Setting up propritership and individual impact

Raising invoices is easy but when you pay back the amount back to the company, it will create an income for the company, and so how does the company benefit here? The company is diverting its income to reduce tax but here the income is diverted and coming back to them from a proprietorship concern floated by you.

Without more info and clarity, difficult to know in what way it could be risky for you.

No, the intention here for creating this propritership is not to divert money to avoid tax. Company is open to and intended to show all this money as it's own and do necessary tax processing and other stuff. This money needs to come in my name, due to business process compulsion and hence cannot be avoided.

Now that money needs to come to my account I have following options:

1. Now I have two options, either to take it directly into my bank account and pay taxes on it showing it as my incomes and return remaining to company. This I don't want to do. Also company loses significant amount due to my tax slabs payment.

2. Get money in my account and return 100% to company and do not show it as my income. This might create alert and issue for Income Tax Questioning and to avoid this I can have a decleration from company that this money belong to them and have been returns to them and they would be doing all necessary processing.

3. I get a propritership in my name, get all money in this propritership. Company raises invoices on this propritership for services and I return all money to them. All remains legal and valid. My only concern here is, do I have any personal risk that I should take care of over here?

I hope I am more clear this time, please let me know if any other specific input is required here. Please note all money would be in USD and hence have high visibility.

Thanks. The 3rd option is safer.

You may open a proprietorship concern, open a separate current account and also gumasta along with all the stationary. But all this will increase your workload because you will be required to maintain proper books of accounts, along with all the bills, invoices, income, expenses, etc, and if the volume is large, then may even have to get the accounts audited. Then you may accept invoices of the company and pay back.

You will also need a good CA who may guide you in handling USD transactions in your current account and its effect in your ITR. And in case the company wants you to enter into some sort of contract with itself or any third party, then consult a lawyer.  

Hi Mihir,

Thanks for your additional inputs. Few more clarification I would request.

1. Why is Gumasta needed in particular? Isn't propritership formation not sufficient? I am not an expert and few you could explain use and need for Gumasta, I would be highly oobliged.

2. Yes, I understand the needed for constant paperwork and time needed. This would be something that would be handled by office guys along with Audit need if needed and also CA services as needed.

3. There would be some contract between my propritership and company to facilitate exchange of invoice and money. Do I need a lawyer service here to specifically look into contract? Also do I need separate CA services for USD transaction even though I will transfer all money to company?

Looking forward to your valuabe inputs, it has helped really.

Thanks

If you are carrying out any commercial work/activity from a particular premises, then you will need gumasta or shop and establishment license. You can take it in your proprietorship concern name by applying at your municipal office.

A separate CA is required to handle USD transactions in your current account since there are many RBI guidelines which you will have to follow with the help of a CA.

Lawyers input in the contract between the proprietorship concern and the company will be valuable, as the company is not likely to look at the contract from your prespective.

Mr. Mihir,

Thanks a lot for your inputs. I now have much better idea what needs to be done and how to be approached for this solution if I want to go ahead with this solution. Couple of last inputs needed, if you could spare some time.

1. Understand that RBI has strict guidelines for USD handling and hence need for CA. Can you please point out couple of such guidelines which if I ignore could be harmful for me.

2. Same for lawyer, couple of example of situation/rules which I might ignore or company might ignore in general sense while a lawyer might be able to help me out on this.

Thanks

You will have to consider the following points:

1) Raising invoices for service provided might attract service tax. So take service tax number.

2) The payment received will attract TDS deduction.

3) You may open EEFC account with the bank.

4) Exit clause in the agreement will have to be added including dispute resolution.

5) If the company is a pvt ltd, then one has to create accountability on the company in case the directors, who may be the signatories of the agreement, resign from the company.

6) You making payment to company might attract TDS deduction. So take TAN number.

The rest will be known when it all starts. All the best.