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How to Start a Consultancy Business in India: Regulatory and Ot er Issues

An indi!idual "lanning to start is own consultancy in India# would li$e to a!e t e answers %or t e %ollowing &uestions:

'(: Can I si)ultaneously start )y own *usiness + consultancy w ile wor$ing as an e)"loyee,

'-: . ic is *etter %ro) ta/ "oint o% !iew: salaried e)"loyee !s0 wor$ing as a consultant,

'1: I% I start a consultancy# t en w at are t e legal %or)alities,

'2: I% wor$ing as a consultant# w et er to o"en a sole "ro"rietors i" %ir) or wor$ under indi!idual3s na)e,

'4: I% I o"en a sole "ro"rietors i"# w et er any registration is re&uired %or it,

'5: How can I *e sure t at t e na)e I3) going to use# say# 6ABC Consultants7 is uni&ue and t ere is no ot er *usiness or "ro%ession is *eing o"erated under t e sa)e na)e, . at i% in %uture I *eco)e %a)ous and so)eone else co"ies )y %ir) na)e,

'8: . at is t e status o% sole "ro"rietors i" under Inco)e Ta/ Act# (95(, :o I need to a""ly %or a se"arate ;AN card %or sole "ro"rietors i", :o I need to %ile two returns# one in t e indi!idual ca"acity and ot er %or "ro"rietors i" %ir), . at are t e ta/ deductions allowed in running )y own *usiness or consultancy, How does it )a$e a di%%erence in t e ta/ation i% I run t e run t e *usiness + "ro%ession %ro) o)e,

'<: . at are t e T:S i)"lications,

'9: . et er any ot er ta/ is a""lica*le suc as ser!ice ta/, I% yes# t en is t ere any e/e)"tion li)it *elow w ic I3) not lia*le %or ser!ice ta/, . at a*out ser!ice ta/ registration, Is it re&uired irres"ecti!e o% t e e/e)"tion li)it or only i% )y *illing e/ceeds certain )ini)u) t res old, :o I re&uire registration *e%ore starting t e ser!ice or can I a""ly a%terwards, . at is t e rate ser!ice o% ser!ice ta/ a""lica*le %or =Y ->>9?(>,

'(>: . et er a se"arate *an$ account is re&uired %or *an$ing "ur"oses,

'((: . at i% I render ser!ices to a %oreign client,

'(-: . at i% I start a sole "ro"rietors i" and later on in %uture @to e/"and t e *usinessA decide to con!ert it into "artners i" + co)"any,

In a nuts ell# t e reader wants to $now ow to start a consultancy *usiness in India,

.or$ing as an E)"loyee !s0 Consultant: Inco)e ta/ I)"lications

Location o% Clients: In deciding w et er to wor$ as an e)"loyee or as a consultant# it is i))aterial w et er you wor$ %or a US client or Indian client0

Howe!er# i% you wor$ %or US clients you also need to ta$e into account US ta/ laws and :TAA *etween India and US0

Ta/ on Salary !s0 ;ro%essional Inco)e: As a consultant your inco)e is ta/ed under t e ead 6Inco)e %ro) *usiness or "ro%ession7 and accordingly you3re entitled %or all t e genuine e/"enses incurred %or "ur"ose o% running your "ro%essional "ractice suc as tra!elling# rent @e!en

i% wor$ing %ro) o)eA# de"reciation @on car# co)"uter etcA "rinting and stationary# tele" one etc0

On t e ot er and# i% you wor$ as an e)"loyee# your entire salary doesn3t get ta/ed0 You3re entitled %or !arious e/e)"tions and deductions suc as HRA @%or rent "aidA# trans"ort allowance# )edical rei)*urse)ent# LTA etc0

T:S: I% you are a salaried e)"loyee# t e entire ta/ on your salary gets deducted at source as "er section (9- o% t e IT Act0 But# i% you3re wor$ing as a consultant# T:S B (>C is deducted under section (92D @T:S on "ro%essional or tec nical ser!icesA0

Non?Ta/ Consideration: As a consultant you can wor$ %or )any clients *ut as an e)"loyee you can only wor$ %or one e)"loyer0 . y, T ere are no statutory restrictions on engaging yoursel% in any ot er acti!ity + trade w ile si)ultaneously wor$ing as an e)"loyee0 Howe!er# usually as "er t e ter)s and conditions o% e)"loy)ent contract @a""oint)ent letterA# e)"loyees are *arred %ro) underta$ing any *usiness# "ro%ession or !ocation directly or indirectly wit out "rior "er)ission o% t e e)"loyer0

Starting or o"ening a Sole ;ro"rietors i" =ir)

Eeaning: A sole "ro"rietors i" %ir) @also called "ro"rietors i"A is a %or) o% *usiness entity @ot er %or)s are "artners i" %ir)s and Co)"anies registered under Co)"anies Act# (945A owned and o"erated *y an indi!idual0 It is t e oldest# c ea"est# si)"lest and )ost co))on %or) o% *usiness organiFation0

Registration: In India# a sole "ro"rietors i" %ir) as no legal e/istence se"arate %ro) its owner0 T ere%ore# t ere is no re&uire)ent o% registration0

Howe!er# you )ig t re&uire registration under ot er regulatory aut orities0 =or e/a)"le# i% you3re a "ro%essional# say# "racticing as a CA# you re&uire registration wit ICAIG i% selling )utual %unds# registration is re&uired wit AE=IG i% selling insurance need to a!e license %ro) IR:AG i% into i)"ort +e/"ort o% goods or ser!ices# IEC @I)"ort E/"ort CodeA is re&uired0

