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Types of Business entitiy models used in business

Have you always wanted to start a business and know more about the existing legal structures in India for the same? If yes, you have come to the right place. Here, we give you the top 5 business entity models currently in practice in India. Before registering your venture in the country, you may want to understand all these 5 structures thoroughly. This way, you can rest assured knowing that you have completed all the formalities, as the Government requires.

Sole Proprietorship Firm

Some of the key features of this business model are:

Entire control and management lies with one person

Great for setting up for a single person, producing goods that involve showcasing one’s personal skills or talents (making jewels, handicrafts, etc.)

Onus of running the business is on one person only

Only one person bears the losses and enjoys the profits

Limited capital requirement and few legal formalities to fulfill

There are quite a few professional and best business consultants in Delhi, who can help you more with the guidelines and support for setting up a sole proprietorship firm, if you are interested.

Partnership Firm

The features of a partnership firm are:

Started with a partnership deal between two people or more

Maximum no. of partners limited to 10 for banking business and 20 for other businesses

Ratio of sharing profits and losses are agreed initially in the contract termed, Partnership Deed

Not compulsory to register this firm

Ideal for small retail & wholesale businesses, small-sized manufacturing firms and more

Always look for the best business advisory firm in India for the right guidance on starting a business in India.

Private Limited Company

Some of the important points related to this business model are:

Ideal for Small or medium-sized businesses

of shareholders limited to 50

Can have external or foreign investors

Cannot invite the public to subscribe to the shares

Considered as a separate legal entity

Limited Liability Partnerships (LLP)

Some features of this model are:

New and flexible business model as an alternative to partnership firms

Perfect combination of unlimited personal liability and government regulations

No cap on minimum capital requirement or maximum number of owners

Public Limited Company

Here are the features of this model:

Ideal for large businesses

Can raise money from the public

No cap on the maximum no. of shareholders, but minimum no. of shareholders fixed at 7

Liability of shareholders limited to the extent of the value of their shares

Here, we have given you only a brief idea of India’s top business entity models. If you want to know more details on the legalities of these structures, or more about consulting businesses globally, you can visit here for all the information you require.

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Higher rate of TDS on sale of immovable property owned by NRI in India

This article covers in detail the applicability of TDS on Sale of Property by NRI in India. In this article, the following topics have been explained in detail.

Applicability of TDS on Sale of Property by NRI

What is the Rate of TDS on Sale of Property by NRI?

Amount on which TDS is required to be deducted

TDS Payment, TDS Return & TAN No.

How to Determine whether Seller is Resident or Non-Resident in India

Things to be taken care of by the Seller

Things to be taken care of by the Buyer

How to avoid Double Tax on sale of Property by NRI Seller in 2 Countries

Repatriation of Money outside India by NRI

Reduce your TDS Liability by filing application in Form 13

Applicability of TDS on Sale of Property by NRI

After the sale or purchase of property, a TDS deduction has to be made. The buyer deducts the TDS and then pays the balance when making the payment. The amount deducted has to be paid to the Income-tax department. When the seller is an Indian resident, TDS is usually one percent of the sale price. If the seller is a non-resident Indian, then TDS deducted is based on the quantum amount that the seller gets. This is to say that the TDS is calculated based on the seller’s residential status. 

What is the Rate of TDS on the Sale of Property by NRI?

Various rates are set to determine the TDS. For long-term capital gains, the rate is 20% if the property has been held for over 2 years. If it is short-term capital gains, then the seller’s income tax rates are applicable if the property has been held for not more than two years. For these amounts, surcharge are also levied. 

Amount on which TDS is required to be deducted

TDS deduction is a requirement by law falling under section 195. The deduction should be based on capital gains. Capital gains computations are done by an officer from the income tax department, and the application has to be made by the seller. After computation, the income tax department has to issue a certificate. 

TDS Payment, TDS Return & TAN No.

When a property is being purchased from a non-resident Indian, many compliances have to be met. One needs to have a TAN No for TDS deduction. However, the TAN No is not needed for resident Indians. The buyer needs to have this number. When TDS is deducted, it should get to the income tax department in 7 days from the month-end, when the deduction is made. Once the deposit has been made, the buyer must give the seller Form 16A. 

