According to income tax legislation, freelancers, like other salaried or business taxpayers, must pay taxes on the income they earn.

Freelancing income

Freelancing income is earned when you are hired to work on certain assignments for a specified period of time and are paid for the work after it is completed and submitted. You will not be hired or placed on the company’s payroll. You will not be eligible for benefits stipulated by the Company Act (such as PF). You are not forced to attend the office; in fact, you can finish the work at your leisure (by a pre-determined deadline) from any location that is suitable to you.

According to Indian income tax legislation, any income earned by demonstrating your intellectual or manual talents is considered income from a profession. Profits and Gains from Business or Profession will be taxed on this income. The total of all receipts you receive in the course of performing your profession will be your gross income. If you have received all of your professional revenue through banking channels, you can rely on your bank account statement to provide this information.

Expenses allowed as a deduction

Freelancers can subtract the expenses of doing the job from their earnings. This might include anything from workplace furniture to cab fare to clients’ homes. These expenses must be directly tied to the work that you undertake.

Conditions to claim expenses as a deduction from freelancing income

  • The expense is for the freelancing work that you are doing.
  • It was incurred throughout the tax year.The expense is for the freelancing work that you are doing.
  • It is neither a capital nor a personal expense for the freelancer.
  • It is not incurred for the aim of committing a crime or violating a law.

EXPENSES THAT CAN BE CLAIMED AS A DEDUCTION AGAINST INCOME

Rent of the property: The rent paid can be subtracted if you rent a property to carry out your employment.

Repairs undertaken: These repair costs can be deducted if you agreed to pay for repairs to the rental property. If you own the business property and make repairs, you can deduct those costs as well. Repairs to your laptop, printer, or other equipment are also qualified for a deduction.

Depreciation: The benefit of a capital asset is typically expected to extend longer than a year when you acquire it. When such assets are purchased, they are capitalised rather than charged to expenses. A small proportion of the expenditure is expensed each year and can be subtracted from your income. Depreciation is the annual expense that is charged.

For example, if you spend Rs.60,000 on a laptop to undertake freelance work, the Rs.60,000 is considered an asset. Assuming a straight line depreciation of 33.33 percent per year, annual costs will be Rs.20,000. We’d consider the asset to be fully depreciated in the next three years. The types of assets, methods of depreciation, and rates of depreciation to be charged are all specified in the Income Tax Act and must be followed.

Office expenses: Expenditures incurred in the course of your work, such as the purchase of a printer, office supplies, monthly phone bills, internet costs, and transportation expenses, can all be subtracted.

Travel Expenses: Travel expenses to meet with clients within or outside of India can be reduced.

Meal, entertainment, or hospitality expenses: It can be claimed when you hold client meetings, take clients out to dinner, or go on other trips with the sole purpose of acquiring new business or retaining existing business.

Local taxes and insurance for your own business property

Registration of a domain and the purchase of software to test your product are also allowable expenses.

How to claim expenses common to both personal and professional purposes

When assets are claimed or expenses are incurred for both professional and personal uses, only a fair portion of the expenditure and depreciation can be deducted, not the entire amount.

For instance, you use your cell phone for both professional and personal calls. As a result, you’ll only be allowed to deduct a reasonable fraction of your cell expense that’s related to your freelance employment.

Expenses that are explicitly disallowed to be deducted from your income

Case Study:

Ram, a freelance photographer, uses the space held by his married sister to conduct his business. Ram’s rent is an expense that can be subtracted from his freelancing earnings. Because Ram’s sister owns the property, he decides to transfer some of his income to her by paying her a higher than market rent. The excess payment will not be subtracted from your taxes.

Will this come under the scanner of the I-T Department when he files his income tax return?

TAXATION & COMPLIANCES GUIDE FOR FREELANCERS

The following expenses are explicitly disallowed to be deducted from one’s income as per the Income Tax Act:

  • You are responsible for paying income tax.
  • For non-payment or late payment of income tax, any interest, penalty, or fine
  • Payments paid to relatives may not be deducted if the following conditions are met:
  • You have gotten products, services, or facilities.
  • Payment has been paid to a relative (spouse, or any lineal ascendant or descendant of you or your spouse) or to a person who owns a substantial stake (20% or more in equity or profits) in your company.
  • The payment is either

(a) not in accordance with the fair market value of the goods/facility/service.

(b)Your profession does not have a justifiable need for it.

(c)As a result of incurring that expense, you gain a benefit.

If you pay for an expense in cash that exceeds Rs.10,000, you will not be able to claim it as a deduction.

Case Study:
Ram, a freelance photographer, uses the property held by his married sister to do his business. Ram’s rent is an expense that can be reduced from his freelancing earnings. Because the property is held by Ram’s sister, he decides to transfer some of his income to her by paying her a greater rent than the market would allow.

Will this be scrutinised by the IT department when he files his tax return?

Ram deducted the rent payment from his overall earnings as a business expense. His sister, who has no other source of income, only paid a 10% tax on the rental earnings When the beneficiary is a relative, the Assessing Officer may refuse to authorise a rent payment that is not in keeping with the fair market value of the premises.

We can assist you with your income taxes and tax filing. Within 48 hours, Tax Experts can prepare and e-file your tax returns. For freelancers and consultants, plans start at Rs.3,700.

Accrual Basis of Accounting (also called Mercantile Basis)

freelancing income tax india

Cash Basis of Accounting

Accrual Basis of Accounting Cash Basis of Accounting
When a right to receive arises, income is accounted for or recorded. When income, is received it is recorded.
When a payment obligation occurs, expenses are accounted for or booked. Expenses are recorded when they are paid.
When income is booked, tax is due; nevertheless, tax may be due even if income has not been received. Tax liability occurs in the year in which income is received, obliging you to pay tax only when income is obtained.
This method can be used for all types of income, however it is required for salary, house property, and capital gains. Only profits and losses from a business or profession, as well as income from other sources, are allowed to be calculated using this method.
Example 1: You issue your client an invoice for a transaction on February 2nd, but you don’t be paid until April 4th. Based on the date the invoice was sent to the client, the revenue will be recorded in your account. Example 1: When the payment is received, revenue will be accounted for on April 4th (which will be the tax year after the year in which the invoice was raised or work was performed)
Example 2: Your cellphone bill from February 15th to March 15th has arrived. For accounting purposes, this bill will be recorded as an expense in March.

This applies regardless of whether you pay by the 31st of March or not (you may actually pay in the next tax year). When your books of accounts are closed on March 31st for tax purposes, the mobile bill for the remaining 15 days of March will be incurred using a reasonable basis, based on an estimate.

 Example 2: Your cell bill from the 15th of February to the 15th of March has arrived, and if you pay it before the 31st of March, it will be recorded as an expense in the month of March (therefore, gets booked in the same tax year).

If you pay it in April, it will be recorded as an expense in the following tax year (though the expense or mobile usage pertains to the previous tax year).

It’s important to remember that the accounting method you chose must be followed for all clients, all revenues, and all expenditure.

How to choose an accounting method

Using the cash basis of accounting method may appear to lower your tax liability. However, it is probable that it will merely postpone your tax payment However, you will not be able to save any money on taxes

Once you’ve opted on an accounting method, you must follow it on a regular basis. If your goal is to save or avoid taxes, you are not allowed to change your accounting system frequently.

Unless your receipts are irregular, imprecise, or unpredictable, it appears more sensible to use the Accrual Basis. The Income Tax Act states that books of accounts must be maintained for the purposes of income taxation. Section 44AA and Rule 6F have made these mandatory.

Total taxable income and tax payable

Making full use of Section 80 deductions can help you save money on taxes. Section 80C of the Income Tax Act encourages taxpayers to save for the future by providing tax relief on specified expenditure (by giving deductions on investments in financial products).