Ta/ Status: =ro) ta/ "oint o% !iew# it is i))aterial w et er you run consultancy in your na)e or o"en a "ro"rietors i" %ir)0 Unli$e a "artners i" %ir)# w ic as a se"arate status t an t e "artners running it and is accordingly a se"arate ta/ entity %or ta/ "ur"oses# t e sole "ro"rietors i" %ir) and t e sole "ro"rietor are t e sa)e and t ere is only one ta/ assess)ent in t e na)e o% indi!idual0 T ere%ore# only one ta/ return is to *e %iled in t e na)e o% indi!idual0

;AN: T ere is no need to a""ly %or a se"arate ;AN card %or "ro"rietors i" %ir) and you can &uote your indi!idual ;AN w ere!er re&uired in your *usiness dealings0 In ot er words# ;AN o% t e "ro"rietor will *e ;AN o% t e "ro"rietors i" %ir)0

Con!ersion: In %uture# i% re&uired you can con!ert your sole "ro"rietors i" into "artners i" %ir) or a "ri!ate li)ited co)"any under Co)"anies Act# (9450

*y on >1

:ece)*er ->>9 Ser!ice Ta/ I)"lications

Registration: I% you3re "ro!iding a s"eci%ied ta/a*le ser!ice and t e aggregate !alue o% t e ser!ice "ro!ided *y you e/ceeds Rs (> la$ during t e %inancial year# t en you3re lia*le %or ser!ice ta/ and also need a registration H=or) no ST?(I under Ser!ice ta/0

Rate: T e current rate o% ser!ice ta/ is (>01 "ercent0

Location o% Clients: I% t e ta/a*le ser!ice is e/"orted t en no need to "ay ser!ice ta/ *y !irtue o% Rule 2 o% E/"ort o% Ser!ice Rules ->>40 But w at is e/"ort o% ser!ices, As "er Rule 1 o% E/"ort o% Ser!ice Rules# ->>4# i% t e ta/a*le ser!ices is "ro!ided %ro) India and used outside India and "ay)ent is recei!ed in con!erti*le %oreign e/c ange# t en t e ta/a*le ser!ice is considered as e/"orted0

Ban$ing Issues

I% you3re running consultancy ser!ices or "ro%essional "ractice in your indi!idual na)e# t en t ere is no )andatory re&uire)ent to a!e a se"arate *an$ account0 But it is always *etter to $ee" your "ersonal transactions se"arate %ro) *usiness transactions as it also el"s in accounting and co)"liance wit ta/ )atters0

On t e ot er and# i% you3re rendering consultancy or ot er ser!ices under a sole "ro"rietors i" na)e# t en it *eco)es necessary to a!e a se"arate *an$ account in t e na)e o% "ro"rietors i" %ir)0 . y, Because your clients are going to issue c e&ues in t e na)e o% your "ro"rietors i" concern w ic can3t *e de"osited into your "ersonal *an$ account0

Besides# as *usiness + "ro%essional concerns are not allowed to o"en a sa!ings *an$ account# you3ll a!e to o"en a current account0 To o"en a *usiness account in t e na)e o% "ro"rietors i" concern# *an$s usually de)and a registration wit any go!ern)ent or statutory *ody or a trade license @as a "art o% JYC nor)sA and i% you don3t a!e any registrations +license# you )ig t %ace "ro*le) in account o"ening0 Howe!er# so)e *an$s allow you to su*)it a CA certi%icate0 T is is in %act t e )ost trou*leso)e "art o% o"ening a sole "ro"rietors i" %ir)0

But in )y o"inion *an$s are not at %ault *ecause in order to satis%y t e)sel!es a*out t e genuineness o% t e sole "ro"rietors i" %ir) and as a sa%eguard against %raud# it *eco)es necessary %or *an$s to re&uire "ro"er docu)entation0

*y on >1

:ece)*er ->>9 Ot er Re&uire)ents

.e*site: Now a day# i% you e/"ect your clients + custo)ers to ta$e you seriously# it is a )ust to a!e your own we*site0 So it is always *etter to *uy a do)ain na)e at t e *eginning itsel% e!en i% you would li$e to wait %or so)eti)e *e%ore launc ing your we*site0

Accounting K Auditing: As "er section 22AB o% Inco)e Ta/ Act# (95( read wit Rule 5= o% IT Rules# (95- e!ery "erson carrying on *usiness or "ro%ession is re&uired to )aintain *oo$s o% accounts de"ending u"on t e inco)e and turno!er + gross recei"ts as s"eci%ied t erein0 In case o% Ls"eci%ied "ro%essions3 t e re&uire)ent is )andatory irres"ecti!e o% t e Lgross recei"ts30

=urt er)ore# according to section 22AB o% IT Act# a "erson carrying on a "ro%ession is re&uired to get is accounts audited i% t e gross recei"ts e/ceed Rs (> la$ in a %inancial year0

;rinting K Stationary: A letter ead# !isiting cards and a sta)" is also re&uired0

Trade Ear$s: I% you want to )a$e sure t at in %uture no*ody else )a$es use o% your *usiness na)e# *rand or logo# you a!e to get it registered as a Trade)ar$ wit Trade)ar$ Registrar under Trade Ear$s Act# (9990 Be%ore registration a )ar$et sur!ey is re&uired to ascertain i% sa)e + si)ilar )ar$ is already in use in t e )ar$et0

I3!e tried to ensure t at t e a*o!e write?u" gi!es a co)"re ensi!e !iew o% all t e issues %aced *y a *udding entre"reneur in starting is own consultancy *usiness in India eit er in is indi!idual na)e or as a sole "ro"rietors i" %ir)0

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