10 lakh exemption

This query is : Resolved

P.B.1234

P.B.1234 (Querist)
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10 October 2012 Suppose there is a proprietorship firm which pays its service tax regularly and the returns are also filed regularly.Now if the firm is converting into a partnership firm and a fresh registration is obtained under a new registration no. can it avail the benifit of of exemption up to Rs.10 lakh?

Madhukar N Hiregange

Madhukar N Hiregange (Expert)
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10 October 2012 Yes as it is a separate legal entity. A partnership and prorietor are distinct unless the same has been created with the sole purpose of avoiding the ST in which case the SC decision in Mc Dowells case maybe applicable..

Sunil

Sunil (Expert)
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10 October 2012 If you make a firm it is finally an arrangement or agreement for distrubtion of profits or revenue between the partners. The salary payable to partner in a firm is not employer employee relationship and is a business income liable to service tax. The responsibility of service tax lies on firm so there is no real benefit even of 10 lakhs in this case.

Now regarding revenue sharing, as firm is not an incorporated entity like a company, firm has to pay service tax on the service it renders. The partners also have to pay service tax on their share of the revenue and charge it to firm. Firm can claim set off for this.

As LLP is an incorporated entity this will not apply to LLP.

Therefore I suggest you do not do anything to dodge service tax. You may start swimming in other problems.

If you incorporate a company or llp, you may be fine but you will have other compliance problems. You have to weigh all these factors before doing anything.

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