Net Taxable Income = Gross Taxable Income – Deductions

By claiming a deduction for the amount actually invested/spent under this clause, you can lower your taxable income by up to Rs.1.5 lakh. If you are under the age of 60 and have a net taxable income of more than Rs.2.5 lakh, you must pay income tax.

Here is how tax will be calculated on your income:

Tax payable for a freelancer

If a taxpayer’s total tax burden for the year exceeds Rs.10,000, he or she must pay taxes every quarter. This is referred to as advance tax.

How to calculate advance tax?

Calculate your overall income by adding up all of your receipts.

Subtract only the expenses that are directly relevant to your job.

Include earnings from other sources, such as a rental property or a savings account.

Determine your tax slab and compute your tax liability.

Remember to deduct TDS

If your tax payment exceeds Rs.10,000, you must pay advance tax by the deadlines listed below.

Due date for Advance Tax

On or before 15th June Not less than 15% of advance tax
On or before 15th September Not less than 45% of advance tax as reduced by the tax paid in the last installment.
On or before 15th December Not less than 75% of advance tax as reduced by the tax paid till the last installments.
On or before 15th March The whole amount (100%) of advance tax as reduced by the tax paid till the last installments.

Which ITR to file? Need help from an expert to calculate and pay your advance tax? Reach out to us info@caindelhiindia.com Freelancers must file income tax returns on ITR-4.

Do you have questions concerning the ITR-4 Form? Why not check out our in-depth guide on the ITR-4 Form? Take a look at our ITR-4 Guide.

How to pay advance tax?

It can be done in two ways.

You can make a payment via the IT Department’s website. A screenshot instruction to filing tax dues on the government website can be found here.

You can also visit your bank in person to fill out a paper challan and deposit tax.

Penalties for non-payment of advance tax

If you don’t pay your advance tax, you’ll be charged interest under Sections 234B and 234C. Pay advance tax when your tax due in a year is Rs. 10,000 or greater to avoid interest penalties under Section 234B and 234C.

Advance tax payments made until the 31st of March of the year should cover 100% of your overall tax liability.

Section 234B applies when Advance Tax is not paid, and as Advance Tax is due on the dates specified by the IT Department, section 234C applies when interest is not paid on the due dates. You may read more about 234B and 234C here.

Applicability of GST to freelancers

Previously, freelancers were subject to VAT and Service Tax. GST has now taken the role of these taxes.

If you sell goods

The GST has taken the place of the previously applicable VAT. The GST rate you pay will be decided by the things you sell. If you make and sell cakes to bakeries, for example, you must charge 18% GST. Presently, this is the GST rate that applies to cakes.

If you provide service

Most services are subject to an 18 percent GST. As a result, you must charge clients 18 percent GST for your freelancing services. To get the most up-to-date rates, use our simple GST Rate Finder.

Things to remember under GST

  • GST is not applicable if the total revenue from freelance work does not exceed Rs. 20 lakhs.
  • If you sell items, you may be qualified for the composition programme.
  • The composition scheme is not applicable to services. You can, however, supply interstate services up to Rs. 20 lakhs without having to register for GST.
  • On exports, the GST does not apply.
  • For additional information, see our article on the GST’s effects on freelancers.

How to understand whether I need to apply for GST?
If your annual gross turnover is higher than Rs.20 lakhs, you must register for GST (Rs.10 lakhs for North Eastern and hill states).

How to calculate my aggregate turnover in a year?

To see if you need to register for GST, read our article on how to calculate aggregate turnover.

How to make GST payments?

Payments for GST can be made online. If your payments total more than Rs.10,000, you must make them online. GST must be paid to the government on a quarterly or monthly basis, depending on your turnover and composition scheme.For any delays in depositing service tax with the government, interest will be charged.

How to file GST returns?

GST returns are due quarterly or monthly, depending on your turnover and whether you’ve opted the composition scheme. Quarterly returns are available to composition dealers and those with yearly sales of less than Rs.1.5 crore.

Return filing is required once you get a GST Identification number.

Do you have a question about GST?
If you have any queries about whether GST applies to your income or if you need to register, please contact us at info@caindelhiindia.com.

Should Freelancers file TDS Return?

  • Freelancers may be paid after TDS. Similarly, before making a payment, freelancers must Tax deduct at source. As an example, consider the following:
  • Ram is a freelance graphic designer who works for a variety of clients. he is paid on a project-by-project basis rather than a monthly wage. Before paying out, the client deducts tax at source in each of these payments. He is, however, unaware of the tax she must deduct at the source.
  • Many freelancers have a business name and a bank account designated for business activities, and they are taxed as small enterprises. When Ram is faced with tight deadlines, he appoints professionals to assist her meet them. In this instance, He must deduct tax from the sums payable to them at the time of payment.
  • TDS is applied at a rate of 10% whenever a freelancer or a small business owner makes a payment to professionals that exceeds Rs.30,000 per transaction or in total throughout a financial year. The tax that was deducted at the source must be paid to the government.
  • Furthermore, a freelancer is only required to deduct tax or TDS if he was audited during the preceding fiscal year. Only if a freelancer’s annual gross receipts reach Rs 50 lakh will he or she be audited. There is no need to deduct tax at source if this is not the case. TDS will be applied to different payments made by freelancers, including salary and contractual payments, if the yearly gross receipts exceed Rs 50 lakh and the freelancer’s accounts have been audited in the previous year.
  • TDS would have to be applied to all payments covered by TDS requirements, which the freelancer would have to verify for. In addition, once the taxes have been deducted, freelancers must deposit the money and file TDS returns.

Latest Income Tax Slab & Tax Rates in India –

Compilation of all Tax Rates (revised)

Current -Latest Direct Tax - Income Tax Slab & Income tax Rates in India

/ Business Registration Services

Procedure of LLP Incorporation in India

Limited Liability Partnership

A Limited Liability Partnership (LLP) is a business structure that offers the advantages of limited liability and the flexibility of a partnership business. When compared to the company form of business structure, the LLP has fewer compliance requirements. In the case of an LLP, audit is exempt up to a certain level of turnover. An LLP can be formed by at least two people. There is no limit on the number of partners. Instead of a general partnership, this is the preferred option for small businesses. We are the most reputable LLP Registration consultants.

The Minimum Requirement to Form an LLP:

  • Minimum of Two People: The LLP must be registered by at least two people. The maximum partners, however, have no limit.
  • No Minimum Capital: In the case of an LLP, capital is determined by the needs of the business and the partners’ contributions to the partnership. The amount of capital determines the Stamp Duty on the deed.
  • Resident Person Requirement: One of the LLP’s designated partners must be from India.
  • Unique Name: The LLP’s name should be unique, and it should not be the same or similar to the name of any existing company, LLP, or trademark that is registered or applied for.

Required Documents  for LLP Registration:

  • The most recent passport size All partners’ photographs
  • All Partners’ PAN (Permanent Account Number) (Minimum 2).
  • Proof of each partner’s identity (Aadhar Card, Passport, Driving License or Voter ID Card).
  • Address Verification for All Partners (Bank Statement or Passbook, electricity bill, telephone bill, Aadhar card or any utility bill).
  • A copy of each partner’s mobile phone bill, telephone bill, electricity bill, or bank statement with their current address.
  • Proof of Registered Office Address – Electricity Bill along with Rent Agreement / Proof of Ownership of Proposed Registered Office
  • Stamp paper for LLP Agreement of the State in which the LLP is to be incorporated.
  • Documents must be self-certified.

