India taxes individuals based on a system of income slabs. Different tax rates are assigned to different ranges of income.&nbsp;

Understanding tax slabs is crucial for several reasons.

As a person earns more, the tax liability also increases, creating a fair and progressive tax system in the country. To achieve this, the government regularly updates and announces changes to tax slabs in the Union Budget.

The income tax slabs differ between the old and new tax regimes. Let's explore the specific slab rates applicable to Individuals for FY 2022-23 (AY 2023-24) and FY 2023-24 (AY 2024-25).

Income Tax Slab Rates For FY 2023-24 (AY 2024-25)&nbsp;

Rates of the old tax regime slabs are categorized into three groups:

The new tax regime applies uniform tax rates to all individuals, eliminating the age-based distinctions in the old system. The new tax regime slabs 2023-24 are outlined below.

Applicability of Surcharge for FY 2023-24 (AY 2024-25)

The income tax <a href="https://incometaxindia.gov.in/charts%20%20tables/tax%20rates.htm">surcharge</a> is an extra fee imposed on top of the <a href="https://www.skydo.com/blog/how-to-file-taxes-under-44ada?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">regular income tax</a>. An additional tax is applied to individuals with higher income earnings in a specific financial year. Let’s look at the applicable surcharge rate under the Old and New tax regime.

However, 25% or 37% surcharge rates will not apply to income under the following sections.

Consequently, the highest surcharge rate on the tax payable for such incomes will be 15%.

Starting from the Assessment Year 2023-24, the maximum surcharge rate on tax payable for dividend income or capital gain specified in Section 112 will be capped at 15%.&nbsp;

A 4% Health and Education cess will be applied to all cases’ total income tax liability and surcharges.

Comparison of tax rates under the New tax regime and the Old tax regime for FY 2022-23 (AY 2023-24)

How do you calculate the income tax from the income tax slabs?

Let’s understand the calculation with an example.

Sanjana, aged 35, has a total taxable income of Rs. 8,50,000. She has opted for the old tax regime. Her income includes income from salary, interest and rental income. Deductions under section 80 have been reduced. Now, Sanjana wants to know her <a href="https://www.skydo.com/blog/gst-requirements-international-service-sales?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">tax liability</a> for FY 2022-23 (AY 2023-24).

*Sanjana, an individual taxpayer under the age of 60, enjoys an income exemption limit of up to Rs 2,50,000. Other taxpayers, i.e., senior and super senior citizens, have higher income tax exemption thresholds of Rs 3,00,000 and Rs 5,00,000, respectively.

Please be aware that the tax rates in the New Tax Regime are uniform for all categories of individuals, including regular individuals, senior citizens, and super senior citizens.&nbsp;

Individuals with a net taxable income of up to Rs 5 lakh qualify for a tax rebate under section 87A, resulting in zero tax liability in both the New and Old tax regimes. It's important to note that in Budget 2023, the rebate under the new regime has been extended, making income up to Rs 7 lakh tax-free from the FY 2023-24 onward.

Let's delve into effective strategies to maximize your investments while minimizing the associated tax burdens.

ELSS mutual funds provide a dual benefit of potential capital appreciation and tax savings under Section 80C of the Income Tax Act. Investing in ELSS reduces taxable income and offers a path for long-term wealth growth.

2. Explore tax-efficient investment avenues

Health insurance qualifies for tax benefits under Section 80D. You can claim tax benefits on premiums paid - up to Rs 20,000 for senior citizens and Rs 15,000 for others. For example, if you pay Rs 15,000 for your policy and Rs 20,000 for your senior citizen parent, you can claim a total tax benefit of Rs 35,000.&nbsp;

Maturity value is tax-free for sums received under critical illness insurance policies.

This strategy entails selling loss-making assets to realize the capital loss and using it to offset the gains earned by profit-making assets.

For instance, if you have a loss of Rs. 20,000 in Stock A and a gain of Rs. 30,000 from Stock B, you can sell Stock A during a market downturn to offset the gains. This way, you can reduce your taxable income. The saved amount can be reinvested for portfolio growth.

