>> ANOOP: So this is going to
help them in a huge way. So for 30K, I will get a deduction of 4.5K
according to 15% in my profit computation. This is called adjustment of GST credit input... The ones who are viewing this are going to
get advisory worth LAKHS! in this video. >> RISHABH: If you'll google 'Proprietor
ship registration', then you'll get many listings quoting from a thousand rupees
to ten thousand bucks. But I'll guide you on how you can register
proprietorship and that too free. You have to just do that. Hey Bhagwan, Buss Meri Proprietorship
Register Karwa Do! And it will be registered! [ Intro Music ] Hey Jagruk Janta, Welcome to Ep: 2 of
Business Basics Series by LLA. So if you are a Proprietor of any firm or by
watching our previous video, you have decided

To register proprietorship then in this video,
 I am going to tell you everything about it. This video will talk about what are the
required registrations, tax & GST compliances, what are the labour law compliances, some 
financial terms that you must know, and if you are a salary or government employee,
 then you can do business or not? Whether you have to maintain a
 balance sheet or not. About all these things, we will
 talk about in the video. So watch this video carefully. If you want
to start a proprietorship firm, I have invited CA. Anoop as a guest speaker
 for this video to better guide about this topic. << ANOOP: Greetings friends, Myself
CA. Anoop Bhatia. So as I said, I am a Chartered Accountant, and my 
main work is about taxation and advisory. I hope that in today's video, I will be able to guide
 you about income tax and provide some value.

>> RISHABH: This video can be a little long and complex. So we have provided the Timestamps in the video's description so that you can jump around the video. How to open a bank account? The foremost requirement of a business in today's era is a Bank A/c so that you can take digital transactions. So now I'll tell you how to open your Bank A/c in a proprietorship firm. So I have told you at the beginning of the video that in proprietorship you don't need another kind of special registration. As a person, if you have a PAN card, you can anyway start a venture. 
>> ANOOP: I suggest people open a current A/c while doing a venture and not use Savings A/c. This will benefit you a lot from an Income Tax point of view. Because in a saving A/c, we do transactions in volumes and the income tax department interprets Savings A/c that is your account for savings as the name suggests. Then how you started a business from that.

If you want to do business, then open a Current A/c and through it do the transactions. And now someone will say to me that Bhatia sir, I am just doing some small transactions. Or I do business with only Rs 5-7 Lakh. I don't say that you should not use Savings A/c. But if you are specifically a businessman and do volume transactions, then Current A/c is recommended. RISHABH: Next comes that you have to do the firm's name different from your name. You have to do this when your business is actually growing, and you are hiring employees, etc. Assume that if you have a business like coaching or grocery, then in these cases you can't do many transactions with your personal name and want to register a proper name for the firm. You'll need a certificate to register your firm's name, in which you have received it by your firm's name. For example, My name is Rishabh, but I want to start my firm with the name 'Witbox media'.

Then I will require a certificate on which Witbox media is written. In this case, the easiest, which anyways is mandatory according to Labour Law compliances, if you are starting any business in India, except for a factory and that is of SHOP&EST Act. The fees and compliances are least in it, and most of the states have scraped the annual renewal. So you can take this. Many states it can be taken online or from a local dealer you can get, and it is accepted by most the private banks and they'll use it for your registration. Most of the public banks even don't ask for this also, and will open your A/c on MSME certificate, which can be easily taken online. If both of the certificates are not working for you, then only apply for GST certificate. Like for example, you want to take any contract or sell online then it is necessary. Otherwise, you should not take the GST certificate if your threshold is not crossed about which will talk later.

Because you'll be able to sell your goods and services for a comparatively low price. For example, you want to sell a digital course, then its price for B2C will be increased by 18% if you had registered for GST from the start. That's why the gov. has set a limit for small businessmen. Once they have grown their business, they can do this compliance then. So to open a Bank A/c you have your PAN... >> ANOOP: A crucial thing that every individual must know is that the proprietor and his firm don't have Separate PAN cards. Means whenever I'll file ITR, all my businesses will be reported in one ITR only. >> RISHABH: You'll require any one of those certificates from the three and address proof. But if on your name there is no rented property then, I can give you two suggestions. Either you can take one particular room on rent in your house from your parents if they are the owner.

