Income Tax Calculator

Introduction

The Income tax calculator is an easy-to-use excel sheet tool that helps you estimate your taxes based on your income after the Union Budget is presented. We have updated our tool in line with the income tax changes proposed in the Union Budget 2020-21.

Income Tax Slab

You will be required to pay a tax depending on the income slab you belong to.

Income Tax rates applicable for individuals less than 60 years of age

Income Slab Applicable Tax Rate
Up to Rs 2.50 lakhs Nil
Above Rs 2.50 lakhs and up to Rs 5 lakhs 5%
Above Rs 5 lakhs and up to Rs 7.5 lakhs 10%
Above Rs 7.5 lakhs and up to Rs 10 lakhs 15%
Above Rs 10 lakhs and up to Rs 12.5 lakhs 20%
Above Rs 12.5 lakhs and up to Rs 15 lakhs 25%
Above Rs 15 lakhs 30%

Suppose you have a gross taxable income of Rs 7.50 lakhs after all the deductions/exemptions, your tax will be calculated as follows:

Income Slab Applicable Tax Rate Applicable Income Tax (in Rs)
Up to Rs 2.50 lakhs No tax 0 0
Above Rs 2.50 lakhs and up to Rs 5 lakhs 5% Rs 2.50 lakhs 12,500
Above Rs 5 lakhs and up to Rs 7.5 lakhs 10% Rs 2.50 lakhs 25,000
Total Tax Payable 37,500

Hence, you will be required to pay a tax of Rs 37,500 (excluding cess) on your gross taxable income i.e. Rs 7.50 lakhs.

Changes in Income Tax Rules

  1. Rebate under Section 87A changed from Rs 2,500 to Rs 12,500 or 100% of income tax (whichever is lower) for individuals with income below Rs 5 Lakhs (from Rs 3.5 Lakhs)
  2. Standard Deduction raised for Salaried & Pensioners from Rs 40,000 to Rs 50,000
  3. Increased Tax for super-rich: Surcharge increased to 25% for income between 2 to 5 Cr. & to 37% for income beyond Rs 5 Cr.
  4. Additional Tax Deduction of Rs 1.5 lakhs u/s 80EEA on home loans on purchase of affordable home
  5. Additional Tax Deduction of Rs 1.5 lakhs u/s 80EEB on Auto loans on purchase of Electric vehicles
  6. No Tax on Notional Rental Income from Second House
  7. Capital gains exemption on reinvestment in two house properties: Tax payers can now buy two houses on sale of 1 house if the capital gains are less than Rs 2 Cr.. This benefit can be availed only once in lifetime
  8. TDS threshold increased from Rs 10,000 to Rs 40,000 on Bank Interest Income

Income Tax Calculation

Income tax calculation for the Salaried an example for understanding:

Income from salary is the sum of Basic salary + HRA + Special Allowance + Transport Allowance + any other allowance.

Some components of your salary are exempt from tax, such as telephone bills reimbursement, leave travel allowance. If you receive HRA and live on rent, you can claim exemption on HRA. Calculate exempt portion of HRA, by using this HRA Calculator in excel.

On top of these exemptions, a standard deduction of Rs 40,000 was introduced in budget 2018. This has been increased to Rs 50,000 in budget 2019.

In case you opt for the new tax regime, these exemptions will not be available to you.

Let’s understand income tax calculation under the current tax slabs and new tax slabs (optional) by way of an example.

Monica receives a basic salary of Rs 1,00,000 PM. HRA of Rs 50,000 PM. Special Allowance of Rs 21,000 PM. LTA of Rs 20,000 PA. She pays a rent of Rs 40,000 PM and lives in Delhi.

Nature Amount Exemption/Deduction Taxable(Old regime) Taxable(New regime)
Basic Salary 12,00,000 12,00,000 12,00,000
HRA 6,00,000 3,60,000 2,40,000 6,00,000
Special Allowance 2,52,000 2,52,000 2,52,000
LTA 20,000 12,000 (bills submitted) 8,000 20,000
Standard Deduction 50,000 50,000
Gross Total Income from Salary 16,50,000 20,72,000

To calculate Income tax, include income from all sources as like below:

  • Income from Salary (salary paid by your employer)
  • Income from house property (add any rental income, or include interest paid on home loan)
  • Income from capital gains (income from sale purchase of shares or house)
  • Income from business/profession (income from freelancing or a business or profession)
  • Income from other sources (saving account interest income, fixed deposit interest income, interest income from bonds)

Monica has income from interest from savings account of Rs 8,000 and a fixed deposit interest income of Rs 12,000 during the year. She has made some investments to save income tax. PPF investment of Rs 50,000. ELSS purchase of Rs 20,000 during the year. LIC premium of Rs 8,000. Medical insurance paid of Rs 12,000. Here are the deductions she can claim under the old tax regime.

 

Nature Maximum Deduction Eligible investments/expenses Amount claimed by Monica
Section 80C Rs.1,50,000 PPF deposit Rs 50,000, ELSS investment Rs 20,000, LIC premium Rs 8,000. EPF deducted by employer(Neha’s contribution) = Rs 1,00,000 *12% *12 = 1,44,000 Rs 1,50,000
Section 80D Rs 25,000 for self Rs 50,000 for parents Medical insurance premium Rs 12,000 Rs 12,000
Section 80TTA 10,000 Savings account interest 8,000 Rs. 8,000

Calculation of gross taxable income in India (Old regime)

Nature Amount Total
Income from Salary 16,50,000
Income from Other Sources 20,000
Gross Total Income 16,70,000
Deductions
80C 1,50,000
80D 12,000
80TTA 8,000 1,70,000
Gross Taxable Income 15,00,000
Total tax on above (including cess) 2,73,000

Calculation of gross taxable income in India (New regime)

Nature Amount Total
Income from Salary 20,72,000
Income from Other Sources 20,000
Gross Total Income 20,92,000
Total tax on above (including cess) 3,79,704

This is how income tax has been calculated for Monica under the new tax regime

Up to Rs 2,50,000 Exempt from tax 0
Rs 2,50,000 to Rs 5,00,000 5% (5% of Rs 5,00,000 less Rs 2,50,000) 12,500
Rs 5,00,000 to Rs 7,50,000 10% (10% of Rs 7,50,000 less Rs 5,00,000) 25,000
Rs 7,50,000 to Rs 10,00,000 15% (15% of Rs 10,00,000 less Rs 7,50,000) 37,500
Rs 10,00,000 to Rs 12,50,000 20% (20% of Rs 12,50,000 less Rs 10,00,000) 50,000
Rs 12,50,000 to Rs 15,00,000 25% (25% of Rs 15,00,000 less Rs 12,50,000) 62,500
More than Rs Rs 15,00,000 30% (30% of Rs 20,92,000 less Rs 15,00,000) 1,77,600
Cess 4% of total tax (4% of Rs 12,500 + Rs 25,500+ Rs 37,500 + Rs 50,000 + Rs 62,500 + Rs 1,77,600) 14,604
Total Income Tax Rs 12,500 + Rs 25,500+ Rs 37,500 + Rs 50,000 + Rs 62,500 + Rs 1,77,600 + Rs 14,604 Rs 3,79,704

 

Exemptions/ deductions that are disallowed under the new tax regime

Individual or HUF opting for taxation under the newly inserted section 115BAC of the Act shall not be entitled to the following exemptions/deductions:

(i) Leave travel concession as contained in clause (5) of section 10;

(ii) House rent allowance as contained in clause (13A) of section 10;

(iii) Some of the allowance as contained in clause (14) of section 10;

(iv) Allowance to MPs/MLAs as contained in clause (17) of section 10;

(v) Allowance for the income of minor as contained in clause (32) of section 10;

(vi) Exemption for SEZ unit contained in section 10AA;

(vii) Standard deduction, deduction for entertainment allowance and employment/professional tax as contained in section 16;

(viii) Interest under section 24 in respect of self-occupied or vacant property referred to in sub-section (2) of section 23. (Loss under the head income from house property for the rented house shall not be allowed to be set off under any other head and would be allowed to be carried forward as per extant law);

(ix) Additional deprecation under clause (iia) of sub-section (1) of section 32;

(x) Deductions under section 32AD, 33AB, 33ABA;

(xi) Various deduction for donation for or expenditure on scientific research contained in sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) of section 35;

(xii) Deduction under section 35AD or section 35CCC;

(xiii) Deduction from family pension under clause (iia) of section 57;

(xiv) Any deduction under chapter VIA (like section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc). However, deduction under sub-section (2) of section 80CCD (employer contribution on account of the employee in notified pension scheme) and section 80JJAA (for new employment) can be claimed.

Following allowances shall be allowed as notified under section 10(14) of the Act to the Individual or HUF exercising option under the proposed section:

  1. a) Transport Allowance granted to a divyang employee to meet the expenditure for the purpose of commuting between place of residence and place of duty
  2. b) Conveyance Allowance granted to meet the expenditure on conveyance in performance of duties of an office;
  3. c) Any Allowance granted to meet the cost of travel on tour or on transfer;
  4. d) Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty.

Maximum non-taxable income limit

The maximum limit of non-taxable income for an individual is set at Rs 2.5 lakhs. However, you can also get a rebate of Rs 2,500 under section 87A if you have a total income of less than Rs 3.5 lakhs for FY 2018-19. From FY 2019-20 onward, the rebate has been increased to Rs 12,500 for an income less than Rs 5 lakh. So, that means an individual earning less than 5 lakhs will not be required to pay any income tax from FY 2019-20 onward. If you have tax saving investments under section 80C of up to Rs 1.5 lakhs then you will not have to pay any taxes till Rs 6.5 lakhs

Filing of ITR

If the income of an individual is below the basic exemption limit then he is not required to file income tax returns. Though those who have income less than Rs 2.5L and want to claim an income tax refund can only claim the refund by filing an ITR. Otherwise, it is mandatory to file income tax returns in any other case.

Information Details needed while e-filing of income tax returns

  1. Basic information such as PAN, Aadhar Card details, and current address.
  2. All the bank account details held in a financial year.
  3. Income proofs like current salary details, income from investments (like FDs, savings bank account) etc.
  4. All the deductions claimed under Section 80 or Chapter VI-A.
  5. Tax payment details such as TDS and advance tax payments.