Advantages of LLP:

Advantages-of-Limited-LLP
There are many advantages from trading via an LLP –
  • Limited responsibility protects personal assets of the member from the company’s liabilities. LLPs are legal entities distinct from their members.
  • The operation of a partnership is determined by written agreement between the members and their distribution of profits. This can make the management of the company more flexible. The LLP is considered a lawyer. It can be bought, rented, leased, owned, employed, concluded contracts and held accountable if needed.
  • Corporate control. LLPs can have up to two companies as members. At least one director in an LTD company must be a real person.
  • Members who have been designated and those who have not been designated. You can run the LLP with various levels of membership.
  • Protecting the name of the partnership. By registering the LLP with Companies House, you are preventing another partnership or company from using the same name.

This is not an exhaustive list, but it does cover some of the most important advantages of an LLP.

Disadvantages of LLP:

As with any business format, there will be advantages and disadvantages. In some cases, the following may be considered disadvantageous.

  • The main disadvantage of an LLP is public disclosure. Financial statements must be filed with Companies House and made public. The accounts may include income from members that they do not want made public.
  • Income was also classified as personal income and is taxed accordingly. There may be tax advantages to forming a corporation, but this will depend on your individual circumstances.
  • Profits cannot be retained in the same way that profits can in a company limited by shares. This means that all earned profit is effectively distributed, with no option to carry it forward to a future tax year.
  • A limited liability partnership (LLP) must have at least two members. If one of the partners decides to leave the partnership, the LLP may be forced to dissolve.
  • Although any address previously provided to Companies House is no longer part of the public record unless you pay to have the records suppressed, any address previously supplied to Companies House remains part of the public record unless you pay to have the records suppressed. This is not a problem for many businesses. In other cases, however, this may not be desirable. Consider the fact that if their job includes sensitive matters, solicitors and partners in law firms may not want their home location to be made public.

This is not a full list, but it does address some of the major difficulties that some may consider to be detrimental to a limited liability partnership.

LLP’s Fundamental Characteristics:

A Limited Liability Partnership has the following characteristics.

  • The key feature of an LLP is that it is a separate legal entity, so its existence is distinct from that of the Members.
  • Through an LLP agreement, members take advantage of the organisational flexibility of a partnership.
  • Please keep in mind that the LLP agreement is a private document that must be kept confidential by the members.
  • In order to form an LLP, at least two “designated” members must be present.
  • An LLP’s “trading disclosure” is similar to that of a corporation.
  • LLPs are also subject to the same accounting and filing requirements as corporations.
  • Each member of an LLP is taxed on their share of the income and gains.
  • An LLP may issue liabilities for fixed fees or floating fees similar to the debentures of a business.
  • The Companies House must be registered with a Limited Liability Partnership.
  • Finally, limited liability is granted to LLP members

LLP Registration benefits through private registration of limited companies:

If your choice to choose LLP or private limited company registration is a dilemma, consider the benefits of LLP.

The maximum number of partners is not limited. The establishment of the LLP requires at least 2 partners, and there is no maximum partners limit. A Private Limited Company, on the other hand, is limited to having no more than 200 members.

Low cost of formation: The cost of forming an LLP is comparable to that of forming a Public Limited company. The cost of an LLP ranges between Rs. 1500/- and Rs. 7000/-, whereas the minimum statutory fee for a private company is Rs. 6000/-.

Least capital requirement:  The most significant advantage of an LLP over a private limited company is that it requires the least capital to establish the business. Furthermore, a partner’s contribution may be tangible or intangible, movable or immovable property.

No compulsion for auditing: any company, whether private or public, must get their accounts audited. There is no requirement for auditing: any company, private or public, must have their accounts audited. Nonetheless, there is no such compulsion in the case of LLP. According to the provisions of the Limited Liability Partnership Act, 2008, LLPs are required to audit their accounts on an annual basis, with the exception of those with a turnover of less than Rs. 40 lacs or a contribution of less than Rs. 25 lacs in any financial year.

Less Compliance Burden: compliance burden: LLPs face less compliance burden than private companies. Unlike private companies, which must meet at least 8 to 10 regulatory formalities and compliance, an LLP only needs to file two statements: the Annual Return & Statement of Accounts and Solvency.

Eligibility Criteria for Completing the LLP Registration Procedure:

An LLP applicant must meet the following LLP registration requirements:

  • Ensure that you have a minimum of two designated partners, one of whom must be a resident of India.
  • All designated partners must have a DPIN (Designated Partners Identification Number).
  • Every designated partner must have a DSC (Digital Signature Certificate).
  • The applicant must provide proof of the proposed registered office’s address.

LLP names:

  • An LLP can be registered under any name chosen by its members, as long as it is available at Companies House. It is common to see the names of the members included in the LLP name, but this is not required. An LLP, for example, may be registered as SMITH, JONES & DAVIES LLP, or it may use a descriptive name such as LEGAL ADVISORS LLP or something freestanding such as INDIVIEW SERVICES LLP. (These are fictitious names with no connection to any company currently or in the future registered with Companies House.)
  • When registering the LLP, the members must choose whether they want the name to be listed at Companies House using the full phrase “Limited Liability Partnership” or the abbreviation “LLP.” Following registration, the LLP may continue to use either version.

Procedure of LLP Incorporation in India:

Procedure of LLP

The most difficult challenge in a business partnership is that the inefficiency of one partner affects the progress of the others. However, any of these risks are annulled by the Limited Liability Partnership or LLP. It encourages businesses to start collaborative partnerships with the least amount of risk. Furthermore, it is the most secure way for startups or small businesses to conduct business. The Limited Liability Partnership Act of 2008 governs and ensures the smooth operation of corporate partnership bodies. If you choose LLP, you should be familiar with the LLP registration process. Without a doubt, this blog will assist you in dispelling any doubts you may have about Online LLP registration.

Once you’ve met the eligibility requirements, you’ll need to complete the following steps to register as an LLP:

Step 1: Obtain a Digital Signature Certificate (DSC):

The first and most important stage is to collect DSC for all of the designated partners that are being considered. ROC (Registrar of Companies) compliance forms, LLP registration, and tax returns can all be filed using the same DSC.

Step 2: Submit an application for a DPIN:

The next step is to submit an e-form DIR 3 application for a Designated Partners Identification Number (DPIN).

Step 3: Obtain approval for the company’s name:

It is an important step in the formation of an LLP. An LLP should have a distinct name; otherwise, the application may be rejected. So, once you’ve obtained your DSC and DPIN, you should apply for company name approval. To do so, go to the MCA’s official RUN-LLP to ROC webpage (Registrar of Companies).

Note that through RUN, the LLP applicant can propose a maximum of two names.

Step 4: Fill out the e-form FiLLiP Incorporation Application:

You must file an incorporation application in the e-form FiLLiP when the ROC (Registrar of Companies) confirms the company’s name. All information regarding the potential designated partners is included in the FiLLiP form. Attach all of the necessary documents to the form. The form must be filed with the ROC of the state or area in where the registered LLP office is located.

Step 5: Submit Form 3 of the LLP Agreement:

Finally, submit the online LLP agreement to the MCA portal within 30 days of incorporation. The LLP agreement is a confidential document that defines the partners’ rights and responsibilities. It must also be duly signed on a stamp of Rs. 10/-, though the value of stamp paper varies by state.

