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Licenses for Small Indian Businesses
The Indian governments, both state and central, have never been particularly good at informing new entrepreneurs of the licenses they would need while starting up. As a result, many operate in an unorganised manner (that is, without many of the licenses). But most businesses do want to comply with the law. So here’s a list of licenses a small business (whether service or manufacturing) needs to comply with the law:
1. PAN Card:
All businesses, whether in the name of a proprietor or entity, need to have a PAN card or Permanent Account Number card. This number is to be quoted for all payments. Therefore, it is to be quoted while opening a bank account, payment of service tax and just about anything else related to business.
Required by: All businesses
2. TAN:
All legal bodies that will be paying salaries, commissions, interest or dividend need a TAN, as it is to be quoted on deducted tax at source. Therefore, any company, proprietor, government body, would need a TAN. The Tax Deduction and Collection Account Number is a 10-digit alphanumeric code can only be approved when the business has a PAN in its name.
Required by: All businesses paying salaries, commissions, etc.
3. Service Tax:
Service tax is an indirect tax imposed by government on services; it came into existence under the Finance Act, 1994. It is required by any organisation providing taxable services over Rs. 9 lakh, but service tax need only be collected from customers once revenues hit Rs. 10 lakh per annum for the first time. The service provider pays the tax to government after collecting it from consumers at the current rate of 14.5 per cent. Once payment is collected, it needs to be deposited every month to government, which also requires all such businesses to file returns twice a year, in April and October.
Required by: All service providers
4. VAT & CST:
a) VAT Frequently referred to as sales tax, VAT or Value Added Tax is a form of indirect tax levied at various stages of production of services and goods. It is also imposed on imported goods as well but the same rate as that of local product is maintained. VAT is imposed on value addition at every phase of production. The final consumers will be the ultimate bearers of this tax. This is an indirect but coherent form of taxation and involves transparency so that it is easily understandable. Registration is required once revenues of the business cross Rs. 5 lakh per annum
b) CST Or Central Sales Tax: Central Sales Tax is another form of sales tax in India, levied when goods travel inter-state. In fact, it is quite similar to the typical sales tax imposed by governments around the world on the sale of produced goods as a way of generating considerable revenue to the government. This tax is applicable to both imported goods and goods sold within the country. Applications for VAT and CST can be completed simultaneously.
Payment must be made to government on the VAT/CST collected every month; returns must also be filed monthly. To get this registration, you would, however, need a commercial establishment.
Required by: All manufacturers and traders, as well as some service providers, such as air conditioned restaurants.
Also Read: Why You Have To Register Your Startup As LLP !
5. Professional Tax:
A profession tax registration must be obtained in every jurisdiction in which a business has offices within 30 days of employing a person there. Business owners must deduct professional tax at the rate specified by the state from employee salaries and pay it to the state government or municipal authorities. Returns must also be filed on the amount every month.
Required by: All employers
6. Shops & Establishments Act:
The Shops and Establishments Act regulates conditions of work, lists rights of employees in the unorganised sector and provides a list of obligations for every employer. It applies nationwide to shops, commercial establishments, hotels, restaurants, eating houses, theatres and other places of public amusement or entertainments. Every shop and establishment is required to register itself under the Act within 30 days of commencement of work, whether or not it has employees.
Required by: All establishments.
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About The Author:
Hrishikesh Datar, Founder and Chief Executing Officer at Vakilsearch, from National Law School, Bangalore, leads the company’s business from the helm. His insights about the business and his in-depth knowledge of the industry contribute extensively to the strategic vision of the company. So appreciated was his idea of online legal assistance that CNBC TV18 featured Vakilsearch on its longest running entrepreneurial show, Young Turks. As part of the long term plan, Hrishikesh is constantly trying to identify the next innovation in legal professional service delivery. With unbound support from the team, Hrishikesh has taken on the challenge of building a billion dollar company in India which aims to change the way consumers in India view legal professional services.