 One may claim both HRA & deduction on home loan interest

Homeowners, who are paying back their home loan and getting HRA as part of their salary, can avail both the house property-related tax benefits to lower their taxable income.

There can be cases where you work in one city and live on rent, your family resides in another city, and you buy a home where your family is.

A homeowner can claim:

  • HRA exemption towards rent payment
  • Deduction on home loan interest as per Section 24
  • Principal Repayment under Section 80C

Here is an example below:

John lives in Gurgaon and pays a rent of Rs 10,000 per month; he gets an HRA of Rs 15,000. His basic salary is Rs 40,000. He has taken a loan to buy a house in Bangalore where his parents currently live. The interest he pays on the loan for his house is Rs 20,000 per month.

John can claim HRA as follows:

The amount of tax exemption from HRA will be a minimum of these three:

  • HRA received = Rs. 15,000
  • 40% of Basic since he lives in Gurgaon = Rs. 16,000
  • Rent paid – 10% of Basic = Rs.10,000 – Rs. 4,000 = Rs. 6,000

Therefore, HRA exempt = Rs.6,000. Remaining HRA of Rs 15,000 – Rs 6,000 = Rs.9,000 will form part of his taxable income under salaries on account of HRA.

The income from house property and claiming interest on home loan deduction will be allowed as follows:

Gross Annual Value of the property is Nil (because his parents live in the house property)

Less: Deduction on Interest on home loan = Rs 2,00,000 (limited to Rs.2,00,000 for self-occupied house)

 Income Tax Deductions

Section 80 Deduction Table

Section Deduction on Allowed Limit (maximum) FY 2018-19
80C Investment in PPF
– Employee’s share of PF contribution
– NSCs
– Life Insurance Premium payment
– Children’s Tuition Fee
– Principal Repayment of home loan
– Investment in Sukanya Samridhi Account
– ULIPS
– ELSS
– Sum paid to purchase deferred annuity
– Five year deposit scheme
– Senior Citizens savings scheme
– Subscription to notified securities/notified deposits scheme
– Contribution to notified Pension Fund set up by Mutual Fund or UTI.
– Subscription to Home Loan Account scheme of the National Housing Bank
– Subscription to deposit scheme of a public sector or company engaged in providing housing finance
– Contribution to notified annuity Plan of LIC
– Subscription to equity shares/ debentures of an approved eligible issue
– Subscription to notified bonds of NABARD
Rs. 1,50,000
80CCC For amount deposited in annuity plan of LIC or any other insurer for a pension from a fund referred to in Section 10(23AAB)
80CCD(1) Employee’s contribution to NPS account (maximum up to Rs 1,50,000)
80CCD(2) Employer’s contribution to NPS account Maximum up to 10% of salary
80CCD(1B) Additional contribution to NPS Rs. 50,000
80TTA(1) Interest Income from Savings account Maximum up to 10,000
80TTB Exemption of interest from banks, post office, etc. Applicable only to senior citizens Maximum up to 50,000
80GG For rent paid when HRA is not received from employer Least of :
– Rent paid minus 10% of total income
– Rs. 5000/- per month
– 25% of total income
80E Interest on education loan Interest paid for a period of 8 years
80EE Interest on home loan for first time home owners Rs 50,000
80CCG Rajiv Gandhi Equity Scheme for investments in Equities Lower of
– 50% of amount invested in equity shares; or
– Rs 25,000
80D Medical Insurance – Self, spouse, children
Medical Insurance – Parents more than 60 years old or (from FY 2015-16) uninsured parents more than 80 years old
– Rs. 25,000
– Rs. 50,000
80DD Medical treatment for handicapped dependent or payment to specified scheme for maintenance of handicapped dependent
– Disability is 40% or more but less than 80%
– Disability is 80% or more
– Rs. 75,000
– Rs. 1,25,000
80DDB Medical Expenditure on Self or Dependent Relative for diseases specified in Rule 11DD
– For less than 60 years old
– For more than 60 years old
– Lower of Rs 40,000 or the amount actually paid
– Lower of Rs 1,00,000 or the amount actually paid
80U Self-suffering from disability :
– An individual suffering from a physical disability (including blindness) or mental retardation.
– An individual suffering from severe disability
– Rs. 75,000
– Rs. 1,25,000
80GGB Contribution by companies to political parties Amount contributed (not allowed if paid in cash)
80GGC Contribution by individuals to political parties Amount contributed (not allowed if paid in cash)
80RRB Deductions on Income by way of Royalty of a Patent Lower of Rs 3,00,000 or income received

Net Loss under the head ‘Income from House Property’ = (-) Rs 2,00,000 which will be added to his taxable income.

Reference

www.incometaxindia.gov.in

What is a co-operative society ?

Introduction

A co-operative society is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.

A co-operative society is another means for forming a legal entity to conduct business besides forming a company. It pools together human resources in the spirit of self and mutual help with the object of providing services and support to members.

The Co-operative Principles

The Co-operative Principles under which a co-operative society operates and carries out its business are :-

  • Voluntary and open membership.
  • Democratic control, one member one vote.
  • Autonomy and independence.
  • Promoting economic activities.
  • Promoting education and information technology.
  • Co-operation among co-operatives.
  • Concern for the social and ecological environment.

To form or setup a co-operative society one has to follow certain set of rules or guidelines.  It is important to ascertain the nature and importance or advantages of forming a society in present scenario over other business structures.

The co-operative movement started to protect the interests of weaker sections of society. The primary or main objective of this movement is ‘how to protect economically weaker sections of society’ from the middlemen who gain illegally by eating away the major chunk of the profits. In all forms of business structures whether be it is a sole trade, partnership or joint stock company, the primary motive is to increase profits.

The laws governing the societies are “THE co-operative societies act, 1912” which is a central Act formed by the Union with the liberty to the concerned states to form their State Act governing the societies to suit their local conditions but the condition being that it should not be in derogation to the central Act. Many states have enacted their own co-operative society Act and rules there under but more or less the requirements to be met by persons who want to form the society remains the same.

Promotion of its object, self-help and mutual aid are the fundamental principles of co-operation. The objectives of commercial organization and co-operative organizations are fundamentally different. In a commercial organization, earning and maximizing the profits can be the sole motive but whereas in a co-operative organization profit cannot or should not be the sole motive. It should almost in all circumstances conduct itself in a business like a manner in attaining its objectives efficiently.

Owner of cooperative society

The question of ownership is, in theory, easy to answer. Cooperative corporations, like other corporations, are owned by those who contribute equity to the firm. Yet an individual’s investment in a cooperative – equity contribution – is tied directly to his or her use of the cooperative

Society and cooperative society

Society is a group of people living together in the same geographical location. Cooperative society is a group of people, who are not only living together in the same geographical location, but having agreement for cooperation within themselves.

Earning of cooperatives

Cooperative businesses require capital, and they generate capital in part through the share investments of member-owners. Debt and earnings are the other primary sources of capital. Members own and invest in their cooperative because they trust that doing so is in their best interest.

Types of Cooperative Society

1] Producer Cooperative. To protect the interest of small producers, these societies are set up.

2] Consumer Cooperative

3] Credit Unions

4] Marketing Cooperative Society

5] Housing Cooperative Society

Laws Applicable

The Cooperative Societies Act, 1912 expanded the sphere of cooperation between its members and provided for supervision by central organization. A cooperative society, which has its object the promotion of the economic interests of its members in accordance with the co-operative principles may be registered with limited or unlimited liability by filing application to the registering authority with requisite documents to be submitted by them

A Co-operative Society has to conduct itself  as  per the following listed below:

  1. Co-operative Societies Act under which the same is registered whether it be under state Act or Central Act.
  2. Co-operative Societies rules made there under whether it be central or state rules
  3. Bye-laws approved by the registrar at the time of registration and amendments made from time to time and approved by the registrar, these bye-laws have to be formed by the concerned members themselves and present it to the registration authority for its approval.
  4. Notification and Orders by the concerned Government

Steps to form a Co-operative society

Step 1: Minimum 10 Individuals together

To form a society, law mandates that 10 members minimum must show intention to be part of the society having same aim and objective to be achieved through the society for their mutual benefit and thereby be desirous to be part of it.

Step 2: Select of Chief Promoter

Once a group of individuals have a desire to form a society the next step should be there must be a provisional committee of which everyone is part of and all of them should by mutual consent or by majority whichever they prefer must choose a person who will be a chief promoter of the society which is going to be formed by them.

Step 3: Selection of name of Society

Thereafter once a chief promoter is selected by set of individuals among them, they have to select a name for the co-operative society which they wish to form

Step 4: Application to the Registration Authority

Once the name of the society is selected by the members then they have to make a application to the registration authority stating that they have a intention to form a society and the name of the society has to be given to the authority for its approval and registering authority has to confirm that name is in conformity with laws and issue a confirmation certificate to the members. Then when the members get their name approval from the authority it is valid for 3 months from the date of approval.

Step 5: Entrance fees and share capital

Once name approval comes from the concerned authority, the entrance fee and the share capital must be collected from the concerned prospective members to meet the statutory requirements under law and it can be prescribed by the members themselves or society act mandates certain fees to be paid by them.

Step 6: Bank Account

Thereafter once the prescribed fee and share capital is collect from the prospective members, then as per the directions of the registering authority promoter has to open a bank account in the name of the society and deposit the said fees and share capital in that account and a certificate has to be obtained from the bank to that effect

Step 7: Application for registration

Once the bank formalities are completed then the promoter has to apply for the society formation to the registration authority and it has to be accompanied with set of documents as

Form No. A in quadruplicate signed by 90% of the promoter members
1. List of promoter members
2. Bank Certificate
3.  Detailed explanation of working of the society
4.  Four copies of proposed bye-laws of the society
5. Proof of payment of registration charges
6. Other documents such as affidavits, indemnity bonds, any documents specified by the Registrar also have to be submitted.

All these documents have to be submitted at the time of applying for registration of the society to the registering authority and the authority after it is satisfied with the documents submitted to it has to apply its mind to whether or not to register the said society.

Step 8: Registrar has to acknowledge

After the submission of the said documents has mentioned in step 7, the registrar of that municipal ward has to enter the particulars in the book called the “register of Application” which is generally specified in form B and give it a serial number to the application. Thereafter the registrar has to issue a receipt to that effect and give it to prospective members to know the status of the application when it is pending.