For your personal uses, and that rent agreement can be used as an address proof. Or you can take an internet or postpaid connection on your name, so its bill can be used as an address proof. And one more thing, if you are starting a business with your firm's name, then also get the seal of this format. When to take G.S.T.? So you opened your bank account and grow the business, then when do you have to take the GST certificate? In some conditions, you have to take GST compulsorily even if you don't want it. But apart from that, you'll need GST when you'll start making turnover over a specific limit. This depends on the nature of your business. Whether you sell goods or services, you have to identify this. If you have a grocery shop or a dealership, then you are selling goods. But digital courses and consulting are services, even online freelancers. >> ANOOP: So if you have a turnover above 40 Lakhs, then you are liable for GST compliance.

If your service provider, then you are liable for it once your turnover reaches 20 Lakhs. >> RISHABH: So once you cross a certain threshold, then a GST certificate is necessary. Whether you fall in services or goods, apart from this, you have to note one more thing. You'll get GST registrations of two types for small businesses that are 'Regular' and 'Composite'. In composite nature, your compliances of GST rate is reduced. But you can't collect tax from your customers. And you have to pay a certain amount of GST on your overall income. So this is not recommended and you should only opt for this when record-keeping is impossible for you. Anoop has one more suggestion for you. >> ANOOP: Assume that you bought a mobile of Rs 10k and I also bought the same for Rs 10k. You are a GST trader, you'll get input for GST but I'll not because I am non-GST.

So when you'll sell me goods, so your way to charge and my way to charge will be different. RISHABH: So whenever GST is said, people always talk about input credit as a proprietor. You should know about it. ANOOP: I purchased goods worth Rs 100K. So 5% GST was applied, which means it cost me 105K. And I sold that same for 120K. When I sold goods worth 120K to a person, from x I bought. And sold it to y. So again 5% GST that is 6K. Now how much do I have to give to gov.? That's 6K. How much I have given already its 5K. Now you'll say in total it is 11K which is a big sum! What happened is that on purchase, I have paid 5K and on-sell of 6K. So they'll be adjusted.

So this is called adjustment of GST credit input. So, now I have to give only 1K to the gov. So on whom the ultimate tax is imposed?
- The one who is the ultimate buyer. Then what's the problem? Generally, people worry because the GST system works on credit. So if I sold someone on credit, and he doesn't paid me on time and I had to pay GST. Did you understand what I said? >> RISHABH: We doesn't receive money from him but we had to give the GST? >> ANOOP: He had taken credit from me for 3 months, and as I had given him the bill. Liability on me has made 6K minus 5K, so I had to give 1K to the government. So this is the one issue about which people worry a lot. So if you have a GST certificate, and you are buying some assets. For example, I bought a mic and camera.

So on the 28% GST is applied, so as a
business, I will get 28% input credit. And the GST that I am going to pay, against it, I can offset it as I have already paid
it while purchasing goods. So effectively if this camera is of Rs 60K,
then for me, it will cost around 40K. Should you make a balance sheet for your firm? Assume that you started an
online selling business. You purchased something for
Rs 100 and sold it for Rs 150. Apart from this, Rs 15 were packaging charges.
So if you sold it for 150 then you made a profit of 35. Finally, you have to pay tax on this Rs 35 only,
which you'll be able to find out from a balance sheet. >> ANOOP: I would suggest, if your volume are high means
at least in lakhs, where you want to see profit & loss, and want to understand what I have to report to Income
Tax, then it is better you maintain some accounts.

If you are a businessman and you exceed 2 crores, then you have to make an actual P&L and Balance Sheet. RISHABH: So in a crude form, you can maintain an excel sheet where you can put expenses & incomes. So from that, your CA will be able to form a Balance Sheet & P&L. Apart from this, a single person can make multiple firms with his name. Assume a person who has one mobile repair shop, a small restaurant which he had made separate proprietorship firms. So it is possible, and finally income from all the firms will be added to that person's income. Because PAN card is only one, but all can have different names & registrations. So it is a good practice to make a Balance Sheet. So I have told you all the expenses for your business-like travelling for some business work etc. This is all you can claim as business deductions only when you have proper bills and records.

