Prop to Pvt Ltd

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Ram Gupta (Querist)

30 June 2023 i am converting my proprietorship business (95Lakh turnover) to private limited,
1st is trading of scrap (kabad) (putta, metals etc) , do i need to charge TCS in pvt ltd.
2nd is should i need to deduct TDS and TCS everytime before i pay to someone,
3rd is i pay my parites (purchases) in cash, does making it pvt ltd will impact it?

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)

10 July 2024 Converting your proprietorship business to a private limited company involves several considerations regarding tax compliance and operational procedures. Here are answers to your questions:

1. **TCS (Tax Collected at Source):**
- TCS provisions generally apply to specified transactions, such as sale of certain goods including scrap (kabad). If your business is involved in trading scrap, you may need to collect TCS under Section 206C of the Income Tax Act, 1961. As a private limited company, the TCS provisions will apply similarly to how they applied to your proprietorship.
- Ensure compliance with TCS requirements by registering for TCS, collecting tax at the specified rates, and remitting it to the government within the prescribed timelines.

2. **TDS (Tax Deducted at Source):**
- As a private limited company, you'll be required to deduct TDS from payments made to parties under specified conditions as per the Income Tax Act, 1961. TDS is applicable when making payments such as salaries, rent, professional fees, etc., exceeding specified thresholds.
- Ensure compliance with TDS provisions by obtaining a TAN (Tax Deduction and Collection Account Number), deducting TDS at the prescribed rates, issuing TDS certificates, and remitting TDS to the government within stipulated timeframes.

3. **Impact on Cash Payments:**
- Paying parties (purchases) in cash as a private limited company may be subject to stricter scrutiny, particularly concerning compliance with tax laws and the Prevention of Money Laundering Act (PMLA).
- It's advisable to transition towards digital payment methods to enhance transparency and comply with legal requirements.

4. **Overall Transition:**
- Converting to a private limited company offers benefits such as limited liability protection, easier access to funding, and enhanced credibility in the market.
- Ensure all regulatory requirements are met during the transition, including registration with the Ministry of Corporate Affairs (MCA), obtaining necessary licenses and registrations, and compliance with tax laws applicable to private limited companies.

For specific guidance tailored to your business's unique circumstances, consulting with a qualified chartered accountant or tax advisor would be beneficial. They can provide detailed advice based on your business activities, turnover, and other relevant factors.

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