Then the registrar after perusal of the records submitted to him has to make a decision whether has to issue a certificate of registration or not and if there are any discrepancies noticed then he has to inform the members of the same and get it rectified if any.

Step 9: Registration

Last step is that the registering authority after being satisfied with the documents meeting the legal requirements will notify the registration of the society in the official gazette mentioned by the state or central government and should issue the registration certificate of the society and give it to the members of the society.

Conclusion

In India, Co-operative Societies were considered as ideal instruments to motivate the people to come together and help themselves in the process of eliminating the unprincipled middlemen making a huge profit at the expense of the society.

The main guiding factor if an individual or group of individuals want to form a society must be whether all the concerned members have common goal to achieve or not, it is important factor because only when they share common desire or intention then only society is desirable otherwise the whole purpose of forming a society will be defeated.

Societies like any other business structure come with certain advantages and disadvantages, they are:

Advantages

  • Cooperative stores supply quality goods unlike other shops wherein adulterated foods maybe given to its consumers and thus saved them from adulteration and other malpractices.
  • As consumers or members of the society are the owners and managers of such stores, genuine requirements of the majority of consumers can be met. In other words, goods required by a majority of the customers or members of the society are always dealt by such stores.
  • Cooperative societies are an important form of democratic business enterprise because ownership is not vested in one person completely so as a result, no single group can secure control over the organisation.

Disadvantages

  • It only caters to the needs of small and medium-income groups so when there are large group with higher economic interest then it is preferable to choose another business model.
  • There is much dependence on the honesty, integrity and loyalty of members and workers and once there are trust issues between the members it is hard to transact business thereafter.
  • It is limited to certain objectives hence profits are minimal.
  • Management of society usually rests in the hands of people with less managerial experience due to which society will suffer and many do not invest in hiring professionals to handle the society due to lack of funds or interest so henceforth growth of the society maybe put to stake by its own members.

Reference : http://legislative.gov.in/sites/default/files/A1912-02.pdf

What is SEBI?

Definition

Securities and Exchange Board of India (SEBI) is a statutory regulatory body entrusted with the responsibility to regulate the Indian capital markets. It monitors and regulates the securities market and protects the interests of the investors by enforcing certain rules and regulations.

SEBI was founded on 12 April 1992, under the SEBI Act, 1992. Headquartered in Mumbai, India, SEBI has regional offices in New Delhi, Chennai, Kolkata and Ahmedabad along with other local regional offices across prominent cities in India.

The objective of SEBI is to ensure that the Indian capital market works in a systematic manner and provide investors with a transparent environment for their investment. To put it simply, the primary reason for setting up SEBI was to prevent malpractices in the capital market of India and promote the development of the capital markets.

Structure of SEBI

SEBI, just like any corporate firm has a hierarchical structure and consists of numerous departments headed by their respective heads. Following is a list of some of the departments of  SEBI:

  • Foreign Portfolio Investors and Custodians
  • Human Resources Department
  • Information Technology
  • Investment Management Department
  • Office of International Affairs
  • Commodity and Derivative Market Regulation Department
  • National Institute of Securities Market

Apart from the department heads, the senior management of SEBI consists of a Board of Directors who are appointed as follows:

  • One chairman nominated by the Union Government of India
  • Two members from the Union Finance Ministry of India
  • One member from the Reserve Bank of India (RBI)
  • Five members nominated by the Union Government of India

Functions of SEBI

The functions and powers of SEBI have been listed in the SEBI Act,1992. SEBI caters to the needs of three parties operating in the Indian Capital Market. These three participants are mentioned below:

  • Issuers of the Securities: Companies that issue securities are listed on the stock exchange. They issue shares to raise funds. SEBI ensures that the issuance of Initial Public Offerings (IPOs) and Follow-up Public Offers (FPOs) can take place in a healthy and transparent way.
  • Protects the Interests of Traders & Investors: It is a fact that the capital markets are functioning just because the traders exist. SEBI is responsible for safeguarding their interests and ensuring that the investors do not become victims of any stock market fraud or manipulation.
  • Financial Intermediaries: SEBI acts as a mediator in the stock market to ensure that all the market transactions take place in a secure and smooth manner. It monitors every activity of the financial intermediaries, such as broker, sub-broker, NBFCs, etc

Powers of SEBI

Securities and Exchange Board of India has the following three powers:

Quasi-Judicial: With this authority, SEBI can conduct hearings and pass ruling judgement in cases of unethical and fraudulent trade practices. This ensures transparency, fairness, accountability and reliability in the capital market. SEBI PACL (Pearl Agrotech Corporation Ltd.) case is an example of this power.

Quasi-Legislative: Powers under this segment allow SEBI to draft rules and regulations for the protection of the interests of the investor. One such regulation is SEBI LODR (Listing Obligation and Disclosure Requirements). It aims at consolidating and streamlining the provisions of existing listing agreements for several segments of the financial market like equity shares. This type of regulation formulated by SEBI aims to keep any malpractice and fraudulent trading activates at bay.

Quasi-Executive: SEBI is authorised to file a case against anyone who violates its rules and regulation. It is empowered to inspect account books and other documents as well if it finds traces of any suspicious activity.

Procedure for registering a mutual fund with SEBI

As per SEBI’s guidelines, the applicant must apply for registration in Form A prescribed under Schedule I of SEBI Regulations 1996. It must be noted that any person who holds equal to or more than 40% of the net worth of the Asset Management Company shall be deemed as a Sponsor and must apply in Form A.

  • An applicant proposing to sponsor a mutual fund must submit an application in the Form A along with a non-refundable fee of Rs.5 lakhs
  • The application will then be examined in correspondence with the eligibility criteria
  • If the sponsor meets the eligibility conditions, it will have to complete the remaining formalities such as including inter alia, executing the trust deed and investment management agreement, setting up a trustee company/board of trustees comprising two-thirds independent trustees, incorporating the asset management company (AMC), contributing to at least 40% of the net worth of the AMC and appointing a custodian
  • Once the mentioned conditions are met, SEBI will issue the registration certificate subject to the payment of registration fees of Rs.25 lakhs.

What are Mutual Funds?

Definition

A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets.

Mutual Funds are managed by Asset Management Companies (AMC) which need to be approved by SEBI. A Custodian who is registered with SEBI holds the securities of various schemes of the fund. The trustees of the AMC monitor the performance of the mutual fund and ensure that it works in compliance of SEBI Regulations.

Regulations on Mutual Fund

A sponsor of a mutual fund scheme, a group of the company or an associate which involves asset management company (AMC) of the fund, cannot hold the following in any form:

  • 10% or above of the voting rights and shareholding in the AMC or any other mutual fund scheme
  • An AMC cannot have representation on the board of any other mutual fund
  • Shareholders can’t hold more than 10% of the shares both directly and indirectly in AMC of the Mutual Fund

Types of mutual funds

Mutual funds are categorised and rationalised by SEBI

  • Equity Funds

A Mutual Fund scheme is classified as an Equity Mutual Fund if it invests more than 60% of its total assets in the equity shares of different companies. The balance amount can be invested in money market instruments or debt securities as per the investment objective of the scheme.

 

Category Name Definition
Large Cap Fund An open-ended equity scheme primarily investing in large cap stocks. Minimum 80% total assets are invested in equity & equity related securities of large cap companies
Mid Cap Fund An open-ended equity scheme primarily investing in mid cap stocks. Minimum 65% of total assets are invested in equity & equity related instruments of mid cap companies
Small Cap Fund An open-ended equity scheme primarily investing in small cap stocks. Minimum 65% of total assets are invested in equity & equity related securities of small cap companies
Multi Cap Fund An open-ended equity scheme investing in stocks across market capitalisation (large, small, mid cap). Minimum 65% of total assets are invested in equity and equity related instruments
Large & Mid Cap Fund An open-ended equity scheme investing in stocks from both large cap & mid cap companies. Minimum 35% of total assets are invested in equity of large cap companies and 35% in mid cap companies
Dividend Yield Fund An open-ended equity scheme primarily investing only in corporations that have significantly high dividend yielding stocks. Minimum 65% of total assets invested in equity
Value Fund A Value Fund is a type of Mutual Fund which follows value investing strategy. Minimum 65% of total assets is invested in equity & equity related instruments
Contra Fund A Contra Fund is a type of Mutual Fund which follows contrarian investing strategy. Minimum 65% of total assets is invested in equity & equity related instruments
Focused Fund An open-ended equity scheme investing in maximum 30 stocks from either of the market caps. Minimum 65% of total assets are invested in equity related instruments
Sectorial/Thematic fund An open-ended equity scheme investing in businesses that operates in a particular sector or industry. Minimum 80% of total assets are invested in equity of a particular sector/theme
ELSS An open-ended equity linked tax saving scheme with a lock-in of three years. Minimum 80% of total assets are invested in equity related securities
  • Debt Funds

Debt funds are mutual funds that invest in fixed income securities like bonds and treasury bills. Gilt fund, monthly income plans (MIPs), short term plans (STPs), liquid funds, and fixed maturity plans (FMPs) are some of the investment options in debt funds.

Category Name Definition
Overnight Fund An open ended debt scheme which invests in overnight securities having maturity of 1 day
Liquid Fund An open ended debt scheme which invests in debt & money market instruments with maturity up to 91 days
Ultra Short Duration Fund An open ended debt scheme which primarily invests in debt instruments with Macaulay duration between 3 to 6 months
Low Duration Fund An open ended debt scheme which invests in debt instruments with Macaulay duration between 6 to 12 months
Money Market Fund An open ended debt scheme which invests in debt & money market instruments having maturity up to 1 year
Short Duration Fund An open ended debt scheme which invests in debt instruments with Macaulay duration between 1 to 3 years
Medium Duration Fund An open ended debt scheme which invests in debt instruments with Macaulay duration of 4 to 7 years
Long Duration Fund An open ended debt scheme which invests in debt instruments with Macaulay duration greater than 7 years
Dynamic Bond Fund An open ended debt scheme which invests in debt instruments across durations
Corporate Bond Fund An open ended debt scheme which invests in highest rated corporate bonds. Minimum 65% of total assets are allocated in corporate bonds
Credit Risk Fund An open ended debt scheme which invests in below highest rated corporate bonds. Minimum 65% of total assets are allocated in below highest rated corporate bonds
Banking and PSU Fund An open ended scheme which invests in debt instruments of Banks, Public Sector Undertakings and Public Sector Financial Institutions. Minimum 80% of total assets are allocated in securities from these sectors
Gilt Fund An open ended scheme which invests in government securities across maturity
Gilt Fund with 10 year constant  duration An open ended debt scheme investing in government securities having a constant maturity of 10 years
Floater Fund An open ended debt scheme primarily investing in floating rate instruments
  • Hybrid Schemes

What are hybrid schemes? Hybrid schemes, as their name suggests, invest in a mix of equity and debt. The aggressive ones invest more in equity, whereas the conservative hybrid schemes invest more in debt instruments.