Ensure that tax loss harvesting aligns with your overall financial goals and plan by considering a discussion with a financial professional or tax advisor.

<a href="https://www.skydo.com/blog/how-can-the-right-chartered-accountant-help-your-tech-export-business?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Consult financial professionals or tax advisors</a> for effective tax planning and strategic advice. Their expertise can provide tailored insights aligned with your financial goals and ensure a well-informed approach to optimize your tax situation.

If you need help deciding what is right for you, we will connect you with our panel of Indian and US-based CA / CPAs. Feel free to reach out to us.

Q1. How is a taxpayer's income categorized?

Ans: A taxpayer's income falls into five categories outlined in Section 14 of the Income Tax Act. These include Income from salary, Profits from a business or profession, Income from House Property, Capital Gains, and Income from Other Sources.

Q2. Is it possible to avail of 80C deductions while choosing the new tax slabs 2023-24?

Ans: No, under the new tax regime, several deductions and exemptions, including those under section 80C, are not permitted. Opting for the new tax regime means foregoing the ability to claim deductions under section 80C.

Q3. What do "Previous Year" and "Assessment Year" mean?

Ans: We have two important terms in income tax provisions: (i) Previous Year and (ii) Assessment Year. Previous Year is when you earn income, typically from April 1st to March 31st. The year right after the Previous Year, from April 1st to March 31st, is called the 'Assessment Year.'

For example, the Previous Year is from April 1, 2023, to March 31, 2024 (FY 2023-24). The corresponding Assessment Year is from April 1, 2024, to March 31, 2025 (AY 2024-25).

Q4. What is the tax exemption limit for calculating income tax rebate under section 87A?

Ans: For FY 2023-24 (AY 2024-25), the rebate limit has been increased to Rs. 7,00,000 under the new tax regime. This means a resident individual with taxable income up to Rs 7,00,000 will receive Rs 25,000 or the amount of tax payable (whichever is lower) as tax relief. However, the old tax regime's threshold limit will remain the same, i.e., Rs 12,500 if taxable income is up to Rs 5,00,000.

Q5. How much is the standard deduction for FY 2023-24?

Ans: You can claim a standard deduction of ₹50,000 to the income taxable under the head ‘Salaries.’ The standard deduction is a tax benefit that can be claimed irrespective of the amount spent on Transport or Medical Allowance. It applies to individuals earning a salary or pension income.

Prepare for the upcoming year's tax season by understanding the tax slabs for 2023-24 and optimizing your tax savings. 

Tax Slabs in 2023-24: Plan Ahead for Next Year Tax Savings

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Rohit Khuranna

Modern B2B payment platforms are revolutionizing the way businesses send and receive global payments. By eliminating excessive fees, streamlining workflows, and providing enhanced visibility, innovative solutions like Skydo offer immense value. This article explores the key features and benefits of platforms like Skydo that are driving the evolution of B2B payments.

Features and Benefits of Modern B2B Payment Platforms like Skydo

Modern business payment platforms, such as Skydo, offer a wide range of features that streamline and enhance the payment process for businesses. These platforms are designed with user-friendly interfaces and robust functionalities that cater to the specific needs of B2B transactions, like-

<a href="https://www.skydo.com/blog/forex-and-its-impact?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Forex margin</a> costs are the least favourite for overseas businesses. Platforms like Skydo charge zero forex margin on export payments. It also waives off <a href="https://www.skydo.com/blog/why-was-a-certain-amount-deducted-from-my-swift-payment?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">SWIFT fees</a> and you pay only USD 29 for any transaction.

You can <a href="https://www.skydo.com/blog/seamless-payment-experience-with-international-bank-accounts?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">get a local US account instantly</a> for local US client transfers with Skydo.

GST can be complicated. But platforms like Skydo make sure you have it sorted with the <a href="https://www.skydo.com/blog/automated-digital-firc-implifying-international-payments-with-skydo?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">FIRA instantly</a> in your inbox to file your GST returns on time and efficiently.