Include the following provisions in your LLP agreement:

  • The name, objects, and address of your LLP company.
  • Assessment of non-monetary contributions.
  • The net profit or loss sharing ratios.
  • Details about the designated partners.
  • Interest on the capital loan is due.
  • Bank account operation mode.
  • All partners’ rights and responsibilities
  • The procedure for appointing an auditor.
  • The initial contribution made by the partner to the LLP.
  • An arbitrator will be appointed.
  • Additionally, draught an indemnity clause and a goodwill clause.
  • The addition of a new partner.
  • The termination of existing partners.
  • The process of dissolving the Limited Liability Partnership.
  • Also, specify the extent of liability of LLP partners.
  • Remuneration due to working partners.
  • Limited Liability Partnership Amendments
  • And, if applicable, information about other businesses.
/ GST

GST refund eligible if exporter receiving payment via Paypal

GST Tax Evasion instances,

GST refund eligible on freelancers & businesses exporting digital services : HC

Under (Afortune Trading Research LLP v. Additional Commissioner (Appeals I),[W.P. No. 2849 of 2021, Madras High Court (2024)] decided on 16.02.2024, the ruling by the Madras High Court is a major relief for freelancers and digital service exporters using PayPal or similar intermediaries. It essentially confirms that receiving export proceeds in INR, as long as the intermediary initially received them in convertible foreign exchange, does not disqualify an exporter from claiming GST refunds.

This could have significant implications for businesses offering digital services internationally, especially freelancers, IT firms, and consultancy services that frequently use PayPal and similar gateways. It reinforces the need for tax authorities to interpret GST laws in harmony with FEMA regulations, acknowledging the realities of modern cross-border trade.

Freelancers & businesses exporting digital services

Key takeaways for freelancers and businesses exporting digital services:

  1. GST Registration: Required even if turnover is below the threshold, as exports are zero-rated. To export services without paying IGST, a Letter of Undertaking must be filed. Taxpayer invoices should mention “Export of Services” and contain your GSTIN, the buyer’s details, and the currency of the transaction. Use the correct HSN code for digital services (9983 or relevant SAC).
  2. FEMA (Manner of Receipt and Payment) Regulations, 2016 under Regulation 3(3) explicitly allow authorized dealers to accept export proceeds from a 3rd party, not necessarily the buyer, as per RBI guidelines.Routing via an intermediary (like PayPal) does not invalidate an export transaction u/s  2(6) of the IGST Act, 2017. Freely convertible foreign exchange must be initially received before being converted to INR; taxpayers must ensure compliance with FEMA.

Receiving Payments via PayPal:

  1. Purpose Code: Select a purpose code under “Software and Information Technology Services,” such as P0805 (Software & Other IT Services). PayPal does not issue a Foreign Inward Remittance Certificate. Instead, get a Bank Realization Certificate from your bank.
  2. Export under LUT vs. IGST Payment: If you furnish a Letter of Undertaking, you can export without paying IGST. If you don’t have an LUT, you must pay IGST upfront and then claim a refund.
  3. Eligibility for ITC Refunds: Exporters can claim refunds on accumulated Input Tax Credit used in providing the exported service.
  4. Claiming Input Tax Credit (ITC) Refund: You can claim a refund of GST paid on inputs, input services, and capital goods used for exports. File RFD-01A (Refund Application) on the GST portal. Declare export supplies in GSTR-1 (monthly) and GSTR-3B. we must require Supporting documents, i.e. Export invoices, LUT/Bond, PayPal receipts, and GST filings should be well-documented
  5. PayPal Transactions: Payments received via PayPal are valid for export status if PayPal initially received the amount in convertible foreign exchange. Taxpayer required to maintain records of PayPal transactions, conversion rates, and credited INR amounts. And Reconcile payments with export invoices and GST taxpayers required to maintain documentation like export invoices, PayPal receipts, and bank statements to support refund claims.

In summary:

  • This decision aligns GST compliance with modern digital business models, ensuring that the role of intermediaries like PayPal does not create unnecessary tax hurdles. and that foreign exchange, does not disqualify an exporter from claiming GST refunds. This judgment is an important relief for service exporters relying on payment intermediaries like PayPal. It clarifies that as long as the initial receipt of payment is in convertible foreign exchange, the subsequent conversion into INR does not disqualify the transaction from being considered an “export of services” under GST law.
  • This judgment aligns GST refund eligibility with RBI’s foreign exchange rules, offering significant relief to exporters using global digital payment platforms.
  • Would you like assistance in drafting an LUT application or preparing GST refund documentation?
/ CA

Certification of Provisional Financial Statements

economic landscape in India

Certification of Provisional Financial Statements for Non-Corporate Entities (except LLPs) w.e.f. 01.04.2024

The Accounting Standards Board of the Institute of Chartered Accountants of India (ICAI) has issued Guidance Note on Financial Statements of Non-Corporate Entities, prescribing standardized formats for presenting financial statements of such entities.

Scope of Applicability: This Guidance Note applies to:

  • Sole Proprietorships
  • Hindu Undivided Families (HUFs)
  • Partnership Firms
  • Association of Persons (AOPs)
  • Body of Individuals (BOIs)

Key Points of Guidance Note on Financial Statements of Non-Corporate Entities

Key highlights from the document include: Purpose and Scope

  1. Aims to enhance the quality, consistency, and comparability of financial statements for non-corporate entities.
  2. Introduces prescribed formats for balance sheets, profit and loss statements, and cash flow statements, where applicable.
  3. Excludes Limited Liability Partnerships (LLPs).

Applicability: Effective immediately from its issuance date. Applicable to entities not governed by specific statutory requirements for financial statement formats, except in cases like trusts under the Maharashtra Public Trust Rules, 1951.

Mandatory Compliance: These formats are mandatory for certifying Provisional Financial Statements for the Financial Year 2024-25. They will also apply to Tax Audit Reports and attachments for subsequent years.

Professional Responsibility: Chartered Accountants certifying provisional financials must ensure compliance with these prescribed formats.

Action Required for Guidance Note on Financial Statements of Non-Corporate Entities

Familiarize yourself with the Guidance Note on Financial Statements of Non-Corporate Entities issued by the ICAI. Ensure compliance while certifying provisional financial statements and conducting tax audits. The Guidance Note on Financial Statements of Non-Corporate Entities issued by ICAI provides standardized formats for the preparation and presentation of financial statements for various non-corporate entities such as sole proprietorships, HUFs, partnership firms, AOPs, BOIs, and trusts.

Key Features of Guidance Note on Financial Statements of Non-Corporate Entities

  • Balance Sheet Format: Clearly categorizes assets and liabilities into current and non-current items.
  • Statement of Profit and Loss: Includes line items for exceptional and extraordinary items, partners’ remuneration, and tax-related entries.
  • Additional Disclosures: Specifies requirements for owners’ funds, reserves, and surplus, liabilities, and contingencies.

Compliance with Accounting Standards (AS)

  • Entities are classified into four levels (Level I to IV) based on turnover, borrowings, and other criteria.
  • Level I entities must fully comply with all Accounting Standards.
  • Relaxations and exemptions are provided for Level II, III, and IV entities.

Consequences of Non-Compliance –Penalties for Non-Compliance

Failure to adhere to the prescribed formats may constitute professional misconduct under Clause (1) of Part II of the Second Schedule of the Chartered Accountants Act, 1949:

  • A member shall be deemed guilty of professional misconduct if they contravene any provisions of the Act, regulations made thereunder, or guidelines issued by the ICAI Council.
  • Non-compliance may lead to penalties under Clause (1) of Part II of the Second Schedule of the Chartered Accountants Act, 1949, which may result in professional misconduct charges.
  • For further information or clarification, refer to the ICAI’s official announcement or the detailed Guidance Note available on the ICAI website.
  • As per Clause (1) of the Part II of Second Schedule of the CA Act, 1949, a member of the Institute, whether in practice or not, shall be deemed to be guilty of professional misconduct, if he contravenes any of the provisions of this Act or the regulations made there under or any guidelines issued by the Council.
/ Business Registration Services

Overview Udyam Registration Process for MSME

Udyam Registration

Overview Udyam Registration Process for Micro, Small, and Medium Enterprises

Udyam Registration process is a streamlined, mandatory online registration introduced by the Ministry of MSME in India. This process, which replaced the Udyog Aadhar Memorandum, began on May 13, 2020, and became mandatory from July 1, 2020, for all MSMEs. The process simplifies the registration for MSMEs by requiring only self-declaration without the need for document uploads.