Category Name Definition
Conservative Hybrid Fund An open ended hybrid scheme which primarily invests 75% to 90% of total assets in debt instruments and 10% to 25% in equity
Balanced Hybrid Fund An open ended balanced scheme which invests 40% to 60% of total assets in debt instruments and 40% to 60% in equity instruments
Aggressive Hybrid Fund An open ended aggressive scheme which primarily invests 65% to 80% of total assets in equity & equity related instruments. 20% to 30% assets are placed in debt securities
Dynamic Asset Allocation or Balanced Advantage Fund An open ended fund which invests in equity/debt that is managed dynamically
Multi Asset Allocation Fund An open ended scheme investing in different asset classes with a minimum of 10% allocated in each asset class
Arbitrage Fund An open ended scheme investing in arbitrage opportunities with a minimum of 65% of total assets allocated in equity & equity related securities
Equity Savings An open ended scheme investing at least 65% in equity & equity related instruments and at least 10% in debt securities
  • Solution Oriented Schemes

Solution oriented schemes means focus on a particular solution. They are helpful for those investors who wish to create long-term wealth that mainly includes retirement planning and a child’s future education by investing in Mutual Funds.

Category Name Definition
Retirement Fund An open ended retirement solution oriented scheme which comes with a lock-in of 5 years or till retirement age (whichever is earlier)
Children’s Fund An open ended fund for investment for children which comes with a lock-in for minimum 5 years or till the child attains the age of maturity
  • Other Schemes
Category Name Definition
Index Funds/ETF An open ended scheme which replicates/tracks the index. Minimum 95% of securities are invested in the securities of a particular index
FoF (Overseas/Domestic) An open ended fund of fund scheme which invests 95% of the total assets in the underlying fund

 

Legal & Allied Services

Legal & Allied Services

The Indian Lawyer & Allied Services consists of Lawyers, Solicitors, Chartered Accountants, Business Management Consultants, Taxation Advisers and Risk Management Consultants, who are professionals with a high level of commitment and integrity. They support their client for the services. 

All businesses must have contracts in place for every deal they enter into, both internally (with employees, for example) and externally (with vendors and business partners).

There are many service term you need to know for the business life as discussed below:

Legal Notice

A legal notice is a formal written communication between the parties. Through a legal notice, the sender notifies the recipient about his intention of undertaking legal proceedings against the latter. A legal notice also helps in making the receiving party aware of the grievances of the sender.

There are various types of notice, each of which has different results. In general, notice deals with Information that a party knows or should have known. In this context notice is an essential element of due process. Notice can also refer to commonly known facts that a court or Administrative Agency may take into evidence.

For the Sender- It is a way to simply have your grievances communicated and seek remedies for. For the Recipient- It is a formal way of getting information about sender grievances.

Will

A will is a legal document that communicates your wish after your death. It is a formal document that coordinates the distribution of your assets after death and can appoint guardians for minor children. With a will, the state in which you reside decides how to distribute your assets to your beneficiaries according to its laws.

An Executor or Personal Representative Needs to be Identified

Deciding Which Property to Include in Your Will

There are four types of Wills:
  • Type 1: Simple Wills
  • Type 2: Testamentary Trust Wills
  • Type 3: Joint Wills
  • Type 4: Living Wills

Power of Attorney

A power of attorney (POA) is a legal document giving one person (the agent or attorney-in-fact) the power to act for another person (the principal). The agent can have broad legal authority or limited authority to make legal decisions about the principal’s property, finances or medical care.

A power of Attorney is an authority given by a written formal instrument whereby one person termed the donor or principal authorises another person termed the donee, attorney or agent to act on his behalf. The principal determines the amount of power given to the attorney, and this individual can be given the authority to deal with only one particular issue (a specific power of attorney), or to handle most of the principal’s personal and financial matters (general power of attorney).

There are four types of POA

  • General Power of Attorney.
  • Durable Power of Attorney.
  • Special or Limited Power of Attorney.
  • Springing Durable Power of Attorney.

Term Sheet

The term sheet is the document that outlines the terms by which an investor (angel or venture capital investor) will make a financial investment in your company. The term sheet codifies the discussions and includes things the parties have agreed to informally, not legally. Subsequent to the term sheet, there will be a due diligence process and the parties will eventually negotiate, agree on, and sign the definitive agreements. Having a term sheet increases the transparency of the terms in agreements. It is a non-binding agreement drawing on the points on which parties mutually agree.

Shareholders’ Agreement

A shareholders’ agreement is an arrangement among a company’s shareholders that describes how the company should be operated and outlines shareholders’ rights and obligations. The shareholders’ agreement is intended to make sure that shareholders are treated fairly and that their rights are protected.

Shareholder Agreements offers a mechanism to the founding members of a company to regulate (and sometimes restrict) the shares allotted to the stakeholders. The shareholders’ agreement is intended to make sure that shareholders are treated fairly and that their rights are protected.
The agreement will:
• Define the shareholders’ rights and obligations;
• Regulate dealing with shares
• Provide an element of protection for minority shareholders and the company; and.
• Deals with valuation of shares.

Share Purchase Agreement

A share purchase agreement is defined as a legal contract between a seller and a buyer. They may be referred to as the vendor and purchaser in the contract. The specific number of shares are listed in the contract at the stated price. This agreement proves that the sale and the terms of it were agreed upon mutually.
A warranty is a contractual statement of assurance given by the seller to the buyer that a certain state of affairs exists. They are particularly important in share purchase agreements, as they allocate risk and liability between the seller and buyer.
A Share Purchase Agreement is a sales agreement to be used to transfer and assign ownership (shares of stock) in a company. It is an agreement setting out the terms and conditions relating to the sale and purchase of shares in a company. It is a binding agreement between sellers of shares and purchaser of shares. Such an agreement essentially outlines the market price of shares, premium amount if any, duty and responsibility of parties towards the company, manner in which the shares can be used and sold and provisions with respect to powers of the Board.

Hiring Contract & Agreement

A hiring/ employment contract is a written legal document that lays out binding terms and conditions of an employment relationship between an employee and an employer. Employment relationships do not always work out despite arduous selection processes and the positive wishes of both parties in the employment relationship. Too many factors in the workplace, the marketplace are responsible for it. At such time Employment Contract comes into role. The terms and condition set out in the contact help in settling dispute. It contains details such as:
• Provisions relating to remuneration
• Provisions relating to health benefits
• Provisions relating Vacation and sick leave
• Provisions relating Employee grievance procedures
• Provisions relating Employee behavior
• Other provisions governing employability.

Service Contract

It is an arrangement between service provider and user to perform certain service in lieu of consideration. It set out the terms and conditions describing the framework within which service will be provided by the service provider to the user. They’re used predominantly by contractors, freelancers, and consultants and, generally involve one party paying another party to perform a certain act. A clear and comprehensive description of the work to be done is critical to a service contract. Describe the time span within which service will be provided and state every Dos’ and Don’ts so that no discrepancy is left out.

Memorandum of Understanding

Memorandum of understanding is formal arrangement between parties to the agreement drawing out the mutually agreed terms and conditions. It is actually just a means for two parties to reach a decision. It is used to gauge the intention of the transacting parties before a deal is officially signed between them and doesn’t grant either of them any rights. A Memorandum of Understanding or MOU is put in place to establish a clear understanding of how the deal will practically function and each party’s role and compensation. MOU is a formal contract but it doesn’t carry any legal right. Each deal is vastly different; there is no particular convention of writing MOU. Drafting of MOU totally depends upon the parties and nature of deal between them.

Franchise Agreement

An entrepreneur looking to start his own business may consider purchasing a franchise. Franchise Agreement is a legally binding agreement which outlines the franchiser’s terms and conditions for the franchisee. It lays down the obligations of both franchiser’s and franchisee. It explains what each party of the franchise expects from the other party about operating the franchise. The franchise agreement is the license to operate the franchise. The license concerns the ongoing franchise operation. Included are any rights you gain with your purchase. Your rights may include the use of trademarks, copyrights, territorial exclusivity, recipes or secret formulas etc.

Joint Venture Agreement

A joint venture is created when two or more established businesses agree to pool their resources and respective talents to achieve a particular goal. It is an agreement for a defined time span for particular business venture. Businesses often decide to enter into a joint venture because they believe that combining resources with another business will lead to better growth and profitability than either business could achieve operating on its own. All joint ventures are initiated by the parties’ entering a contract or an agreement that specifies their mutual responsibilities and goals. A joint venture agreement provides a company with expertise it may not have or may not be willing to invest in acquiring itself. It is crucial to draft proper agreement in order to avoid any trouble in the later stages of venture.

Non-Disclosure Agreement

One common way to protect the secrecy of confidential information given to another party is through the use of a Non-Disclosure Agreement. NDAs are typically signed at the beginning of a business relationship. It is a legally binding contract where one party to the contract agrees to maintain the secrecy of the information given by another party and promises not to disclose the information given to the outsider. Non-Disclosure Agreement explicitly spells out that the person receiving the information is to keep it secret and limit its use. Non-Disclosure Agreement is an almost surefire way to confirm that confidential information stays protected in a variety of situations.

Sale Deed/Agreement To sell

It means absolute transfer of tangible immovable property by the vendor to the purchaser by entering into a contract for sale wherein both the parties will settle the terms and conditions of transfer. Such transfer can be done through the registered document. Sale deed would require the seller to certify that the property under the sale is free from any encumbrance and without any lien.

Agreement to Sale is not the actual sale but a contractual agreement to sell a property on particular terms and for a particular price. It is the document on which the Deed of Sale is based on.

Rs. 100/-non-Judicial stamp paper is sufficient for an agreement. 1) Sale deed has to be compulsorily registered without which it is invalid. 2) For registration of sale deed the stamp duty(including transfer fee) is 5.5% and registration charges is 0.5% of Fair market value of property.