Why spend time &amp; energy on invoicing when B2B payment platforms automate the process? Eliminate the need for manual invoicing, reducing errors, saving time, and ensuring prompt payments.

B2B payment platforms integrate with secure gateways, enabling businesses to accept various payment methods, such as credit cards, bank transfers, and digital wallets. This flexibility provides convenience to both companies and their customers or partners, improving the overall payment experience

B2B payment platforms often include allowing businesses to store and manage vendor details, payment terms, and transaction histories in a centralized system. This streamlines the process of managing and tracking payments to multiple vendors, fostering stronger supplier relationships

With the global nature of B2B transactions, modern payment platforms like Skydo facilitate seamless multi-currency payments. They provide real-time currency conversion, enabling businesses to transact in different currencies without the hassle of manual calculations or additional currency conversion fees.

B2B payment platforms prioritize data security and compliance with industry standards. They implement robust encryption, secure data storage, and authentication protocols to protect sensitive financial information and prevent unauthorized access. This instills trust and confidence in businesses and their partners when conducting transactions

Modern B2B payment platforms like Skydo offer robust analytics and reporting features that provide businesses with insights into their payment activities. They generate detailed reports and dashboards on payment statuses, cash flow analysis, and transaction histories, enabling businesses to make informed financial decisions and streamline their operations.

Role of Platforms like Skydo in the Evolution of B2B Payments&nbsp;

With innovative solutions and user-friendly interfaces, platforms like Skydo have revolutionized the way businesses transact, eliminating the complexities and inefficiencies of traditional B2B payment processes.

They act as comprehensive ecosystems, providing businesses with a one-stop solution for all their payment needs. From invoice management and payment processing to vendor management and reconciliation, these platforms streamline the entire B2B payment workflow, saving businesses time, effort, and resources.

Skydo is on a mission to make cross-border B2B payments hassle-free. How does it help a tech exporter like you?

Skydo: A Case Study in B2B Payment Innovation&nbsp;

<a href="https://www.linkedin.com/posts/skydo-official_skydo-testimonial-internetconference-activity-7085543935200165888-aGGq/?utm_source=share&amp;utm_medium=member_desktop">Code Matrix Software India Pvt. Ltd.,</a> a company established 8 years ago, delivers blockchain and AI/ML projects to their clients in the US and Europe. Previously, their mode of accepting payments was Transferwise, Payoneer, and Paypal, among other popular payment platforms. They consistently faced challenges in receiving money and lost a chunk of their revenue in commissions with every transaction.&nbsp;

The founder, Praveen Shrinivasa, stumbled upon Skydo and has been using the platform for all international business transactions. The benefits that contributed to his company’s success include:&nbsp;

The entire process from onboarding to keeping track of your payments is seamless. The results were accelerated business growth and complete customer satisfaction for the company.

The Future of B2B Payments: What to Expect?

In a <a href="https://www.pwc.com/gx/en/financial-services/fs-2025/pwc-future-of-payments.pdf">PWC survey</a>, 42% of respondents strongly felt that there would be an acceleration of cross-border, cross-currency, instant and B2B payments. As we gaze into the future of business-to-business (B2B) payments, one thing remains clear: the continued importance of innovative platforms like Skydo in simplifying and revolutionizing global transactions.&nbsp;

The integration of advanced technologies like AI, DLT, and machine learning into the payments sector will facilitate automation, enabling businesses to leverage these advancements and address the obstacles associated with international trade.

The dynamic nature of technology ensures that new advancements will continue to emerge, addressing challenges and enhancing the efficiency of B2B payments. This constant evolution will drive further innovation, making B2B payments faster, more secure, and more accessible than ever before.