This process of online registration is self-declaration based, so no documents or certificates are required to be uploaded.

As of July 1, 2020, all entities that fall under the Ministry of Micro, Small, and Medium Enterprises category must undergo Udyam Registration to avail of the associated benefits. The Ministry of Micro, Small, and Medium Enterprises Sector is vital for employment generation and economic growth in India, making Udyam Registration crucial for these enterprises.

By completing the Udyam Registration, Ministry of Micro, Small, and Medium Enterprises can ensure they are recognized by the government and are eligible for various schemes and support designed to enhance their growth and sustainability.

Benefits of Udyam Registration:

Access to Government Schemes :

Eligibility for Schemes: Udyam registration is essential for Ministry of Micro, Small, and Medium Enterprises to access various government schemes provided by the Ministry of MSME. These include:

    • Credit Linked Capital Subsidy: Helps Ministry of Micro, Small, and Medium Enterprises upgrade their technology by providing financial assistance.
    • Credit Guarantee Scheme: Provides collateral-free loans to Ministry of Micro, Small, and Medium Enterprises, reducing the financial burden and risk.
    • Public Procurement Policy: Ensures a certain percentage of government purchases are from Ministry of Micro, Small, and Medium Enterprises, promoting their products and services.
  • Financial Support and Incentives: By registering under Udyam, Ministry of Micro, Small, and Medium Enterprises can tap into these initiatives, gaining financial support and incentives that are crucial for their growth and sustainability.

Seamless Integration

  • Integration with Government Systems: The Udyam portal is integrated with key government systems, such as:
    • Income Tax Portal
    • GST Identification Systems
    • Government e-Marketplace (GeM)
  • Streamlined Processes: This integration simplifies various administrative tasks, allowing Ministry of Micro, Small, and Medium Enterprises to manage financial and tax-related affairs more efficiently.

Priority Sector Lending

  • Special Lending Consideration: Udyam-registered Ministry of Micro, Small, and Medium Enterprises are eligible for priority sector lending from banks, meaning they have better access to credit facilities.
  • Favorable Terms: This access often comes with more favorable lending terms, supporting Ministry of Micro, Small, and Medium Enterprises in their business expansion and investment plans.

Extended MAT Credit

  • Extended Carry Forward: Ministry of Micro, Small, and Medium Enterprises with Udyam registration can carry forward MAT credit for 15 years, compared to the previous 10 years.
  • Tax Benefits: This extension provides significant tax benefits, aiding in better financial planning and long-term stability for the business.

Lower Interest Rates

  • Reduced Financial Burden: One of the most significant advantages of Udyam registration is the ability to secure bank loans at lower interest rates.
  • Competitive Rates: Typically, Ministry of Micro, Small, and Medium Enterprises can avail of loans with interest rates as low as 1% to 1.5%, reducing their overall financial burden and increasing their capacity to invest in business growth and innovation.

Entities Eligible for Udyam Registration:

  • Private Limited Companies & Public Limited Companies
  • Associations
  • Proprietorships
  • LLPs (Limited Liability Partnerships)
  • Co-operatives
  • Other entities as specified

Eligibility Criteria of Udyam Registration:

  • Micro Enterprises:
    • Investment in plant & machinery or equipment should not exceed INR 1 Crore.
    • Annual sales/ turnover should be less than INR 5 crore.
  • Small Enterprises:
    • Investment should not exceed INR 10 Crore.
    • Annual sale/ turnover should be below INR 50 Crore.
  • Medium Enterprises:
    • Investment should not exceed INR 50 Crore.
    • Annual sales/ turnover should be below INR 250 Crore.

Steps for Udyam Registration:

  1. Visit the Udyam Registration Portal:
    • Go to the official Udyam Registration portal here.
  2. Aadhaar Validation:
    • For new entrepreneurs who haven’t registered as Ministry of Micro, Small, and Medium Enterprises, click on the appropriate link.
    • Enter your Aadhaar number & generate an OTP, which will be sent to your Aadhaar-registered mobile number.
  3. Permanent account number Verification:
    • Once the Aadhaar is validated, you will be redirected to the Permanent account number verification page. Enter your Permanent account number details & validate.
  4. Filling in the Details:
    • Provide the necessary details, such as the type of enterprise, industry, investment, turnover, and other relevant information.
  5. File & Receive Udyam Registration Certificate:
    • After completing the form, File it. The Udyam Registration certificate will be sent to your registered email address.

Udyam Registration Certificate

  • The Udyam Registration Certificate is an official document issued to MSMEs in India after completing the Udyam Registration process. The Udyam Registration Certificate is issued online and includes a dynamic QR Code, which provides easy access to all relevant details about the registered enterprise. Udyam Registration Certificate registration helps Micro, Small, and Medium Enterprises avail of various benefits offered by the government, including subsidies, financial assistance, and easier access to loans.

Renewal of Udyam Registration

  • Once a Micro, Small, and Medium Enterprises obtains an Udyam Registration Number, it is permanent and does not require any renewal. This feature eliminates the need for periodic renewals, allowing businesses to focus on growth & development without worrying about renewing their registration.

India Financial Consultancy corporation Pvt Ltd offers expert assistance for obtaining MSME registration. They provide comprehensive support, making the registration process seamless and stress-free. With extensive experience in company registrations and compliance matters, India Financial Consultancy corporation Pvt Ltd ensures that the process is handled efficiently, allowing businesses to focus on their core activities. If you need assistance with Ministry of Micro, Small, and Medium Enterprises Registration or have any specific questions, feel free to reach out to India Financial Consultancy corporation Pvt Ltd or another trusted service provider.

Our areas of specialization encompass:

ROC compliance

  • Company formations
  • Annual filings with the Registrar of Companies
  • Statutory audits
  • Income tax planning and preparation
  • Income Tax Audits
  • GST compliance, including registrations, returns, and refunds
  • Expertise in accounting and bookkeeping
  • Preparation of CMA and project reports for banking purposes
  • Issuance of net worth and turnover certifications
  • Provision of various CA certifications
  • Assistance with licensing and registrations, such as MSME, ISO, FSSAI, IE Code, and registration under 12AA & 80G, among others.
/ ITR

Guide to Choosing Correct ITR Form for Stock Market Income

Type of ITR

Guide to Choosing Correct ITR Form for Stock Market Income

For those whose yearly income exceed the basic exemption limit, they must file an ITR. To finish the electronic filing of their income tax returns, taxpayers must fill out a variety of paperwork. These ITR forms are divided according to the type of income. But each situation requires a different ITR form, so choosing the right one can be difficult.

For salaried individuals who earn money from intraday stock exchange or futures and options (F&O) trading, it is important to file the correct Income tax return form to accurately report your income. Different Types of Income Tax Return (ITR) forms and their respective uses:

ITR 1

  • Eligibility: Individuals residing in India with a total income of up to Rs 50 lakh.  Sources of Income: Salary, house property, and other sources. Not Applicable for: Non-Resident Indians (NRIs). Salaried taxpayers can file ITR-1 using Form 16.

ITR 2

  • Individuals and Hindu Undivided Families (HUF) with income from sources other than business or profession.  Sources of Income: Salary, house property, capital gains, and other sources.
  • Can be filed by salaried people who have made profits or losses from stock purchases and sales. NRIs earning from similar sources may also use ITR-2.

