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"Starting up a business as an Individual - A Sole Proprietorship"

Sole proprietorships are a single person run and owned businesses. Sole Proprietorships are one of the easiest & simplest form of running a business. There is no formal procedure for registeration of sole proprietorship. The business is run under the PAN of the proprietor. Proprietor and the proprietorship are a single entity under Income Tax.

However to open a current account with a bank in the name of sole proprietorship KYC norms require, a registeration certificate of the sole proprietorship as a proof of name, address & activity of the sole proprietorship concern. Following are the possible options of registrations for a sole proprietorship depending on the nature of business:

  1. Service Tax Registeration : If you have a business of providing services, you should get a service tax registration. Service tax registration is mandatory if the value of services in an year are more than 9 lacs.
Once registration of service tax taken, it is mandatory to file service tax return on a half yearly basis even if value of services is not in taxable range(ie. Rs. 10 lacs)
  1. VAT / TIN /Sales Tax Registration: If you are in trading or manufacturing business you need to get a VAT registration. VAT is state government tax so each state Government has distinct rules depending on the type of goods manufactured or sold.
On getting registered for VAT, a unique 11 digit registration number is allotted which serves as a VAT/ CST/ TIN(Tax Identification number) number for the business. Thus now VAT registration is also used as CST registration or TIN registration.
  1. Shops & Establishment Act: If you plan to set a shop or a commercial establishment & employ people you should get a Shops & Establishment registration. Every State has its own rules & procedures regarding it. 
  1. Professional Tax: If you are in a practising profession like chartered accountant, lawyer, doctor etc. you need to get a professional tax registration & pay professional tax. Professional tax is by state governments and not all the states impose professional tax.
  1. Employees Provident Fund(EPF): If you are having more than 20 employees you need to get registered with EPFO. Contribution to EPF is mandatory for the people having salary upto Rs. 6500 & its the duty of employer to deduct & deposit the EPF contribution of employee.
  1. Employee's State Insurance (ESI): If your establishment employs 10 or more person then you are covered under ESI Act & need to get the ESI registration. The minimum number of employees is 20 in case of hotels, restaurents, hospital, newspaper establishments, cinemas, road motor transport undertakings. 
Note: 14 states have already reduced the above coverage limit of employees from 20 to 10 employees and remaining states are also expected to reduce this limit to 10 employees.
  1. Central Excise: Excise is a tax levied on manufacture of goods. If you are into the manufacture of excisable goods you may need to go for excise registration.
  1. Importer Exporter Code (IEC): If you are planning to go international with your business you will need Importer Exporter Code (IEC). IEC is required if your are planning to import/export goods or services.
Advantages of Sole Proprietorship:
  • All Deductions of chapter VI (Section 80C, 80D & so on) for tax savings are applicable. 
  • Proprietor & proprietorship being treated as a single entity so no seperate returns needed. 
  • Easy to start & easy to close.
  • NRIs & PIOs can also start a sole proprietorship with the approval of RBI. However profits can not be repatriated.
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