Anoop Sir has a very interesting example to explain this thing. ANOOP: Suppose you are a salaried person and I am a CA. We both met at a petrol pump. To fuel our cars, You filled fuel of Rs 2K, so I said fill fuel of Rs 2K for me too. So that you don't think I earn less (Sarcasm) - (Laughs). For you fuel will cost Rs 2K. Then you'll say Bhatia Ji it will be same for you as well. No, Minus 30% and it will cost me Rs 1.4K and for you Rs 2K, so what it means? A salaried person doesn't get that many deductions which a businessman gets. Like me, I do audits. For which I have to travel, and for which I do need fuel, so I can claim that fuel in my P&L deduction. RISHABH: So if you want to work systematically then do make Balance Sheet of your firm.

As a proprietor, I have some important links for you that you can check out in the description. Now let's talk about the labour law compliances. All the businesses & entities are divided in two categories in Labour Laws. Either it will fall in Shop & Est. Act or it will fall in Factory. So if you are doing manufacturing. Otherwise, for all other businesses, whether it is consulting, shop, repair maintenance will fall in Shop & Est. Act. Other compliances will start when you'll hire your first employee. Then you have to register for Professional Tax & Labour welfare fund. In many states, it is applicable after the first employee. But in some states, it can be after 5-10 employees. Professional tax is also applicable if you are practising a profession singly like a CA or freelancer. After you cross 10 employees then you have to register for ESI and after 20 for EPF. You have also compliances like bonuses and gratuity etc after 20 employees.

Now, my suggestion will be if you are hiring 10 or more employees for your business. Then you should not do business in proprietorship. Simply form a partnership firm. You can make your family member a partner, you can give the stakes and make them sleeping partners. By this, at least you'll have a different PAN, because now all the portals like ESI, PF, etc. In that, your registration is done through PAN. And assume that if you have separate establishments. Then you'll not be able to take separate PF and ESI number and it will be very complicated also. In fact at the time of closure also you'll have many complications because how can you close your PAN. You can but dissolve a partnership firm and with that its PAN, GST will be surrendered and Bank A/c will be closed. But it gets very difficult in the case of proprietorship. So the suggestion is if you are working with 8-9 employees, then you can work in proprietorship.

After 10 generally, you should work by forming a partnership firm. And when you are your first employee, you should maintain his attendance and records in a proper format. So that it will help you in audits. For this, you can checkout LLA's Quick PayRoll App. Which is completely free to use, by using this app you'll be able to maintain your employee's record very easily. So you can check this from the link given in the description below. Now let's talk about tax compliances. First let's talk about compliances for income tax. ANOOP: Businessman as an individual, I have two options for ITR, ITR 4 & ITR 3 for businessman. RISHABH: So I already told you that, In viewpoints of income tax, You as proprietor don't have any difference with your firm. For your multiple firms only one PAN card will be used and that will be your PAN card.

So from this businesses income
 that you have generated, will be added in Income from Business section. And accordingly, you have to pay tax, which will
be according to your tax slab. But for small businesses, gov. has a scheme which
 is Presumptive Tax.  Understand this carefully as it
 can be beneficial for you. It says that on your overall income, a certain
percentage of it assuming your profit, pay tax on it. For example, you have inward receipts of 100K,
gov. says fix a certain percentage of it, assume 8%. And on that 100K, pay Rs 8K as tax and gov.
will accept your return asking no questions. Assuming that you have paid honestly. If your inward receipt is actually Rs 100K
and according to the x percentage you have filed your return, then no audits will be done on
 you, and you don't have to maintain books also. ANOOP: Assume that I have a grocery shop,
and in one year my sales were Rs 1.5 crores.