ITR 3

  • Individuals with income from business or profession.  Form ITR-3 is specifically designed for this purpose. Individuals can use Income tax return form  ITR-3 to report income from the following sources:
    1. Salary: Income from your job or employment.
    2. House Property: Income from real estate.
    3. Capital Gains: Profits from the sale of assets such as stocks or property.
    4. Business or Profession: Income from a business or trade, including presumptive income.
    5. Other Sources: Any additional income, such as interest or dividends.
  • Salaried individuals earning from intraday stock exchange or futures and options trading should file ITR-3. Using ITR-3 ensures comprehensive reporting of your diverse income streams, which is crucial for accurate tax filing and compliance.

ITR 4

  • Eligibility: Individuals, HUFs, and partnership firms subject to a presumptive taxation system.
  • Sources of Income:
    • Business with turnover up to Rs 2 crore (section 44AD).
    • Profession with turnover up to Rs 50 lakh (section 44ADA).
  • Usage: Freelancers in notified professions can use ITR-4.

F&O Transaction and 44AD

ITR 5

  • LLPs, partnership firms, Association of Persons (AOP), and Body of Individuals (BOI). ITR 5 filling required  To disclose profits from businesses and professions, as well as other sources of income.

ITR 6

  • Companies (excluding those claiming exemption under section 11). ITR 6 filling required to report income from industry or profession and other forms of income.

ITR 7

  • Entities including companies, partnerships, and trusts exempt from paying income tax. ITR 7 filling required, Income tax dept Govt tax return for exempt entities like NGO or NPO etc

ITR Form

Summary of Income tax Return From to use for reporting stock market income.

who required to file itr

Choosing the correct ITR form is crucial for accurate reporting of your stock market income. If you are unsure which form to use, it is advisable to consult with your Chartered Accountant to ensure a smooth and correct filing process. Choosing the correct ITR form is crucial for accurate tax reporting. which ITR form to use for reporting stock market income. To clear up any confusion, here is a quick summary are mention here under :

  • Salary + Capital Gains: Use Income tax return form ITR-2
  • Salary + Capital Gains + Intraday Trading: Use Income tax return form ITR-3
  • Salary + Capital Gains + F&O Trading: Use Income tax return form ITR-3 (or ITR-4 if opting for presumptive taxation)
  • Only Intraday Trading: Use Income tax return form ITR-3
  • Only F&O Trading: Use Income tax return form ITR-3 (or ITR-4 if opting for presumptive taxation)
  • Salary + F&O Trading: Use Income tax return form ITR-3 (or ITR-4 if opting for presumptive taxation)
  • Salary + Intraday Trading: Use Income tax return form ITR-3

Consequences and Solutions for Filing the Wrong ITR Form

Filing the incorrect Income Tax Return (ITR) form can lead to several complications. Understanding these and knowing how to rectify them is crucial to avoid penalties and ensure compliance. By understanding these consequences and solutions, you can ensure compliance with tax laws and avoid potential issues with the Income Tax Department. Here’s what happens and how you can address the situation:

What is the Consequences of Filing the Wrong ITR Form? 

  1. Rejection of ITR:
    • The Income Tax Department may reject your return if it’s filed in the wrong form. This causes delays in processing and can lead to penalties for late filing if the mistake is not corrected promptly.
  2. Scrutiny or Assessment:
    • Filing with the wrong form could trigger additional scrutiny from tax authorities, They might request you to re-file using the correct form, potentially causing further delays and complications.

What is solutions to Address Filing the Wrong ITR Form? 

  1. Revised Return:
    • If you identify the error before the ITR filing deadline (typically July 31st for most taxpayers), you can file a revised return using the correct form. There’s no limit on the number of revised returns you can submit within the assessment year, allowing you multiple opportunities to correct mistakes.
  2. Defective Return Notice:
    • If the error is identified by the tax department after the deadline, you might receive a “defective return notice” under Section 139(9) of the Income Tax Act. You are given 15 days to rectify the mistake by filing a revised return. If needed, you can request an extension for this period. Timely rectification ensures your return is processed correctly and helps avoid penalties.
/ Audit

Provision of Presumptive Taxation Scheme in India

FAQ’s on Tax Audit  Under Income Tax Act

All about the Provision of Presumptive Taxation Scheme in India

Presumptive taxation allows small taxpayers to declare income at a prescribed rate without the burden of maintaining detailed books of accounts and undergoing audits. This scheme simplifies tax compliance for eligible businesses and professionals under sections 44AD, 44AE, and 44ADA of the Income Tax Act. These scheme enabling them to declare income at a prescribed rate without maintaining detailed books of accounts. However, it is essential to understand the conditions and thresholds under sections 44AD, 44AE, and 44ADA to ensure compliance and avoid penalties.

According to Income tax Small taxpayers can pick presumptive taxation schemes in India :

  • Presumptive Income Tax u/s 44AD – For Business Income
  • The Presumptive Income Tax u/s 44AE- For Select Businesses
  • Presumptive Income Tax u/s 44ADA- For Professional Income

presumptive taxation scheme..

Following Change Come in In the Budget 2023 Updates related to sections 44AD, 44AE & 44ADA

  • Section 44AD: Threshold limit increased from Rs. 2 crores to Rs. 3 crores if cash receipts do not exceed 5% of total receipts.
  • Sec 44ADA: Threshold limit increased from Rs. 50 lakhs to Rs. 75 lakhs if cash receipts do not exceed 5% of total receipts.

Tax Audit Form Update for the AY 2024-25.

Presumptive Taxation under Section 44AD

  • Resident individuals, resident HUFs, resident partnership firms (excluding LLPs) who have not claimed deductions under sections 10A, 10AA, 10B, 10BA, and sections 80HH to 80RRB.
  • Eligible Business: Any business except: Businesses covered under Section 44AE. Agency business. Business of commission or brokerage.
  • Total turnover or gross receipts not exceeding Rs. 2 crores (increased to Rs. 3 crores as per Budget 2023 if cash receipts do not exceed 5% of total receipts).
  • Prescribed Income:
    • 6% of total turnover or gross receipts received by account payee cheque/bank draft, ECS through a bank account.
    • 8% of total turnover or gross receipts in all other cases.
  • Additional Provisions: No other deductions for business expenses. Written down value of assets computed as if depreciation is claimed. Higher income can always be declared. Advance tax payable by March 15th; interest levied for non-compliance.

Presumptive Taxation Under Section 44AE

  • Eligible Taxpayer: Any taxpayer owning not more than 10 goods carriages at any time during the tax year (ownership includes goods carriages taken on hire or installment). Eligible Business: Business of plying, hiring, or leasing goods carriages.
  • Prescribed Income: Rs. 1,000 per ton per goods carriage for heavy vehicles per month or part thereof. Rs. 7,500 per goods carriage for other vehicles per month or part thereof. Calculation based on the period the goods carriage is owned.
  • Additional Provisions: Salary and interest paid to partners deductible if the taxpayer is a partnership firm. Advance tax paid in four installments as per standard provisions.

Presumptive Taxation Under Section 44ADA:

  • Resident individuals or resident partnership firms (excluding LLPs) engaged in professions such as legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, or other notified professions.
  • Total gross receipts not exceeding Rs. 50 lakhs (increased to Rs. 75 lakhs as per Budget 2023 if cash receipts do not exceed 5% of total receipts).
  • Prescribed Income: 50% of total gross receipts.
  • Additional Provisions: No other deductions for business expenses. Written down value of assets computed as if depreciation is claimed. Higher income can always be declared. Advance tax payable by March 15th; interest levied for non-compliance.

Presumptive Taxation Scheme under Section 44AD, 44AE and 44ADA

What is the consequences of Claiming Lower Profit u/s 44AD, 44AE & 44ADA?