How to Determine whether Seller is Resident or Non-Resident in India

Residential status is based on the number of days a person usually spends in India. A residential status calculator can be used to determine this. Their citizenship doesn’t matter. For income tax purposes, if a person is an Indian citizen but lives abroad, he is non-resident because the Tax act mentions days, not citizenship. Even with the PAN and Aadhaar card, you may still be a non-resident. The banned account a seller holds also has no impact on their residential status.

Things to be taken care of by the Seller

They include a certificate from the relevant body to facilitate capital gain computation. Other documents like the date of purchase, purchase price, and expenses like construction and renovation need to be submitted together with form 13. The seller has to get form 16A. If there are two buyers involved, both need to submit form 13.

Things to be taken care of by the Buyer

The buyer must deduct TDS on each payment and deposit it to the income tax department. The buyer has to give the seller form 16A once the return has been made. There are penalties that the buyer could pay for being late with payments. 

How to avoid Double Tax on sale of Property by NRI Seller in 2 Countries

Some countries levy property sales regardless of location. This allows tax credits to reduce liability in this other country. There are double taxation avoidance agreements made in India and some other countries to avoid this. 

Repatriation of Money outside India by NRI

If money for property sale needs to be repatriated outside India, form 15CA and form 15CB have to be submitted by the NRI. The forms should be submitted to the bank after being generated from the income tax website. Disclosures should be made about the funds and tax declarations. 

Reduce your TDS Liability by filing an application in Form 13

Form 13 needs to be filled if one needs a TDS reduction for NRI property sale. One may have to get a chartered accountant to help with this as it can be very complicated. Indiabiz assist is the best to help in this area and ensure that all things are taken care of and that you are fully compliant.

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Claiming benefits of GST paid on business expenses

GST means a type of single tax which is levied throughout India. GST ensures all enjoy seamless credit flow as the benefit of tax.

An input tax credit means you can claim credit of GST that you’ve paid on buying goods and services used for the furtherance of a business organization. This input tax credit is considered the backbone or supporting system of GST and the prime reason for GST introduction.

What is input credit?

When you pay output tax, you can reduce the tax you’ve already paid on the inputs, known as input credit. For instance, if the tax payable for a manufacturer is ₹450 on the final output and the tax paid on input or purchase is ₹300. The manufacturer can claim an input credit worth ₹300 and must deposit only ₹150 as tax.

Who can claim the input tax credit on GST?

You can avail the input credit mechanism when you’re covered fully under GST Act. Therefore if you’re a supplier, manufacturer, aggregator, e-commerce operator, agent, or any other person registered under the GST Act, you will be eligible to claim this Input credit tax for taxes you pay on your inputs/purchases.

Input Tax Credit – 

CGST/ SGST/ UTGST/ IGST

There are mainly three components of GST-

CGST – CGST stands for Central Goods and Services Tax and is a central tax levied on intra-union territory or intrastate on the supply of goods and/or services.

SGST – SGST stands for State Goods and Service Tax and is a state tax levied on the supply of goods and /or services within a state.

IGST – IGST stands for Integrated Goods and Services Tax, an Integrated tax levied on inter-supply of goods and/or services.

A component- UGST or Union Territory Goods and Services Tax- is a union territory tax levied on the supply of goods and/or services within a union territory.

An input tax credit of the above components is done in the below ways-

The credit of IGST is allowed first for IGST payment and then for CGST payment. The balance is made for payment of UTGST Or SGST.

The credit of CGST is allowed first for CGST payment, and then the balance is used for IGST payment but not utilized for SGST payment.

The credit of UTGST/SGST is allowed first for payment of UTGST or SGST, and the balance is allowed for IGST payment but not for CGST payment.

Can a proprietor firm claim input tax on mobile phones and cars purchased for personal use?

No, the input tax credit can be taken only for those goods or services used in the furtherance of business operation. A proprietor can’t claim input tax on cars and mobile phones purchased for personal use as it doesn’t fall into the furtherance of business. So they can’t claim the credit.

-GST credit on hotel food bills

You can’t claim the input tax credit on hotel food bills as per section 17(5) of the CGST Act, which mentions that input tax credit can’t be available on food and beverages.

If you want to know about the input tax credit and itr filing, then seek professional help from financial advisors