Then 8% of 1.5 crores, Rs 12 lakhs. I have to show as income. This is minimum, the government says you can show more also. But why show more? For example, assume for me left Rs 22 lakhs but can I show 12 lakhs? This is a crucial question on which right answers we get is very less. You should show income that is actually earned. Gov. says on 6-8% will accept it and don't bother you. Assume that in future I got caught with gold worth Rs 22 lakhs. But he filed returns for 12 lakhs. So rest 10 lakhs will be undisclosed income. So I am not giving a negative message. I am saying that many times people don't know their profit precisely. So gov. accepts this and says if you have turnover till 2 crores tell us your margin and escape. We will not ask many questions from you!

This section for businesses is known as Sec. 44AD. When your business's annual turnover is less than 2 crores, then you file your return in 44AD, in which you have to file ITR 4. So, on your overall turnover, pay 8% of its tax. Like if you are a trader and had done turnover of 1 crore in a year, assuming 8 lakhs your profit, pay tax on it, and gov. will accept your return. But this is different in the case of a professional. ANOOP: Who is a professional is not defined in income tax law, but a term is used in that. Specified professional, in which doctor, CA, CS, Advocates, Actors etc. or IT professionals, all these people are considered professionals. They are separated from businessman as a professional does not have that many expenses which a businessman has. In those cases, the 2 crore limit is reduced to 50 lakhs, and percentage set for presumptive tax is 50%.

>> ANOOP: Assume that I am a CA. and I receive receipts 
of Rs. 20 lakhs. I'll say 50% is my net income. So I told 10 lakhs and escaped. 
But in the case of businessmen, it is 6-8%. So if you fall into the regime of presumptive tax,
and filing your tax according to gov. slab, then you don't have to maintain your 
accounts and need any audit. Audit means you have to hire a CA firm and its
CA will come and certify your balance sheets. And if there is any mistake in 
that, it is their responsibility. So this will be your audited balance sheet. So you have to pay your tax according to
your annual profit but this doesn't mean that once the financial year is over you have
to pay tax than once. >> ANOOP: If your net tax liability is Rs. 10K or more,
then you have to do four times advance tax payment.

>> RISHABH: You get some relaxation when
you are filing your tax in a presumptive tax regime. Then on 15 March, you can pay your whole advance
tax. But you have only paid tax yet and not filed ITR. The last date to file ITR for non-audited persons
is 31 JULY, & for audited it's 30 SEPT. Although gov. gives an extension of
1-2 months in this. And this year because of covid-19,
you had got a very extension. Now let's talk about GST compliances. >> ANOOP: Four returns of GST are sent that are 
quarterly returns and one return is the annual return. Means in total five, and liability for GST
have to be paid monthly. This is the list of GST compliances that
you can see from here. Now, what is this TDS? All the employees that you have hired have
a high salary that they come in the taxable limit.

So their tax you have to cut and pay to the gov. And if you have hired a professional
and paying him more than 30K, Then his tax also you have to cut and pay to gov. And also on rent of factory
if rent is more than a certain limit. ANOOP: From the FY 2020, Gov. in TDS
provision has done substantial amendment. Now laws say that in any FY, Your turnover exceeds
1 crore than in this case, whether you are taking The benefit of 44AD, Then also as an individual
you have to cut TDS. Assume that someone has a turnover of 1.5 crore. And he says I'll only show 6% of income
as those are e-transactions. He has worked on a work contract and had given
work on a subcontract of Rs 50 Lakhs. So from those who he had given Rs 50 Lakhs. Work then from them he is liable to
cut TDS in Sec. 194c. 1-2%

This means an individual cannot escape
from his liability to cut TDS. This may sound complicated to you and
going to increase many compliances by your side. But for small businesses who have 
turnover less than 1 crore, TDS compliances is not mandatory for them. If your turnover exceeds 1 crore,
Then you must take TAN. And cut TDS for your employees, etc. This 1 crore limit for services
businesses are 50 lakhs. In income tax, first, you have to do
compliances against your PAN. Second, if your business crossed certain limits. Then you have to do GST compliances, and if
it crosses 1 crore or 50 Lakhs respectively, then TDS. So India is a cash economy, as a
lot business here is done through cash. Is it legal to take and make payments in cash?
- In most cases maximum limit for cash trans. is Rs 10K. Above it, if you do any transaction in cash, then you
will not be able to claim it as a business deduction.