  • In case Claiming Lower Profit under Section 44AD: If income is claimed lower than the prescribed rate, regular books of accounts must be maintained and audited if income exceeds the basic exemption limit. Failure to continue with the scheme for 5 years after opting in requires maintaining regular books and audit if the total income exceeds the exemption limit.
  • In case Claiming Lower Profit under Section 44AE & 44ADA: If income is claimed lower than the prescribed rate, regular books of accounts must be maintained and audited if income exceeds the basic exemption limit.

Tax Audit rule

Frequently Asked Questions related to u/s 44AD, 44AE & 44ADA

  • Can I opt for benefit under Section 44AE without owning a goods carriage?

No, you must own at least one goods carriage.

  • Can I opt for both Section 44AD & 44ADA?

Yes, if you have income from business and specified professions.

  • Will I be allowed deductions under Sections 80C and 80D if I opt for presumptive taxation?

Yes, deductions under Sections 80C and 80D are allowed.

  • Is it compulsory to opt for Section 44AE if I own 6 goods carriages?

No, it is optional. Opting out requires maintaining books and possibly an audit.

Presumptive-Taxation-Scheme.

/ DTAA

Taxation of foreign companies in India

I Tax

Complete Understanding the taxation of foreign companies in India

Understanding the taxation of foreign companies in India involves navigating through various legal provisions, especially those pertaining to residency, types of income, and the applicability of Double Taxation Avoidance Agreements (DTAAs). Understanding the taxation regime in India for different types of companies and their residency status is crucial. For foreign companies operating in India, understanding the interplay between domestic tax laws, DTAAs, and various provisions concerning income and residency status is crucial. Resident companies are taxed on their global income, while non-resident companies are taxed only on income earned in India. The presence of a Permanent Establishment (PE) significantly affects the tax treatment of a foreign company’s income in India. Additionally, compliance requirements like obtaining a PAN are mandatory for companies with PE, ensuring proper filing and adherence to Indian tax laws.

1.     Residential Status and Tax Liability- Importance of Residency Status for Companies in India

Taxation under the Income-tax Act, 1961, hinges on residential status, determined by PoEM for companies. Resident companies are taxed globally, whereas non-residents are taxed only on Indian income. PoEM involves detailed factors and guidelines to establish residency, posing practical challenges for foreign companies, especially in terms of depreciation claims, loss set-offs, and tax credit entitlements. The CBDT guidelines aim to mitigate these challenges, but additional regulations are necessary for comprehensive clarity.

The tax liability of a person under the Income-tax Act, 1961, is determined based on their residential status:

  • Resident: Taxable on global income.
  • Non-Resident: Taxable only on income received, accrued, or arising in India.

Resident Company: Taxed on worldwide income.

  • Non-Resident Company: Taxed only on income received in India or income that accrues, arises, or is deemed to accrue or arise in India.

Residency and Taxation

  • Resident Companies
    • Indian companies or those with POEM in India.
    • Taxed on global income.
  • Non-Resident Companies
    • Foreign companies with POEM outside India.
    • Taxed only on income received, accrued, or arising in India.

PAN Requirement

  • Mandatory PAN:
    • Foreign companies with PE in India.
    • Required to file income tax returns in India.
  • Not Mandatory for PAN:
    • Foreign companies without PE in India earning income through royalties or fees for technical services.

Detailed Criteria under Section 6(3)

  • Indian Company (Section 6(3)(i)): Always resident in India.
  • Foreign Company (Section 6(3)(ii)):
    • Turnover exceeds INR 50 crore: Resident if POEM is in India.
    • Turnover less than INR 50 crore: Non-resident.

2. Residency Criteria for Companies (Section 6 of Income Tax Act)

  • A company is resident in India if:
    • It is an Indian company.
    • Its place of effective management (POEM) in that year is in India.
  • Place of Effective Management (POEM): Location where key management and commercial decisions necessary for the business as a whole are made. Applicable for companies with turnover exceeding ₹50 crores in a previous year.

Historical and Current Determination of Residential Status

  • Historical Basis: Previously determined by the ‘control and management’ test, where a company was resident if its control and management were situated in India during the whole of the previous year.
  • Current Basis (Post Finance Act, 2017): Determined by the Place of Effective Management (PoEM). A company is resident if PoEM is in India.

PoEM Definition: The place where key management and commercial decisions necessary for the conduct of the business as a whole are made.

Factors to Determine PoEM

Based on judgments from Indian and foreign courts and OECD guidelines, the following factors help determine PoEM:

  • Location and the business transacted.
  • Identifying critical policy decisions versus routine operational decisions, who makes these decisions, and where.
  • Intensity of deliberations on proposals.
  • Location where executive officers exercise their functions.
  • Location where records are kept.
  • Jurisdiction of incorporation and its laws.

Additional Statutory Safeguards

  • The test for control now emphasizes substance over form, incorporating court-affirmed practices legislatively.
  • CBDT Guidelines: Circular No. 6 of 2017 provides administrative guidelines on determining PoEM, including analysis of active and passive income and the delegation of powers by the Board of Directors.

Effect of Having PoEM in India

If a foreign company is deemed a resident due to PoEM in India, it is taxed on its global income, but practical challenges arise, such as:

  • Depreciation Claims: Based on tax records in the foreign jurisdiction or books maintained as per foreign laws.
  • Loss Set Off: Based on brought forward losses as per tax records or books in the foreign jurisdiction.
  • Treaty Entitlement: Entitlement to tax credits per DTAA or the Act.
  • Different Financial Years: Foreign companies must align their financial year to match India’s April-March tax year.

Guidelines Issued by CBDT (Section 115JH)

  • Depreciation Allowance:
    • Assessed in Foreign Jurisdiction: WDV from tax records on the 1st day of the previous year.
    • Not Assessed: WDV from books maintained as per foreign laws.

  • Set Off of Losses:

    • Assessed in Foreign Jurisdiction: Year-wise brought forward loss or unabsorbed depreciation.
    • Not Assessed: Year-wise brought forward loss or unabsorbed depreciation as per books.
  • These provisions assume foreign jurisdictions follow similar tax systems, which may not always be the case, necessitating further CBDT rules for divergent systems.
  • Tax Credit for Foreign Taxes: Based on DTAA or the Act, foreign companies can claim credit for taxes paid in other countries.

3. Definition of a Foreign Company

  • Foreign Company (Section 2(23A)): A company that is not a domestic company.

4. Tax Rates for Foreign Companies

  • Basic Tax Rate: 40% on business income.
  • Surcharge:
    • 2% if income exceeds ₹1 crore but not exceeding ₹10 crore.
    • 5% if income exceeds ₹10 crore.
  • Health and Education Cess: 4% on the total of income-tax and surcharge.
  • Effective Tax Rates:
    • Between ₹10 million and ₹100 million: 42.432%
    • Above ₹100 million: 43.68%

5. Minimum Alternate Tax (MAT)

  • MAT does not apply to foreign companies from DTAA countries.
  • MAT exemptions apply to royalties, fees for technical services, interest, and dividends even if no DTAA exists.

MAT Rates for Foreign Companies

Particulars Income up to INR 10 million Income between INR 10 million and INR 100 million Income in excess of INR 100 million
Foreign Companies 15.60% 15.912% 16.38%
(Breakdown) (15% + 4% HEC) (15% + 2% surcharge + 4% HEC) (15% + 5% surcharge + 4% HEC)

 

6. Taxable Income for Foreign Companies in India

  • Income received in India.
  • Income accrued or arising in India.
  • Income deemed to be received, accrued, or arising in India.

7. Double Taxation Avoidance Agreement (DTAA)

  • Foreign companies in DTAA countries can opt for provisions more beneficial under either Indian tax laws or DTAA.
  • Requirements for DTAA Benefits:
    • Tax Residency Certificate (TRC) from the country of origin.
    • Permanent Account Number (PAN) in India.