According to a BCG <a href="https://www.bcg.com/publications/2023/future-of-fintech-and-banking">report</a>, “While payments led the last era, we expect that B2B (serving small businesses) and B2B2X (B2B to any user) will lead the next.” You can explore more on the rise of B2B cross-border payments in the below articles-

The Evolution of Modern B2B Payment Platforms Like Skydo & Its Impact

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GlobalTech Solutions, an I.T. service export provider headquartered in India, secured a contract with a client in Germany. As GlobalTech Solutions progressed with the project and submitted their invoices for the services rendered, they were surprised to receive reduced payments from their client in Germany. The unexpected reduction in revenue not only strained their financial resources but also affected their profit margin.&nbsp;

Upon further investigation, they discovered that the client deducted withholding tax. Typically, the payer deducts this tax amount before remitting the funds to the non-resident service provider. GlobalTech Solutions was unaware of this fact initially.

While they lost a certain amount due to a tax compliance oversight, you can avoid such financial setbacks by learning everything you need to know about withholding tax in this guide.&nbsp;

Withholding tax is the amount deducted at the payment source by the payer before remitting the amount to the recipient. This tax amount is paid directly to the government.&nbsp;

In India, withholding tax takes the form of <a href="https://www.skydo.com/blog/ways-to-ensure-zero-tds-leakage?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Tax Deducted at Source (TDS)</a> for domestic transactions. However, withholding tax in international or cross-border transactions includes collecting taxes from non-residents on income generated within their jurisdiction.

Withholding tax requires the payer to hold back a certain percentage of the payment and remit it to the tax authorities on behalf of the recipient. This tax withholding serves as a prepayment of the recipient's tax liability.&nbsp;

Tax expert and CA, <a href="https://www.linkedin.com/in/juhi-shah-633127154/">Juhi Shah</a>, states, "Withholding tax ensures that non-resident individuals or entities contribute their fair share of taxes on income earned within a country's borders. Therefore, proper withholding tax compliance is not just a legal obligation but an essential component of responsible tax management."

Let’s consider an example of a software development company based in India providing I.T. services to a client based in the USA. The agreed-upon fee for the services is $10,000. However, the USA imposes a <a href="https://taxsummaries.pwc.com/united-states/corporate/withholding-taxes">30% withholding tax</a> on payments made to non-resident service providers.&nbsp;

When the software development company invoices the client for $10,000, the client must withhold 30% of that amount ($3,000) as withholding tax. Thus, the client remits $7,000 to the software development company.&nbsp;

Other countries, like The United Kingdom, <a href="https://www.dentons.com/en/services-and-solutions/global-tax-guide-to-doing-business-in/united-kingdom">impose 20%</a> on certain interest payments, rents or royalties. <a href="https://taxsummaries.pwc.com/australia/corporate/withholding-taxes">In Australia</a>, withholding tax applies to payments made to non-residents for certain types of income, such as dividends, interest, royalties, and fees for the performance of entertainment or sports activities. The withholding tax rate is generally 10%.

However, the landscape of international tax laws is complex and dynamic. Each country has its regulations and tax rates. Therefore, in the previous example, while the client deducted withholding tax in the US, the remaining income of $7000 may be subject to another form of tax in India. This phenomenon is known as double taxation.

This form of taxation applies to the same income in two or more jurisdictions. It can happen when income is subject to tax in the country where it is earned and then again in the country where the taxpayer resides.

Offering tax credits or exemptions can avoid or minimise double taxation. Therefore, countries enter into double tax treaties that aim to provide relief to taxpayers by specifying rules for allocating taxing rights.&nbsp;

According to <a href="https://www.oecd.org/en/topics/tax-treaties.html?no_follow=true">a report</a> by the Organization for Economic Co-operation and Development (OECD), more than 3,000 double tax treaties are in effect worldwide, reflecting the intricate nature of international taxation.&nbsp;

Then, how can you <a href="https://www.skydo.com/blog/cut-international-transaction-costs?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">avoid losing your business’s hard-earned money</a> in international taxes?&nbsp;

Imagine a tech company in India called ABC Tech Solutions. They provide tech services to companies around the world. One of their clients, XYZ Corporation, owes them Rs 1,000,000 for services.

