Income Tax & Accounting Queries for Conversion of Sole Proprietorship to a private limited company
This query is : Open
04 May 2022
HI,
In October 2021, I converted my Sole Proprietorship business to a Private Limited Company.
Queries :
1. Whether I have to file 2 Income tax returns for FY 2021-22 i.e for Sole proprietor as well as company? If 1 return is to be filed, whether income from sole proprietorship business to be reflected in Books of Accounts of the Company?
2. I was using my Old GST number till February 2022. Will that have any penalty?
3. Please explain the accounting treatment in both entity's books
In October 2021, I converted my Sole Proprietorship business to a Private Limited Company.
Queries :
1. Whether I have to file 2 Income tax returns for FY 2021-22 i.e for Sole proprietor as well as company? If 1 return is to be filed, whether income from sole proprietorship business to be reflected in Books of Accounts of the Company?
2. I was using my Old GST number till February 2022. Will that have any penalty?
3. Please explain the accounting treatment in both entity's books
04 May 2022
1 Two returns has to be filed.
To form a private limited company from a sole proprietorship, the procedure is to first form the private limited company and then take over the sole proprietorship through a Memorandum Of Association (MoA) and transfer all benefits and liabilities to the limited company.
2 In such a case account the sales and income under prop and pay taxes.
To form a private limited company from a sole proprietorship, the procedure is to first form the private limited company and then take over the sole proprietorship through a Memorandum Of Association (MoA) and transfer all benefits and liabilities to the limited company.
2 In such a case account the sales and income under prop and pay taxes.
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05 May 2022
If Pvt Ltd is incorporated in October , 2021 and if you are using Old GST registration till February then it's. compliance lapse.
To which account payment is received for invoices after October,2021 ?
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05 May 2022
Hi Eshwar,
Payment is being received in Sole Proprietorship business bank account.
Are there any consequences or penalties for this compliance lapse?
Payment is being received in Sole Proprietorship business bank account.
Are there any consequences or penalties for this compliance lapse?
05 May 2022
No penalty if you're using prop GST number and paying GST and filing GSTR timely.
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05 May 2022
@Romil Shah
If invoice is raised from proprietorship and payment also received in proprietorship bank account then it is fine ...
If proprietorship business was converted to Company then how come you continued the proprietorship?
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05 May 2022
@Eshwar : 1. My CS had not applied for cancellation of GST registration.
2. Neither did he apply for new bank account.
Will there be any penalty?
2. Neither did he apply for new bank account.
Will there be any penalty?
05 May 2022
@CA R SEETHARAMAN : I will have to account for all incomes and expenses in the books of Sole Proprietor till Feb 2022 right?
05 May 2022
@CA R SEETHARAMAN : My friend has also advised me to carry on the accounting treatment as described in ICAI Module - Accounting for Pre & Post Incorporation profit. Is it correct?
05 May 2022
Yes, you will have to account for all incomes and expenses in the books of Sole Proprietor till Feb 2022.
Small private limited company no need to follow ICAI module.
From March account it in company books.
Small private limited company no need to follow ICAI module.
From March account it in company books.
Message likes :
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05 May 2022
@Romil Shah,
Do you mean company has zero income till February ?
05 May 2022
@Romil Shah
Follow the advice as given by above member.
My observation is :
If the proprietorship is transferred/ converted to Pvt Ltd then why the invoices were not raised in the name of company from October ,2021?
Message likes :
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05 May 2022
@Eshwar Reddy S : I can only say it was laziness on the person handling invoicing. I just want to know are there any legal consequences because of this ?
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