8. Taxation on Specific Incomes

  • Royalties and Fees for Technical Services (FTS):
    • Tax rate: 20% from 1.4.2024.
  • Dividends:
    • Tax rate: 20%.
    • For units in International Financial Services Centre (IFSC) from 1.4.2024: 10%.

9. Permanent Establishment (PE) in India

  • Definition: A fixed place of business in another country that results in income tax liability in that country.
  • Types of PE:
    • Fixed Place PE
    • Service PE
    • Agency PE
  • Taxation with PE: Business income derived from PE is taxed as business income in India.
  • Taxation without PE: Income such as royalties and fees for technical services is subject to TDS as per ITA or DTAA.
  • PE Concept: Critical for determining tax obligations under DTAA.
    • Business profits, royalties, and FTS are taxed at 40% if PE exists.
    • Concessional rates apply if no PE exists (e.g., 20% for royalties and FTS).

10. Business Connection, Anti-Avoidance Rules, and Multilateral Instrument (MLI) Agreements

  • These provisions ensure that DTAA benefits are utilized in good faith as per the intent of the Indian government.
  • Business Connection: Relates to the presence and operations in India influencing tax liabilities.
  • Anti-Avoidance Rules and MLI: Prevent tax evasion and ensure adherence to international tax agreements.

11. Tax Rates for Foreign Companies

Tax Rates for Different Types of Companies

  • Wholly Owned Subsidiary (WOS) and Limited Liability Partnership (LLP)
    • Treated as resident companies in India.
    • Taxed on their global income.
  • Project Office, Branch Office, and Liaison Office
    • Treated as foreign companies.
    • Taxed only on income received, accrued, or arising in India.

Foreign Companies –Income Tax Rates

Particulars Income up to INR 10 million Income between INR 10 million and INR 100 million Income in excess of INR 100 million
Foreign Companies 41.60% 42.432% 43.68%
(Breakdown) (40% + 4% HEC) (40% + 2% surcharge + 4% HEC) (40% + 5% surcharge + 4% HEC)

 

IFCCL provide the following Taxation and compliance Services in India.

Pan, Tan, IEC Registation, MSME Registration, LUT, GEM Registration, GST Registration, Shop & Established Registration, GST Registration, GST Return, TDS Return, INCOME TAX RETURN (INDIVIDUAL & COMPANY BOTH), All other compliances consultancy

/ GST

Introduction of Form GSTR-1A under GST

Online utility of Traces(TDS), income tax, GST, ESI, PF

Introduction of Form GSTR-1A under GST

The introduction of GSTR-1A is a significant step towards enhancing the GST return filing system, providing taxpayers with more flexibility and accuracy in reporting

In the 53rd GST Council Meeting, Union Finance Minister Nirmala Sitharaman proposed the introduction of GSTR-1A, a new optional facility designed to facilitate amendments in FORM GSTR-1. This initiative aims to streamline the GST return filing process and provide taxpayers with a more efficient mechanism to ensure accuracy in their tax declarations.

By enabling same-period amendments and automatic liability adjustments, GSTR-1A aims to simplify the process and reduce compliance challenges, ultimately leading to a more efficient and reliable GST framework.

Currently, amendments to GSTR-1 can only be made in the subsequent return period. GSTR-1A will allow amendments within the same month, providing greater flexibility and immediacy in correcting errors. GSTR-1A facilitates the amendment or addition of records after the initial filing of GSTR-1 and before the filing of GSTR-3B. This new form is designed to streamline the amendment process, making it simpler and more efficient.

Key Proposals and Features of GSTR-1A

  • Any changes made in GSTR-1A will be automatically reflected in GSTR-3B. This ensures that the liability calculated is accurate and up-to-date, reducing the chances of errors and mismatches.
  • Taxpayers can make modifications within the same return period, ensuring that the corrections are timely and reducing the administrative burden of carrying forward adjustments to subsequent periods. Amendments and additional declarations can be made within the same tax period. These changes are to be made before filing FORM GSTR-3B, ensuring that all corrections are reflected accurately in the monthly return.
  • GSTR-1A allows for the reporting of amendments or missed records before the filing of GSTR-3B. This feature ensures that all necessary corrections are made promptly, leading to more accurate and reliable data reporting. The new facility aims to reduce errors and discrepancies in GST returns. By allowing same-period modifications, it helps in maintaining accurate and timely tax records.
  • Any amendments made through GSTR-1A will automatically update the liability calculations in FORM GSTR-3B. This feature helps in maintaining the consistency and correctness of the tax data submitted.

Benefits for Taxpayers

  • Errors can be rectified within the same month, improving the accuracy of returns and reducing compliance risks.
  • Automatic adjustments in GSTR-3B minimize discrepancies and ensure that the liability calculations are correct.
  • By allowing same-period modifications, the process becomes more straightforward, reducing the administrative burden on taxpayers.
  • The ability to report missed records or amendments efficiently before filing GSTR-3B simplifies the overall return filing process.

53rd GST Council Meeting – New form, GSTR-1A

  • The GST Council is considering the, in its upcoming meeting. This form aims to streamline the GST filing process by allowing taxpayers to amend and declare additional details to their previously filed Form GSTR-1. This enhancement is designed to improve the accuracy and transparency of GST returns. By enabling amendments and supplementary information declarations, GSTR-1A will provide a way to rectify errors or omissions in the initial GSTR-1 submission, significantly reducing discrepancies and enhancing compliance.
  • Additionally, the implementation of GSTR-1A is expected to facilitate the locking of Form GSTR-3B, a summary return filed monthly by taxpayers. This locking mechanism will ensure that the data in Form GSTR-3B is consistent with that in Form GSTR-1, thereby reducing potential mismatches and subsequent disputes. This move is part of broader efforts to improve the GST system’s efficiency and reliability.
  • The 53rd GST Council Meeting is also anticipated to discuss reducing the pre-deposit requirement for appeals to 7%, which would ease the burden on taxpayers seeking to challenge assessments.

Key Points and Actions Related to GSTR-1A

  • Action Timing and Process : After the due date for GSTR-2 (15th of the subsequent month), taxpayers can begin reviewing and acting on the details auto-populated in GSTR-1A.
  • Changing Status: Taxpayers can change the status (accept, reject, pending) as many times as needed before submitting GSTR-1A. Once submitted, the statuses cannot be altered.
  • Modifications Post-Submission: No modifications to invoices or details are allowed once GSTR-1A is submitted.
  • Enabling the Submit Button:  Taxpayers need to select the acknowledgment checkbox for the SUBMIT button to be enabled.
  • Handling Auto-Populated Amendments : Accepting or Rejecting Amendments: When GSTR-1A includes auto-populated amendments (table 5A, table 8(1A)), taxpayers must review these amendments and can either accept or reject the related documents (invoices, credit notes, debit notes).
  • Non-Permitted Actions: Restrictions: Taxpayers cannot add new invoices & Taxpayers cannot modify changes or additions made by recipients.

GSTN issue advisory on B2CL reporting issue which we have raised in this video.

GSTN issue advisory on B2CL reporting issue

Kindly file your GSTR 1 very carefully

Conclusion 

The reintroduction of GSTR-1A in 2024 represents a significant improvement in the GST return filing process. By allowing taxpayers to update and amend sales details within the same period and facilitating a structured process for accepting or rejecting buyer’s amendments, GSTR-1A ensures more accurate and reliable GST compliance. This interactive and detailed approach helps maintain consistency between seller and buyer records, ultimately contributing to a more robust and efficient GST framework.

IFCCL provide the following Taxation and compliance Services in India.

Accounting, Llp incorporation, Pvt ltd incorporation, NGO incorporation, Public limited incorporation, Trademark registration, Nidhi registration, Shop and establishment registration, Gem registration, ESi and EPf registration, Fassai, DSC , All other compliances consultancy