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Basic questions for proprietorship startup

Adi (Mr) (30 Points)

29 November 2016

Have few basic questions for Proprietorship Startup.

1- is it mandatory for us to deduct TDS on all payments? including employees?

2- Do we also need to deduct Professional Tax on employee salaries?

3- What other complainces needs to be taken care for Proprietorship companies which are mandatory?

Also any state/city specific rules to follow? based in Mumbai.

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8 Replies

Hitesh Khanna (Accounting & Finance Taxation Company Law Audit ) (839 Points)
Replied 29 November 2016

1. TDS deduction is subject to the monetary limit as outlined by the governemnt from time to time. So it is not mandatory to deduct TDS on all payments.
Refer an updated TDS chart for Clarity.

2. Yes its a must to deduct proesional Tax on emplooyees salaries. However the basic amount of salary which us exempt varies from state to state..

Adi (Mr) (30 Points)
Replied 29 November 2016

Originally posted by : Hitesh Khanna
	1. TDS deduction is subject to the monetary limit as outlined by the governemnt from time to time. So it is not mandatory to deduct TDS on all payments.Refer an updated TDS chart for Clarity.2. Yes its a must to deduct proesional Tax on emplooyees salaries. However the basic amount of salary which us exempt varies from state to state..

Thanks for your reply,

Can you share the limit for TDS deductions? also what would be Professional Tax deducted from Salary if company is operating from Mumbai? Any chart for reference?

Hitesh Khanna (Accounting & Finance Taxation Company Law Audit ) (839 Points)
Replied 29 November 2016

You can aerach the files section and you may get what you are asking for

Adi (Mr) (30 Points)
Replied 29 November 2016

I was hoping that I could get a clear answer from someone here.

CMA Poornima Madhava (CMA) (13097 Points)
Replied 29 November 2016

On certain nature of payments (falling u/s 194J, 194C, 194A, 194H, 194I), you need not have to deduct tax at source if tax audit u/s 44AB is not applicable to you for the preceding FY. For all other payments, tax to be deducted at source as per applicable provisions. That means, you need to deduct tax at source on salary payments if exemption limit (for employee) exceeds.
Registration under Professional Tax is necessary and it varies from state to state. Slab rates for deduction of PT varies from state to state. Refer Maharashtra PT website for more details.
You might also have to obtain registration under Shops & Establishment Act, VAT (ST/PF/ESI only if applicable) etc
PAN card of proprietor can be used for the purpose of business.
If required you may open a separate bank account in the name of the business for ease of operations
Obtain TAN for the purpose of deduction/payment of tax at source and for filing necessary TDS returns, etc

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Adi (Mr) (30 Points)
Replied 29 November 2016

Originally posted by : Poornima Madhava
	On certain nature of payments (falling u/s 194J, 194C, 194A, 194H, 194I), you need not have to deduct tax at source if tax audit u/s 44AB is not applicable to you for the preceding FY. For all other payments, tax to be deducted at source as per applicable provisions. That means, you need to deduct tax at source on salary payments if exemption limit (for employee) exceeds. Registration under Professional Tax is necessary and it varies from state to state. Slab rates for deduction of PT varies from state to state. Refer Maharashtra PT website for more details. You might also have to obtain registration under Shops & Establishment Act, VAT (ST/PF/ESI only if applicable) etc PAN card of proprietor can be used for the purpose of business. If required you may open a separate bank account in the name of the business for ease of operations Obtain TAN for the purpose of deduction/payment of tax at source and for filing necessary TDS returns, etc

Thanks for giving detailed understanding of my problems.

few questions

1- How to check if we are eligible for tax audit or not?

2- We are into servicing industy (Software development), have just 5-10 employees, do we need to enroll for professional tax, esic, etc?

3- Our payments usually for to freelancers, employees, rent, internet, electricity, software license purchase, etc. So would we need to deduct TDS and if yes how much %?

CMA Poornima Madhava (CMA) (13097 Points)
Replied 29 November 2016

Tax Audit u/s 44AB applicability: In case of business, if the turnover/receipt during the previous year is >1 crore; In case of profession, receipts during PY is >25 lacs. For more details, refer section 44AB of IT Act
You need to register under PT even if you have 1 person employed in your company (unless you don't fall in the exemption category like senior citizen etc). If you have >=10 employees, then registration under ESIC is required (for PF: employees >=20)
TDS rates vary according to nature of expense. For professional charges @ 10%, employeers @ slab rates etc, rent of building @ 10% (after exceeding threshold). For details, you may refer to the sections of TDS (specified by me above).

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Adi (Mr) (30 Points)
Replied 29 November 2016

Ok so as I can understand, we only need to deduct TDS from salary since our turnover is not that much. And regarding ESIC, I checked their website FAQ section and this is what it says. Is it still applicable for our business i.e. Software developing company?

"7. WhataretheestablishmentsthatattractcoverageunderESI?

According to the notification issued by the appropriate Government (Central/State) concerned under Section 1(5) of the Act, the following establishments employing 10 or more persons attracts ESI coverage.

(i) Shops
(ii) Hotels or restaurants not having any manufacturing activity, but only engaged in

'sales'.
(iii) Cinemas including preview theatres;
(iv)Road Motor Transport Establishments;
(v) News paper establishments.(that is not covered as factory under Sec.2(12)); (vi)Private Educational Institutions (those run by individuals, trustees, societies or

other organizations and Medical Institutions (including Corporate, Joint Sector, trust, charitable, and private ownership hospitals, nursing homes, diagnostic centers, pathological labs). "