A checklist for all you need to do before you start up

With the Central government's Make In India initiative supporting startup hubs, there is a greater push for business in the country currently.

But, in order to achieve a strong foundation for your business, you not only need to have a proper plan but also appropriate guidance to get it done.

Forgetting legal compliance may lead you to some unavoidable troubles in the business down the line.

Let’s have a look at some aspects of business that a startup needs to understand and conform to:

The first step is the constitution of business.

If you are two persons starting a business, then you have the option of setting up a Private Limited or Limited Liability Partnership (LLP) and if you are a one-man army, then go for a One Person Company (OPC).

There are a few basic compliances to be followed after getting your company registered.

One such is the PAN card, which is the basic necessity for any business entity. It fulfills two purposes simultaneously:

1. You got yourself registered under Income Tax Department
2. It’s the basic document needed at every stage of your business. For example: opening a bank account, other tax registrations etc.

Once you have registered your company, the next step would be the tax registration of your entity. This depends on the nature of your work or business line.

Are you a trader or a service provider?

In other words, are you dealing with products or are you in the nature of rendering services to outside the market? Or maybe you are going for both.

If you are dealing in the products, you need to have a tax registration called VAT (Value Added Tax) which was previously known as Sale Tax. VAT is an indirect, State-level tax which comprises of small amount of percentage of sale you need to deposit to the State government, which is ultimately collected by the customer on every sale invoice you raise.

Although each State has prescribed its own limit for the mandatory registration under VAT, anyone who wishes so, can take the registration on voluntary basis. For example, D-VAT (Delhi-VAT) has a prescribed turnover limit of Rs 20 lakh. In other words, as you cross the sales values of Rs 20 lakh, it becomes mandatory for your company to get itself registered under D-VAT. There are many other benefits to D-VAT registration when companies opt for voluntary registration.

Now coming to tax registration for service providers like you a professional consultant or technical supporter..

Let’s go through the technical meaning of 'service' as defined by

Clause (44) of Section 65B of Finance Act, 1994 (as introduced by the Finance Act, 2012 i.e. 01.07.2012):

“Service means any activity carried out by a person for another for consideration and includes a declared service, but shall not include-

(a) An activity which constitutes merely,-

(i) A transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or

(ii) Such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of Clause (29A) of Article 366 of the Constitution; or

(iii) A transaction in money or actionable claim;

(b) A provision of service by an employee to the employer in the course of or in relation to his employment;

(c) Fees taken in any court or tribunal established under any law for the time being in force.”

The government has clearly stated a negative list which concludes that anything not on the list is covered under Service Tax.

Like VAT, Service Tax also has an option of mandatory or voluntary registration. The government has prescribed a limit of Rs 9,50,000/- for mandatory registration. Voluntary registration can also be opted at any point of time as it has its own benefits.

The journey of legal compliances never ends, but few basic compliances are required to be followed by any startup.

As your company grows, a regular maintenance of legal compliances by experts becomes important to have an impermeable legal safeguard shelter.