As per RBI rule, before paying this money to ABC Tech Solutions, XYZ Corporation can set aside a portion for taxes. Let's say it's 10%, which amounts to Rs 100,000. So, instead of paying the full Rs 1,000,000 to ABC Tech Solutions, XYZ Corporation pays Rs 900,000 and keeps Rs 100,000 separately for taxes.

It's now XYZ Corporation's responsibility to give this Rs 100,000 to the government as withholding tax. They're holding onto it on behalf of ABC Tech Solutions.

ABC Tech Solutions, receive Rs 900,000 in their account, but they know that Rs 100,000 has been kept aside for taxes by XYZ Corporation. When ABC Tech Solutions files its income tax return, it can show this Rs 100,000 as a credit.&nbsp;

It helps them because they've technically already paid some tax through XYZ Corporation's withholding.

Let's discuss the current rates for withholding tax paid by non-resident individuals. The following rates are applicable.

These rates apply to countries without a Double Taxation Avoidance Agreement (DTAA) with India.

What Is the Difference Between Withholding Tax and TDS?

Let's break down the key differences between Withholding Tax (WHT) and Tax Deducted at Source (TDS).

In India, a withholding tax certificate is a document acknowledging the deduction of taxes at the source. It is issued by the payer to the payee, confirming the amount withheld from payments made. This certificate is crucial for the recipient to claim credit for the deducted tax while filing income tax returns.&nbsp;

It includes details such as the payer and payee's information, the amount paid, the applicable tax rate, and the actual tax withheld. This certificate serves as evidence of tax compliance and ensures transparency in financial transactions, facilitating accurate reporting and adherence to regulatory requirements in India's taxation framework.

Calculating withholding tax involves a series of steps to ensure that the appropriate amount of tax is deducted from a payment. Here's a breakdown of the process:

Tips/Best Practices for Managing Withholding Tax Obligations&nbsp;

The following tips can help overcome the complexities of international tax laws, varying tax rates, and evolving regulations concerning withholding tax.

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International Payment Service Providers and Withholding Tax

<a href="https://www.skydo.com/blog/online-payment-gateway-service-provider-opgsp?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Payment service providers</a> are crucial in helping businesses navigate withholding tax issues when engaging in international transactions. They often offer built-in tools for calculating and deducting withholding tax from payments, ensuring accuracy and compliance.&nbsp;

They also provide reporting functionalities that generate comprehensive tax reports, simplifying documentation. Additionally, they may offer tax advisory services or collaborate with tax experts to navigate complex tax regulations.

This way, you can safeguard your business’s financial interests, maintain regulatory compliance, and foster successful international business relationships.

Q1. How might currency fluctuations affect my withholding tax obligations as an IT service provider?

Ans. Withholding tax is typically calculated based on the payment amount in the local currency. Exchange rate fluctuations can affect the tax liability.

Q2. How can I determine if a client's country has a tax treaty with my country to avoid double taxation?

Ans. You can refer to both countries' official tax authorities' websites to determine if a client's country has a tax treaty with your country. Alternatively, you can seek assistance from tax professionals who can analyse the specific treaty provisions applicable to your situation.

Q3. What are the consequences of non-payment of withholding tax?

Ans. Non-payment of withholding tax leads to severe consequences, including penalties and legal actions. It can result in financial losses, reputational damage, and complications with tax authorities, impacting a company's operations.

Q4. How does the nature of my IT export services affect the withholding tax? Are there specific exemptions I should be aware of?

Ans. The nature of your IT export services can impact the applicability of withholding tax and potential exemptions. Some countries may have specific provisions or exemptions for certain types of services or income.

Q5. What role can a global payment service provider play in helping me manage my withholding tax obligations?

Ans. A global payment service provider facilitates accurate calculation, deduction, and withholding tax reporting. They may provide built-in tools for tax calculations, generate tax reports, and offer compliance support. Collaborating with a reputable payment service provider, like Skydo, can streamline your payment processes and ensure compliance with withholding tax regulations across different jurisdictions.

Q6. What is the due date to file the Withholding returns?

Ans. The due date to file withholding returns is crucial; it typically falls within a month after the end of the quarter in India.