There are some relaxation for those who are filing their return as presumptive tax, because anyways they don't have to maintain any records or balance sheets. So for them, there is no cash limit. ANOOP: Assume that I am a vegy seller. In the morning, I go to the market and my daily income is Rs 25K. I purchase veggies worth 20K and sell it around for 25K, and then go to the market again the next day. If I go there and say I will pay by check, then the farmer will refuse to take the check. Then for those people, this thing is going to support a lot provided his turnover is not above 44AD. You should understand one more concept, which is depreciation. What is the meaning of depreciation? ANOOP: Whichever asset you are using in business like gadgets, then all this can depreciate. If you are a businessman but when you are into 44AD, then depreciation is not allowed.

It is deemed to be allowed. But when you offer actual income, or if you say you don't want to fall under presumptive taxation, then whatever asset you bought. For example, I bought this phone, and let's assume it cost me 30,000 rupees. So for 30,000, I'll get the deduction of 15% in profit computation, which is Rs 4.5K. So that is how depreciation is allowed. For different assets, there is a different depreciation rate. For example, commercial building, it is 10%. For mobiles, plant & machinery, it is 15%. On vehicles, usually, depreciation rate is 15%. So accordingly, depreciation can be claimed. Can you start a business while in a job or if you are a government employee? And whether it is legal for government employees or not. So first let's talk about a salaried employee who is in the private sector. As because of getting paid less, they always keep looking for a side business.

So income tax law doesn't prohibit any salaried person to run a side business. If you'll talk to a CA, they get most ITR to file where along with salary income. There is some other source of income. You have to note that you need to do accounting of your salary separately from your business so that both don't mix and create a mess! Now, let's talk about government employees. In their case, it is morally wrong if you are doing a business. This is common practice in India that gov. employees are seen doing business in the name of their family members, but they can't run any proprietorship business on their names. Before ending the video, I have some personal suggestions for you. Also, I will tell you some cons of it about which you should be aware. 1# Don't wait for the year-end to make your balance sheet. Every month record your expenses and monitor your balance sheet so that you can plan your taxes. Most of the people

Do this mistake of planning all these things after
the march ends, and then they realize things like Our limit for taking GST registration is
already crossed etc. So start tax planning early. 2# Always maintain your bills and records
of the business, as today you have so many digital transactions because of which
you forget the purpose of the transaction. And after the year-end, you'll be frustratingly
searching it all around your email. So always maintain your bills and records 
and its purpose in a specific file. 3# Maintain your employee record properly, 
especially their attendance means their muster roll, their PF&ESI records, their salary slips, etc.,
should be properly recorded. This helps you to know how many employees you have hired till then, 
and you can do your compliances according to it. 4# If you want to do a big venture, 
then don't register for a proprietorship firm, because as a proprietor you are not different
from your firm. And if you default on a loan, then your

Banks and other financial institutions can recover it from your personal assets. But in the case of OPC and Pvt. Ltd., there is some kind of separation between you and your venture. What are the cons of a proprietorship firm? First, it is difficult to take a loan or any kind of financial assistance in this. The second is it is difficult to scale business in it and acquire funding as it is too risky. And nobody is going to bet on you, it is difficult to get loans and funding here. The third is the conversion of proprietorship into a different form of business entity is very difficult. As there are many things like goodwill and all which you can't quantify. And it is difficult to protect and continue your business if any mishaps happen with you. As in Pvt. Ltd., a new director is appointed but in proprietorship, it is not so that another proprietor will come. After the death of a proprietor, his firm gets closed. So if you are going to start your proprietorship business,

Then download the FREE Quick PayRoll App, which will help you from day one you'll
hire an employee. Do comment your questions related to 
Proprietorship in the comments below. So that's all for this video. Will meet in
the Ep:3 of Business Basics, which we will make probably on Pvt. Ltd.
or on partnership firm. Do give your suggestion in the comments on which we 
should make the video first. JAI HIND! JAI BHARAT! Audience will also say that Anoop has
done something commendable in this video.

Proprietorship Firm Full Details | Proprietorship Business Registration | Business Basics #2

Proprietorship Firm Full Details | Proprietorship Business Registration | Business Basics #2