Lease Deed/Rent Agreement

A lease deed of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms. The person who is transferring such right of property is known as Lessor. The person to whom such right of party is transferred is known as Lessee.

Rent agreement is a legal document which is prepared by the landlord in the name of the tenant. All the terms and conditions are mentioned in the agreement according to both the parties. Before shifting to any new place, the tenant should always ask for an agreement with the landlord so that there is no problem in the future.

The difference between lease and rent is that a lease generally lasts for 12 months while a rental agreement generally lasts for 30 days. Some landlords offer six-month, 18-month or 24-month leases, but a year’s lease is standard.

Hire Purchase Agreement

Hire purchase is an agreement whereby a person hires goods for a period of time by paying installments, and can own the goods at the end of the agreement if all installments are paid. To begin a hire purchase, a payment is often required up front. The rest of the amount due is submitted through scheduled payments. The ownership of the good purchased through a hire purchase is not officially transferred to the buyer until all required payments have been submitted.

Gift Deed

A gift deed is a document that records the act of giving a gift and is executed between the donor (the person giving the gift) and the donee (person receiving the gift). Though it is not compulsory to execute a gift deed while gifting any asset, it does create a valid documentary record.
Gifts that involve immovable property should be registered under the Transfer of Property Act. Unless registration of the gift deed is completed, the title does not pass on to the donee, in case of gift of immovable property. Stamp duty shall be payable based on the value of the gift
A gift deed is a deed in which the consideration is not monetary, but is made in return for love and affection. It is a document which transfers property to another as a gift. Such a deed is often used to present someone with a gift. Transfer of a gift deed can be reported as a gift for federal tax purposes.

Registration & Licenses

Registration & Licenses

All businesses need one government registration or another, while nearly all require multiple registrations. For example, even air-conditioned restaurants need both service tax registration and VAT registration, depending on turnover and location, in addition to a Shops & Establishment License. Indirect taxes are those that are collected from customers by suppliers on behalf of the government. Once these taxes are paid to government, a proper record needs to be submitted periodically.

Goods & Service Tax

WHO NEED TO REGISTER UNDER GST
Annual aggregate turnover from operation is more than Rs. 20 lacs. Annual Turnover over Rs.10 lacs for States- Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand.

GST registration is mandatory in following cases (irrespective of its turnover):

  • Currently registered under any of the existing indirect tax regimes (VAT, Excise Laws, Service Tax Laws) irrespective of the threshold limit
  • Having multiple business verticals in one state – business units even though registered with the same name and under the same PAN will have to apply for separate registration for each such unit within the same
  • Having operations in multiple states- Every person will have to obtain a separate registration for every state in which he has a business establishment whether by same name or a different even if person is having same PAN number and has operations in different states, every operational unit will have to apply for separate registration
  • Required to pay tax under Reverse Charge
  • Required to deduct tax at source
  • Agents of a supplier
  • Making any Inter-State taxable supply
  • Supplying online information and database access or retrieval services from a place outside India to a person in India, other than a registered taxable person
  • E-commerce Operator / Aggregater who supplies goods or services under his brand name (e.g. Flipkart, Amazon, Ola)
  • Supplying goods or services through E-commerce Operator
  • Input Service Distributor
  • Casual taxable persons

Cases where GST Registration is not required

There are only two cases where GST registration is not required at all even if the turnover is more than 20 lakh. The two cases are as follows:

1. Person supplying exempted goods/services

If a person is engaged exclusively in the business of supplying goods or services or both which is either not liable to tax or is wholly exempt, then he shall not be required to register under GST.

2. An agriculturist to the extent of supply of produce out of cultivation of land

An agriculturist means an individual or a HUF who undertakes cultivation of land by own or by use of labor.

FSSAI Registration / License

The Registration or Licensing of food business operators is governed by Food Safety and Standards Act 2006. FSSAI is under the control of Government of India Ministry of Health and Family Affair. FSSAI sets standards for food products based on science and regulates their production, storage, distribution, sales and imports to ensure they are safe for consumption.

FSSAI license is basically a 14- Digit registration number which is printed on food packages.

Food Safety need

  • Food safety means an assurance that the food is acceptable for human consumption according to its intended use
  • “Standard”, in relation to any article of food, means the standards notified by the Food Authority
  • It is of vital importance to all consumers & food business operators- engaged in production, Processing, distribution & sale
  • It provides confidence to consumers that the food they buy and eat will do not harm to them and that they are protected from adulteration/fraud
  • Food Business Operator must be registered
  • If Food Business Operator is operating in more than 1 state, one additional Central License for Head Office is necessary
  • Importers are allowed to take one single central license at their Import Export Code address
  • One presumption with various types of businesses is eligible for one registration only
  • Food Business Operator must obey the rules and conditions of registration
  • Any Food Business Operator without FSSAI food license is liable to pay penalty for the offences

Shop & Establishment

Registration under Shop and Establishment Act (Gumaasta License)

Shops and Establishment Acts have been enacted by the states to regulate conditions of work and to provide for statutory obligations of the employers and rights of the employees in unorganized sector of employment such as shops, commercial establishments, residential hotels, restaurants, eating houses, theaters and other establishments in their jurisdiction.

To regulate conditions of work and employment in shops, commercial establishments, residential hotels, restaurants, eating houses, theaters, other places of public entertainment and other establishment’s. Provisions include Regulation of Establishments, Employment of Children, Young Persons and Women, Leave and Payment of Wages, Health and Safety etc.

Applicability of the Act

  • It applies to all local areas specified in Schedule-I.
  • Establishment means any establishment to which the Act applies and any other such establishment to which the State Government may extend the provisions of the Act by notification.
  • Employee means a person wholly or principally employed whether directly or through any agency, whether for wages or other considerations in connection with any establishment.
  • Member of the family of an employer means, the husband, wife, son, daughter, father, mother, brother or sister and is dependent on such employer.

Shop and Establishment Act is one of the most important State Government regulations which governs the functioning of businesses engaged within its Jurisdiction. The Shop and Establishment license is a primary proof of survival of business in a specific jurisdiction.

MSME Registration

MSME Registration: Udyog Aadhaar Memorandum

  • The Ministry of MSME has notified a one page Udyog Aadhar Memorandum (UAM) through a Gazette of India on 18 Sept 2015 as part of initiative to ease of Registration of MSMEs.
  • The UAM replaces Entrepreneur Memorandum Part EM I and EM II
  • Filing of UAM is optional for MSMEs. It is compulsory for Medium Enterprises
  • The units with permanent SSI registration certificates prior to implementation of the MSMED Act, 2006 or EM-II Memorandum or Udyog Aadhaar Memorandum would also be eligible for availing of assistance under various schemes implemented by the Government.
  • Unit with EM-II registration are not required to file UAM but if they so desire they may also file the Udyog Aadhaar Memorandum.
  • The memorandum shall be filed only after establishing the unit, obtaining all regulatory approvals and starting commercial operations;
  • UAM registration has replaced Entrepreneurship Memorandum-If (EM-II) and Small Scale Industry Registration for all purposes. Central or State Government regulatory bodies, tax authorities, utilities providing water, power, etc. banks and other financial institutions and similar organisations should accept UAM in place of EM-II for all purposes. Earlier there was a provision to take Enterprise Memorandum-I (EM-I) registration before setting up an enterprise. Applicants used to file applications for obtaining utilities, building plan approval from local bodies, consent to establish from State Pollution Control Board or applying for term loan from bank or a financial institution to set up the enterprise along with a copy of EM-I.
  • UAM registration is given after an enterprise starts commercial operations. Now there is no registration before establishing an enterprise. The practice of EM-I registration is stopped. There is no counterpart document to EM-I.
  • Therefore, utilities, local bodies, regulatory bodies, tax authorities, banks and financial institutions and other similar bodies I should not ask for EM-I from the applicants who want to set up an enterprise.

Some of the benefits provided by Central Govt /State Govts who are either registered under EM-II or now under UAM registration may be summarized below

  • Government in a phase wise manner enhances the list of reserved products to be brought from MSME’s only and has put in place policies and has reserved three hundred fifty (350) items for purchase from MSMEs, under the Government Stores Purchase Programme.
  • To encourage the small-scale units, the SEZs are required to allocate 10% space for the small-scale units
  • Under the MSMED Act, protections are offered in relation to timely payment for goods and services by buyers to MSMEs.
  • Furthermore, the Government has been encouraging and supporting the sector through policies for preferential access to credit, preferential purchase policy, etc.
  • It has been offering packages of schemes and incentives through its specialized institutions in the form of assistance in obtaining finance; help in marketing; technical guidance; training and technology up gradation, Interest concession in Loans ,credit Guarantee scheme for Borrowing from Banks/FI etc.
  • As per Trademark Rules 2017, special provision has been carved out for micro and small industries. As per schedule A of the rules, the fees for filing a trademark application for MSME’s is only 50% as compared to another form of business.
  • Concessions in Performance credit rating
  • Subsidy up to 15% under credit linked capital subsidy scheme (CLCSS)

Importer Exporter Code

Import Export Code (also known as IEC) is a 10 digit identification number that is issued by the DGFT (Director General of Foreign Trade), Department of Commerce, Government of India. It is also known as Importer Exporter Code.

Importers & Exporters require IE Code

All Importers who import goods into India require an IE Code. The IE Code must be quoted while clearing customs. Also, banks require the importers IE Code while sending money abroad.

All Exporters who export goods or services from India require an IE Code. The IE Code must be quoted while sending shipments. And banks require the exporters IE Code while receiving money from abroad.

IE Code is issued for the lifetime of the entity and requires no renewal. So once a IE Code is obtained, it can be used by that entity for all its import or export transactions without any further hassles.

IE Code does not require the filing of any return. Once, an IE Code is issued there are no further procedures required to maintain validity of the IE Code. Even if import or export transactions occur, there are no filings required to DGFT.

Even individuals who are proprietors of a business can obtain IE Code in their name. It is not necessary to incorporate a business entity for obtaining IE Code.

IE Code can easily be obtained from DGFT within 15-20 working days after submission of the application along with all the necessary information. It is not necessary to show proof of any import or export to obtain IE Code.

Online websites can help your business obtain Import Export Code (IE Code) in 15 to 20 days, subject to Government processing time.

