FREQUENTLY ASKED QUESTIONS
The Answers You Need
HOW TO START A NEW BUSINESS?
To start a new business, first of all, you have to decide the form of business – Proprietorship/ HUF/ Partnership/ LLP/ Company. After you decide the form of business, the next step is to decide the name and nature of your business and then register your business with various government authorities as per the legal requirements. Finally, open a bank account of your firm and you are ready to go!
WHICH FORM OF BUSINESS ORGANISATION SHOULD I PREFER – PROPRIETORSHIP, HUF, PARTNERSHIP, LLP OR COMPANY?
There isn’t a straightforward answer to this question. You have to decide the constitution of your business depending upon many factors, like:
Expected size
Nature of business/ profession
Target customers/ clients
Number of verticals/ branches/ division
Sources of finance
Tax Impact
Financial viability
Hence, you have to evaluate each and every factor in advance and then decide upon the form of your business. You have to select the constitution of your business very wisely, otherwise, it could prove to be a costly affair to convert it into another form in future.
WHAT IS “REGISTRATION”?
In simple words, Registration means entering your name in a list maintained by a department/ institution. The government has prescribed many rules and regulations according to which you have to compulsorily get yourself registered. However, there is not a single department for “Registration”. First of all, you have to check whether you are actually liable for registration with a particular department or not. If you are liable to be registered, then you have to follow their prescribed rules for registration.
Many different government departments are applicable to a business entity, like the Income Tax Department, Registrar of Companies, Registrar of Firms, GST Department, PF, ESI and other State and Central Governmental Departments. All the departments have their separate laws, rules and regulations to be complied with.
WHAT ARE THE DIFFERENT TAXES THAT I HAVE TO PAY?
In India, there are many different taxes levied by state and central governments. Some of them are:-
Income Tax
Goods and Services Tax (GST)
Custom Duty
and many others…
AM I LIABLE TO PAY ALL THESE TAXES?
No! Each tax is governed by a separate statute and you have to check the applicability as per their legal provisions.
WHAT WILL HAPPEN IF, IN FUTURE, I WANT TO SHUT DOWN MY BUSINESS PERMANENTLY?
Winding up procedure is different for each form of business. If you plan to close down your business, you have to pay all your due taxes, file all your pending Returns, and then surrender your Registrations with the appropriate authorities. Winding up procedure should be completed properly to avoid future liabilities and legal notices.
WHAT IS INCOME TAX?
Income Tax is a tax levied on your Income. You have to pay tax to the Government on your Income as per the tax rates applicable to you under the Income Tax Act, 1961. However, there is an exemption limit for individuals and HUF upto which you don’t have to pay any Income Tax.
WHAT IS PAN CARD?
PAN Card is a Permanent Account Number issued by the Income Tax Department. It is required to file your Income Tax Returns and for some specified financial transactions.
WHAT IS INCOME TAX RETURN (ITR)?
Income Tax Return is a disclosure of all your incomes that you have earned in the past financial year to the Income Tax Department. You have to report all your income, like Salary, Rental Income, Profit/ Loss from Business, Capital Gains, Interest, etc. in the Income Tax Return and the income tax payable thereon.
SHOULD I FILE AN INCOME TAX RETURN (ITR)?
If you are an individual or HUF, then it is compulsory for you to file your Income Tax Return if your Income exceeds Rs. 2,50,000 in a financial year. However, if your income is below Rs. 2,50,000, then you may file your Income Tax Return voluntarily. (The limit is Rs. 3,00,000 and Rs. 5,00,000 for Resident Senior citizens and Very Senior citizens respectively).
If you are a Company, LLP or Partnership Firm, then you have to compulsorily file your Income Tax Return even if there is no income during the financial year.
WHAT IS THE DIFFERENCE BETWEEN “FINANCIAL YEAR” AND “ASSESSMENT YEAR”?
“Financial Year” (FY) means a period of twelve months starting from 1st April and ending on 31st March. For example, the year starting from 1st April, 2019 and ending on 31st March, 2020 will be called as Financial Year 2019-20.
“Assessment Year” (AY) is used only for Income Tax purposes. It is the year just after the Financial Year in which you have earned your income. For example, for the income earned in Financial Year 2019-20, the Assessment Year will be 2020-21. Hence, it is one and the same thing, whether you call it as Financial Year 2019-20 or Assessment Year 2020-21.
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