Tax Expert can prepare your IE Code Application in the prescribed format along with the necessary supporting documents and obtain your signature in the application.

Once the application is prepared, you can submit the IE Code Application to the Directorate General of Foreign Trade for further processing and allotment of IE Code.

Once the application and the attached supporting documents are verified, the Directorate General of Foreign Trade will allot a IE Code for your business.

Copyright

Indian courts vigorously protect intellectual property rights (IPRs). Following the GATT Agreement India has made its IPR laws TRIPS compliant. Further, we deal with the three major IPR laws viz. Trademarks, Copyrights and Patents.

Copyright is a form of protection provided to the authors of “original works of authorship” including literary, dramatic, musical, artistic, and certain other intellectual works, both published and unpublished. The Copyright Act generally gives the owner of copyright the exclusive right to reproduce the copyrighted work, to prepare derivative works, to distribute copies or phonorecords of the copyrighted work, to perform the copyrighted work publicly, or to display the copyrighted work publicly.

Patent

A patent is a right granted to an individual or enterprise by the government that excludes others from making, using, selling or importing the patented product or process without prior approval. In exchange for this right, the applicant must fully disclose the minutiae of the invention. A patent for a product or process that proves successful can give its owner a serious competitive advantage over rivals. It is valid for 20 years, after which it falls into the public domain. A patentable invention can be any art, process, method or manner of manufacture, machine, apparatus or other articles; substances produced by manufacturing; computer software with technical application to industry or used with hardware; and product patent for food, chemicals, medicines and drugs.

Trademark

Trademark (popularly known as brand name) in layman’s language is a visual symbol used by one undertaking on goods or services or other articles of commerce to distinguish it from other similar goods or services originating from a different undertaking. which may be a: Word , Signature, Name, Device, Label, Phonetics Numerals or Combination of colors

The legal requirements to register a trademark under the Act are:

  • The selected mark should be capable of being represented graphically (that is in the paper form).
  • It should be capable of distinguishing the goods or services of one undertaking from those of others.
  • It should be used or proposed to be used mark in relation to goods or services for the purpose of indicating or so as to indicate a connection in the course of trade between the goods or services and some person have the right to use the mark with or without identity of that person.

Under modern business condition a trademark performs four functions:

  • It identifies the goods / or services and its origin.
  • It guarantees its unchanged quality.
  • It advertises the goods/services.
  • It creates an image for the goods/ services.

Any person, claiming to be the proprietor of a trademark used or proposed to be used by him, may apply in writing in prescribed manner for registration.

  • The application should contain the trademark, the goods/services, name and address of applicant and agent (if any) with power of attorney, the period of use of the mark. The application should be in English or Hindi. It should be filed at the appropriate office.
  • The applications can be submitted personally at the Front Office Counter of the respective office or can be sent by post. These can also be filed on line through the e-filing gateway available at the official website.
Types of Trademarks

Any name (including personal or surname of the applicant or predecessor in business or the signature of the person), which is not unusual for trade to adopt as a mark.

  • An invented word or any arbitrary dictionary word or words, not being directly descriptive of the character or quality of the goods/service.
  • Letters or numerals or any combination thereof.
  • The right to proprietorship of a trademark may be acquired by either registration under the Act or by use in relation to particular goods or service.
  • Devices, including fancy devices or symbols.
  • Monograms.
  • Combination of colors or even a single color in combination with a word or device.
  • Shape of goods or their packaging.
  • Marks constituting a 3- dimensional sign.
  • Sound marks when represented in conventional notation or described in words by being graphically represented.
Benefits of registering a Trademark

The Registered Proprietor of a trademark can create establish and protect the goodwill of his products or services, he can stop other traders from unlawfully using his trademark, sue for damages and secure destruction of infringing goods and or labels.

The registration of a trademark confers upon the owner the exclusive right to the use the trademark in relation to the goods or services in respect of which the mark is registered and to indicate so by using the symbol (R), and seek the relief of infringement in appropriate courts in the country. The exclusive right is however subject to any conditions entered on the register such as limitation of area of use etc. Also, where two or more persons have registered identical or nearly similar marks due to special circumstances, such exclusive right does not operate against each other.

 

What is a startup

Definition of a startup

Start-up means an entity, incorporated or registered in India not prior to five years, with annual turnover not exceeding Rs.25 crore in any preceding financial year, working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.

  • Provided that such entity is not formed by splitting up, or reconstruction, of a business already in existence.
  • Provided also that an entity shall cease to be a Start-up if its turnover for the previous financial years has exceeded Rs.25 crore or it has completed 5 years from the date of incorporation/ registration.

The organizational function of the startup is to search for a repeatable and scalable business model.

A startup founder has three main functions:

  • To provide a vision of a product with a set of features
  • To create a series of hypotheses about all the pieces of the business model: Who are the customers? What are the distributions channels? How do we build and finance the company, etc.
  • To quickly validate whether the model is correct by seeing if customers behave as your model predicts.

A startup is funded differently. While both a startup and small business will likely start with funding from the founder’s savings, friends and family, or a bank loan; if a startup is successful, it will receive additional series of funding from angel investors, venture capitalist, and eventually, an initial public offering (IPO). With each series of funding, the startup founder’s equity is windswept, while ownership of the company diversifies.

Eligibility for being a startup in India

  • A recommendation (with regard to innovative nature of business), in a format specified by DIPP (Department of Industrial Policy and Promotion), from an Incubator established in a post-graduate college in India.
  • An incubator, which is funded (in relation to the project) from GoI as part of any specified scheme to promote innovation
  • A recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an Incubator recognized by GoI.
  • Be funded by an Incubation Fund/ Angel Fund/ Private Equity Fund/ Accelerator/Angel Network duly registered with SEBI that endorses innovative nature of the business.
  • Be funded by GoI as part of any specified scheme to promote innovation.
  • Have a patent granted by the Indian Patent and Trademark Office in areas affiliated with the nature of business being promoted.

Entity & Registrations

All businesses need one government registration or another, while nearly all require multiple registrations. For example, even air-conditioned restaurants need both service tax registration and VAT registration, depending on turnover and location, in addition to a Shops & Establishment License. Indirect taxes are those that are collected from customers by suppliers on behalf of the government. Once these taxes are paid to government, a proper record needs to be submitted periodically.

Private Limited Company

Private Limited Company, the most popular legal structure for businesses, should be chosen by anyone looking to build a scalable business. Start-ups and growing businesses choose to register a company in India because it allows outside funding to be raised easily, limits the liabilities of its shareholders and enables them to offer employee stock options to attract top talent. As these entities must hold board meetings and file annual returns with the Ministry of Corporate Affairs (MCA), they tend also to be viewed with more credibility than a Limited Liability Partnership (LLP), One Person Company (OPC), or General Partnership.

Advantages
  • Limited Liability- Businesses often need to borrow money. In structures such as General Partnership, partners are personally liable for all the debt raised. So if it cannot be repaid by the business, the partners would have to sell their personal possessions to do so. In a private limited company, only the amount invested in starting the business would be Lost; the directors’ personal property would be safe.
  • Investment Ready- A Private limited companies easily accommodate equity funding as there is a clear distinction between shareholders and directors as well as limited liability. In fact, venture capitalists and private equity funds are unlikely to invest in any other structure. This is because LLPs would require them to become partners in the business, while an OPC can have only one shareholder. This feature also gives you the ability to hire top talent you may not be able to afford by merely paying a salary.
  • Easy Debt Access- A private limited company has more options for taking on debt than LLPs. Not only are bank loans easy to obtain (relative to OPCs and LLPs), the option of issuing debentures and convertible debentures are always available to it.
Documents required for Company Registration:

TO BE SUBMITTED BY DIRECTORS & SHAREHOLDERS

  1. Scanned copy of PAN Card or Passport (Foreign Nationals & NRIs)
  2. Scanned copy of Voter’s ID/Passport/Driver’s License/Aadhar
  3. Scanned copy of Latest Bank Statement/Telephone or Mobile, Electricity or Gas Bill
  4. Scanned passport-sized photograph
  5. Specimen signature (blank document with signature [directors only])

FOR THE REGISTERED OFFICE

  1. Scanned copy of Latest Bank Statement/Telephone or Mobile, Electricity or Gas Bill
  2. Scanned copy of Notarized Rental Agreement in English
  3. Scanned copy of No-objection Certificate from property owner
  4. Scanned copy of Sale Deed/Property Deed in English (in case of owned property)

Public Limited Company

Public Limited Company is a company whose shares are traded in stock market or issues fixed deposits. For Public Limited Company Registration, the company must have minimum 3 Directors, 7 Shareholders and Maximum 50 Directors and need Rs.5 Lakhs of Paid up Capital. A Public limited company have all the advantages of Private Limited Company and the ability to have any number of members, ease in transfer of shareholding and more transparency.

Documents required for Company Registration

TO BE SUBMITTED BY DIRECTORS & SHAREHOLDERS

  1. Scanned copy of PAN Card or Passport (Foreign Nationals & NRIs)
  2. Scanned copy of Voter’s ID/Passport/Driver’s License/Aadhar
  3. Scanned copy of Latest Bank Statement/Telephone or Mobile, Electricity or Gas Bill
  4. Scanned passport-sized photograph
  5. Specimen signature (blank document with signature [directors only])

FOR THE REGISTERED OFFICE

  1. Scanned copy of Latest Bank Statement/Telephone or Mobile, Electricity or Gas Bill
  2. Scanned copy of Notarized Rental Agreement in English
  3. Scanned copy of No-objection Certificate from property owner
  4. Scanned copy of Sale Deed/Property Deed in English (in case of owned property)

One Person Company

The One Person Company (OPC) was recently introduced as a strong improvement over the sole Proprietorship. It gives a single promoter full control over the company while limiting his/her liability to contributions to the business. This person will be the only director and shareholder (there is a nominee director, but with no power until the original director is incapable of entering into contract). So there’s no chance of rising equity funding or offering employee stock options. Furthermore, if an OPC hits an average three-year turnover of over Rs. 2 crore or has a paid-up capital of over Rs.50 lakh, it must be turned into a private limited company or public limited company within six months.

Advantage
  • Continuous Existence– Sole Proprietorship come to an end with the death of the proprietor. As an OPC has a separate legal identity, it would pass on to the nominee director and, therefore, continue to exist.
  • Greater Credibility- As an OPC needs to have its books audited annually, it has greater credibility among vendors and lending institutions.
Documents Required for Registration

TO BE SUBMITTED BY PARTNERS

  1. Scanned copy of PAN Card or Passport
  2. Scanned copy of Voter’s ID/Passport/Driver’s License/Aadhar
  3. Scanned copy of Latest Bank Statement/Telephone or Mobile, Electricity or Gas Bill
  4. Scanned passport-sized photograph
  5. Specimen signature blank document with signature

FOR THE REGISTERED OFFICE

  1. Scanned copy of Latest Bank Statement/Telephone or Mobile, Electricity or Gas Bill
  2. Scanned copy of Notarized Rental Agreement in English
  3. Scanned copy of No-objection Certificate from property owner
  4. Scanned copy of Sale Deed/Property Deed in English (in case of owned property)

Partnership Firm

A partnership firm is an organization which is formed with two or more persons to run a business with a view to earn profit. Each member of such a group is known as partner and collectively known as partnership firm. These firms are governed by the Indian Partnership Act, 1932. A General Partnership is a business structure in which two or more individuals manage and operate a business in accordance with the terms and objectives set out in the Partnership Deed. This structure is thought to have lost its relevance since the introduction of the Limited Liability Partnership (LLP) because its partners have unlimited liability, which means they are personally liable for the debts of the business. However, low costs, ease of setting up and minimal compliance requirements make it a sensible option for some, such as home businesses that are unlikely to take on any debt. Registration is optional for General Partnerships.
Advantages
  • Minimal Compliance- General Partnerships do not need to appoint an auditor or, if unregistered, even file annual accounts with the registrar Annual compliance are also fewer as compared to an LLP.
  • Easy to start- It can be started with just an unregistered Partnership Deed in 2 to 4 days; registration, however, does bring a few advantages. It would enable you to file suits in court against another firm or partners in the firm for the enforcement of rights arising from a contract or right given by the Partnership Act.
  • Relatively Inexpensive- A General Partnership is cheaper to start than an LLP and even over the long-term, thanks to the minimal compliance requirements, is inexpensive. You would not need to hire an auditor, for example. This is why, despite its severe shortcoming (unlimited liability), home businesses may opt for it.
Documents required for Registration
  1. Form No. 1 (Application for registration under Partnership Act)
  2. Original copy of Partnership Deed, signed by all partners
  3. Affidavit declaring intention to become partner
  4. Rental or lease agreement of the property/campus on which the business is set

Sole Proprietorship Firm

The sole proprietorship firm is the simplest type of business under which one can operate a business. The sole proprietorship is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts.
A sole proprietorship is a business that is owned and managed by a single person. You could have one up and running within 15 days, which makes it very popular among the unorganized sector, particularly small traders and merchants. There is no such thing as registration; proprietorship are recognized by other registrations, such as GST. As you would imagine with a business that’s so easy to set up, though, its shortcomings are severe: the liability of the proprietor is unlimited and it does not have a continuous existence.
Advantages
  • Minimal Compliance- Sole Proprietorship are only recognized via their government and tax registrations, so the extent of their compliance is limited to the annual filing of their service, professional or sales taxes.
  • Easy to start- A sole proprietorship could take only 3-4 days to start because all you need is a GST registration. Either way, the process is uncomplicated. PAN card and identity and address proofs are enough to get them done.
  • Relatively Inexpensive- A Sole Proprietorship is inexpensive as compared to a One-person Company (OPC) and, thanks to the minimal compliance requirements, is inexpensive even over the long-term. You would not need to hire an auditor, for example. This is why, despite its severe shortcoming (unlimited liability), small merchants and traders opt for it.

Limited Liability Partnership

Limited Liability Partnership (LLP), introduced only in 2008, has quickly become a popular legal structure for businesses. Its main improvement over the General Partnership is that, as the name indicates, it limits the liabilities of its partners to their contributions to the business and also offers each partner protection from the negligence, misdeeds or incompetence of the other partners.

A limited liability partnership (LLP) is a partnership in which some or all partners (depending on the jurisdiction) have limited liabilities. It therefore can exhibit elements of partnerships and corporations. In an LLP, each partner is not responsible or liable for another partner’s misconduct or negligence.
Advantages
  • Limited Liability- Businesses often need to borrow money. In a General Partnership, partners are personally liable for all this debt. So if it cannot be repaid by the business, the partners would have to sell their personal possessions to do so. In an LLP, only the amount invested in starting the business would be lost; all personal property would be safe.
  • Reduced Compliance- An LLP only requires audited annual returns to be filed if it has a turnover of greater than Rs.40 lakhs or capital contribution of over Rs.25 lakhs. It also needs to communicate fewer business transactions and structural changes than a private limited company.
  • Tax Advantages- There are some important advantages over the private limited company. For example, Dividend Distribution Tax and tax surcharge don’t apply. Loans to partners are also not taxable as income.
Documents Required for LLP Registration

TO BE SUBMITTED BY PARTNERS

  1. Scanned copy of PAN Card or Passport (Foreign Nationals & NRIs)
  2. Scanned copy of Voter’s ID/Passport/Driver’s License/Aadhar
  3. Scanned copy of Latest Bank Statement/Telephone or Mobile, Electricity or Gas Bill
  4. Scanned passport-sized photograph
  5. Specimen signature (blank document with signature [directors only])

FOR THE REGISTERED OFFICE

  1. Scanned copy of Latest Bank Statement/Telephone or Mobile, Electricity or Gas Bill
  2. Scanned copy of Notarized Rental Agreement in English
  3. Scanned copy of No-objection Certificate from property owner
  4. Scanned copy of Sale Deed/Property Deed in English (in case of owned property)

Important Links:

https://www.startupindia.gov.in/content/sih/en/startup-scheme.html

What do you mean by Board of Directors

A board of directors is a group of people who jointly supervise the activities of an organization, which can be either for a profit business, nonprofit organization, or a government agency. The board of directors appoints the chief executive officer of the corporation and sets out the overall strategic direction.

A board of directors is a team of people elected by a corporation’s shareholders to represent the shareholders’ interests and ensure that the company’s management acts on their behalf. The head of the board of directors is the chairman or chairperson of the board.

Key Takeaways

  • The board of directors is elected to represent shareholders’ interests.
  • Every public company must have a board of directors composed of members from both inside and outside the company.
  • The board makes decisions concerning the hiring and firing of personnel, dividend policies and payouts, and executive compensation.

Composition of Board of Directors

The board of directors is called the brain of the company. They are responsible for taking all the big decisions and making policy changes. These decisions are taken in special meetings, members of the board hold together, called ‘Board Meetings’.

Section 149 of the Companies Act,  states that every company’s board of directors must necessarily have a minimum of three directors if it is a public company, two directors if it is a private company, and one director in a one person company.

The maximum number of members a company can assign as directors is fifteen. However, the company can pass a special resolution in a general meeting to allow for assigning more than fifteen members to the board of directors.

The maximum number of companies that an individual can become a director of, is 20 companies.

At least one director, who has lived in India for a minimum of 182 calendar days of the previous year, shall be appointed by every company’s board. It is a mandatory rule.

At least, one woman director must be appointed by the company.

All listed companies must have at least one-third proportion of their board of directors as independent directors.

The board of directors’ key purpose is to ensure the company’s prosperity by collectively directing the company’s affairs, whilst meeting the appropriate interests of its shareholders and stakeholders. The chairman of the board is often seen as the spokesperson for the board and the company.

Directors have a duty to attend meetings where they are reasonably able to do so. Often the Articles will provide that Directors can be removed if they do not attend meetings for a certain period. Normally, a Board meeting can be called by the company secretary, or any Director.

A directorship is an office, not necessarily an employment. If, however, the company enters into a service contract with the director, the terms of which make the director an employee under the usual common law test, then the director becomes an employee. Many company directors are in this position.

The bylaws typically state who can call a board meeting; this is usually the board chairperson or board president. About a week before the meeting, the board secretary should ask board members for any items that they want added to the agenda.

The CEO cannot fire the Board; in fact the Board hires and fires the CEO. If the CEO is unhappy with a Board member, he can approach the Chairman and ask him/her to review the Director’s performance. If lacking, then the Director need not be nominated to stand for election at the next Annual General Meeting.

Typical inside directors are: A chief executive officer (CEO) who may also be chairman of the board, other executives of the organization such as its chief financial officer (CFO) or executive vice president and Large shareholders (who may or may not also be employees or officers).

The board of directors has more power than the CEO because the board can fire the CEO. However, there is one more group that has more power than the CEO or the board of directors. That’s right… The investors have the most power, more than the CEO and more than the board of directors, in any company.

Main function of the board of directors

The board of directors’ key purpose is to ensure the company’s prosperity by collectively directing the company’s affairs, whilst meeting the appropriate interests of its shareholders and stakeholders. The Roles of the Board of Directors are below:

  • Recruit, supervise, retain, evaluate and compensate the manager. …
  • Provide direction for the organization. …
  • Establish a policy based governance system. …
  • Govern the organization and the relationship with the CEO. …
  • Fiduciary duty to protect the organization’s assets and member’s investment.

Election and Removal Methods of Board Members

While members of the board of directors are elected by shareholders, which individuals are nominated is decided by a nomination committee. In 2002, the NYSE and NASDAQ required independent directors to compose a nomination committee. Ideally, directors’ terms are staggered to ensure only a few directors are elected in a given year.

Removal of a member by resolution in a general meeting can present challenges. Most bylaws allow a director to review a copy of a removal proposal and then respond to it in an open meeting, increasing the possibility of a rancorous split. Many directors’ contracts include a disincentive for firing — a golden parachute clause that requires the corporation to pay the director a bonus if they are let go.

A board member is likely to be removed if they break foundational rules; for example, engaging in a transaction that is a conflict of interest, or striking a deal with a third party to influence a board vote.

Breaking foundational rules can lead to the expulsion of a director. These infractions include but are not limited to the following:

  • Using directorial powers for something other than the financial benefit of the corporation.
  • Using proprietary information for personal profit,
  • Making deals with third parties to sway a vote at a board meeting.
  • Engaging in transactions with the corporation that result in a conflict of interest.

NGO Section 8 Company

Introduction

Non-Profit Organisations or Non-Government Organisations, both are used in the same nature of particular purpose. These kinds of Organisations can be registered in India as Society under the Register of Societies or as a Trust by making a Trust Deed or as a Section 8 Company under the provisions of Companies Act, 2013.

 Society

As per the provisions laid down in the Societies Registration Act, 1860, the definition of Society defined as “it is basically charitable societies, military orphan funds or societies established at the several presidencies of India, mainly society is formed with the purpose of promoting science, culture, sports, literature, fine arts or other extra-curricular activities’ fields.
Society is regulated and governed under the provisions are laid down in the Societies Registration Act, 1860 which is the Federal Act, applicable through India but subject to ratification by the State.

When society is formed then the two documents are issued

  1. Memorandum of Association of Society (i.e. Charter of a Society) and
  2. Articles of Association of Society (i.e. Rules and Regulations of the Society).

Minimum 7 members are required to manage the Society’s day to day activities through distinguished position. However there is no upper limit to numbers of member of managing committee members.

 Trust

Trust means doing something help for helpless section of the public through providing Land & Building. The wordings of Indian Trust Act, 1882 also contains that “a trust is an obligation annexed to the ownership of the property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner”.

Trust is regulated and governed under the provisions are laid down in the Indian Trust Act, 1882 which is the Federal Act, applicable through India but subject to ratification by the State, however, in case of State keeps silent laws about trust then the general principles of the Indian Trust Act, 1882 are applied.

When trust is formed then Trust Deed registered with respective Registrar of Trust which contains the aims and objects and mode of management of the trust. In every trust deed, the minimum and maximum number of trustees has to be specified. The trust deed should clearly spell out the aims and objects of the trust, how the trust should be managed, how other trustees may be appointed or removed, etc. The trust deed should be signed by both the settlor/s and trustee/s in the presence of two witnesses. The trust deed should be executed on non-judicial stamp paper, the value of which would depend on the valuation of the trust property.

Section 8 Company

Section 8 Company is a very wide concept of making non-profit Organisations and defined through such company registration act in India i.e. Companies Act, 2013. As per the provision of Companies Act, 2013, a Section 8 company can be established for promoting commerce, art, science, sports education, research, social welfare, religion, charity, protection of environment or any such other object.

A Section 8 Company is similar to a Trust or Society except a section 8 Company is registered Ministry of Corporate Affairs under the Government of India. Trusts and Societies are registered under State Government regulations. Section 8 companies have various advantages when compared to Trust or Society like improved recognition and better legal standing. Section 8 company also has higher credibility amongst donors, Government departments and other stakeholders.
The main instrument is a Memorandum and articles of association. A section-8 Company needs a minimum of two members; there is no upper limit to the number of members. The Board of Management is in the form of a Board of directors or managing committee and should preferably be Indian nationals.

Necessary Documents

Necessary documents to apply for Section 8 Company-

  1. Passport size photo of all directors of company
  2. PAN card copy, Voter ID, Adhar card, and Bank Statement of all directors of company
  3. Educational Qualifications of all member
  4. Rent Agreement copy along with NOC from Landlord and Electricity Bill
  5. Property Papers copy, if business owned by any director of the company

How to start a NGO in India?

What is NGO?

A non-profit organization that operates independently of any government, typically one whose purpose is to address a social or political issue. NGO may be defined as an association having a definite cultural, educational, religious or social program registered with the Central Government. NGOs enable residents to work together voluntarily to promote social values and civic goals, which are important to them. They promote local initiative and problem solving through their work in a broad array of fields like environment, health, poverty alleviation, culture & the arts, education, etc.

The full form of NGO is Non-Governmental Organization; NGO’s are also referred to as Non Profit Organisations (NPO’s) sometimes.

These kinds of Organisations can be registered in India as Society under the Register of Societies or as a Trust by making a Trust Deed or as a Section 8 Company under the provisions of Companies Act, 2013.

Types of NGO

To clearly demarcate between government related organizations and non-governmental organizations, a detailed list was created about the types of NGO. Some prominent ones are:

  • BINGO: ‘Business-friendly international NGO’ or ‘Big international NGO’
  • TANGO: ‘Technical assistance NGO’, EMPIWF is an example.
  • GONGO: ‘Government-operated NGOs’ (set up by governments to look like NGOs in order to qualify for outside aide or promote the interests of government)
  • DONGO: ‘Donor organized NGO’. Sankalp India Foundation is an example. INGO: ‘International NGO’ (like the infamous Greenpeace)
  • QUANGO: ‘Quasi-autonomous NGO,’ such as the International Organization for Standardization(ISO).
  • TNGO: ‘Transnational NGO.’ The term emerged during the 1970s due to the increase of environmental and economic issues in the global community. TNGO includes non-governmental organizations that are not confined to only one country, but exist in two or more countries.
  • GSO: Grassroots Support Organization
  • MANGO: ‘Market advocacy NGO’, CSG(Consulting for Social Good) is an example.

There are six types of NGOs classified as per their activities:

  1. Service oriented NGOs
  2. Research NGOs
  3. Supportive NGOs
  4. NGO for policy advocacy
  5. Funding NGOs
  6. Coordinating NGOs, on the basis of operational areas, they are identified as community- based NGOs, National NGOs and International NGOs.

Fundraising

How does an NGO run? What are the best methods of getting funds for an NGO?

In India you have to work for 2 years and then only you could apply for funding. You have to submit all the reports to the funding organisations for getting fund. There are several national and international funding organisations and bodies who could give funds as per the issue and vulnerability of your focus area.

Nowadays 2% CSR funding is available from corporate and even you could get funds from government departments. But it depends on your focusing area.

Procedure to Start

Procedure to start an NGO in India

To start and run NGO you will need more than just money, a genuine desire to support others. You have to pass through and adopt the process to prepare and filling up paper work, meet and associated like minded persons of society, have to arrange funds and manage financial activities with reports, have to pay fees and other expenses, have to plan and prepare budget proposals, prepare and organise projects and implement to run NGO.  To start and run NGO is almost similar process to run company but here you have to keep transparency and it is not for profit, you have to work for welfare of society without expecting any profit. So you have to make sure before running an Nonprofit Organisation that you really want to do. Below are the procedure to start the NGO:

  1. Decide Purpose, Vision and Mission of your NGO
  2. Set up the Board of Directors/members- To start  and setup social entrepreneurship as in form of NGO, the founder(s) must be with a organised team of the members that will be the board of directors of the organisation. It can be initiated and started with the like minded, dedicated persons with the spirit of charity and social welfare with commitment, because the members initiating are the base and foundation of the NGO. The financial status can be initiated by own efforts and with the help of supporters. The legal and technological skills can be made available by contacting expert consultants. The persons with clear mission and goals of the organisation and sustainable and progressive ideas to contribute in the entrepreneurship task are essential part of the process. The founder persons must be able to work in a team in order to setup and make stable the organization by initiating and getting acceptance with the community. There is no limit of number of persons of founder members or their supporters it depends upon the contacts and acceptance of the needs for which the NGO is to be established.
  3. Choose the name of your NGO – The name of NGO can be according to your ideas or it can be unique as you have planned to serve the sector and part of society. In India the name of the NGO must be not equal to the any name similar to any Government Body, Board or Ministry. The names must not be restricted in the Logo Act. When you are registering with the required name under Society Act then it is essential to find and make sure that the proposed name is not already being used in the office or the jurisdiction where you have to apply for the Registration. The name is not an issue if you want to register the NGO as Trust under the Indian Trust Act .
  4. Make MOA/AOA- The Memorandum or Articles of Incorporation or Articles of Association or Bylaws must be in a pre-decided and normal required legal format and description. The Memorandum or Articles of Association or Bye Laws or the Trust Deed is the main part of the form and status of the organisation as the NGO. In the Memorandum the Bye laws are included that assign power to the members, board, authorities, decide the area of working, decide the way of working, describe the required clauses that any funding agency, ministry, department of any licensing authority or any department including Income Department need the certain clauses, description and language that describe the approval of the process and licensing measurements. Before applying to registration the Memorandum must be prepared and drafted in acceptable pattern, manner, process and parameters that are required at the time of registration, after registration and for approval of registration under any tax act, approval to get funding and licensing. The matter and information that is to be added and included in the clauses and articles are varies between authorities and departments so the role of expert and experienced legal NGO Consultant matters most at part of preparation of the Memorandum. If the Memorandum is prepared by copy paste parameters then the registration of the NGO can be useless or with no purpose to get funds and authenticity. The Objectives must be included on which you have planned to work with and decided to form the NGO. The legal NGO Consultants better know that what kind of requirements are there to prepare the Memorandum and what clauses and Articles must be added and what must not be added or included to avoid controversy or against the purpose to work in certain sectors in all over the country, in certain area or beyond in the available suitable legal parameters. In case if the Memorandum or Articles of Association is not prepared according to the requirements for a NGO who needs funds and sustainability then it will be useless or there may be requirement of amendment in the Memorandum after sometime of at the time of requirement of such clauses or terms of matter in Memorandum. The following are the main and general points to be included that is often expected:
    • Name of the NGO
    • Objectives/Purpose/Mission
    • A clear statement that declares that the NGO is nonprofit and Charitable
    • Location/ working area of the NGO
    • Name of founder/board members with required designations
    • Extent of personal and social liability of members, beneficiaries, associates and concerned
    • To explain the capital stock and other instruments of NGO
    • How long the NGO is expected to exist as revocable or irrevocable.
    • Other required information and details.
  5. Register your NGO- Once decided and chosen the name of NGO, prepared and completed bylaws and articles then you can proceed to register or incorporate the organisation. The rules and regulation are different in various status and various Registrar offices. So you can take advice and support of consultancy firm or consultants. The documents, fees and process to submit them are different in at different states, districts and even at at different zones in the status. Approximately, you need only Rs.500 for registration fee. But, you will also need to have around Rs.5000 to 6000 for documentation fee, consultation, etc. In all offices and at registration authorities it is mandatory to submit the Memorandum with the names of founders and names of the board members, objectives, mission statement at the time of registration. You can seek the help of the legal consultants.
  6. Get connected with people and societies
  7. After two years start getting funds

NGO Business

Can a NGO do business?

Initially NGOs can do businesses and some profit is acceptable. However, if the NGOs start making excessive profits out of their services, it is only then that other people may start questioning.