Q7. What is the Withholding tax payment due date?

Ans. Withholding tax payment is due on or before the 7th day of the month following the month of deduction, as per Indian tax regulations.

Q8. How is the assessment of Non-Resident Indians done?

Ans. Assessment of Non-Resident Indians involves evaluating their global income and determining tax liability based on applicable tax rates and treaties.

Q9. Who is responsible for withholding tax?

Ans. The entity making payments is responsible for withholding tax, ensuring deduction, and remittance to the government per the specified rates.

Q10. Which incomes are subject to withholding tax?

Ans. Various incomes, such as salaries, interest, dividends, and royalties, are subject to withholding tax, serving as a mechanism to collect tax at the source before funds are disbursed.

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Selecting the right business structure is important as it can significantly affect various aspects, such as tax obligations, legal liabilities, and growth opportunities. Moreover, altering the structure down the line can prove to be a time-consuming and costly endeavor.&nbsp;

Therefore, it becomes crucial to carefully consider and choose a suitable legal framework from the outset.

In India, the most common business structures are:

In the financial year 2021-22, <a href="https://trak.in/tags/business/2022/04/20/457-new-companies-were-registered-every-day-in-india-1-67-lakh-company-registrations-in-2021-22/">as many as 1.67 lakh new companies</a> registered with the Ministry of Corporate Affairs, bringing the total to 14,13,249 registered private companies and 2,52,460 limited liability partnerships, while more than 60% of all registered businesses are sole proprietorships.&nbsp;

Six Factors to Consider When Choosing a Business Structure

If you want to start a business, you can look towards starting a private limited company. Private limited companies can have a minimum of 2 and a maximum of <a href="https://vakilsearch.com/blog/maximum-number-members-private-company/">200 members</a>. This structure suits medium to large-sized businesses requiring significant investment, infrastructure, and compliance requirements.&nbsp;

Partnerships involve a minimum of two and a maximum of 20 partners, making it suitable for small to medium-sized businesses that require less investment, have lower compliance requirements, and are easier to set up. Some examples are Maruti Suzuki, Mahindra and Mahindra and Hindustan Petroleum.&nbsp;

A single individual owns proprietorships, making them suitable for small businesses requiring minimal investment, low compliance requirements, and easy to manage.&nbsp;

Liabilities include all the business's financial obligations, such as debt, which they are legally liable to repay. However, some business structures differentiate between the enterprise and the owner to protect the owners from being personally liable to compensate liabilities.&nbsp;

You can start a private limited company if you want to have limited liability to the extent of the share capital ie your contribution to the company. Your personal assets will be safe.&nbsp;

However, in the case of general partnerships, you and your partners will be jointly liable for the business’s debts and obligations. That means, your personal assets will be at risk. If you do not want unlimited liability but want to create a partnership firm, you can start a limited partnership (LLP). LLPs have at least one general partner with unlimited liability and one or more limited partners whose liability is limited to the extent of their contribution.&nbsp;

Here, starting a proprietorship may not be the right decision as the sole owner has unlimited liability and is personally liable to repay all the financial obligations.&nbsp;

Every business is legally liable to pay tax on the profits. However, as taxes reduce the overall profits, you should choose among the three based on their tax implications.&nbsp; For example, if you do not want to start a business liable to pay high taxes, you can pass on starting private limited companies and partnerships as they must pay taxes on the profits at a flat 30% rate, plus surcharge and cess as applicable.

In the case of proprietorships, the sole owner personally receives the profits. Hence it is taxed per personal income tax laws as per the applicable tax slab. Sole proprietorships involve paying fewer taxes and prove an ideal choice if reducing tax liability is a vital business factor.&nbsp;

4. Cost and complexity of setup and maintenance

All entrepreneurs want to start a business that does not include higher costs and complex processes. If you have high capital and the efforts to start a big business, you can choose private limited companies as the business structure. Private limited companies require a minimum share capital of Rs. 1,00,000. They also require a higher initial investment for legal fees, registration fees, and other compliance requirements. The complexity of setup and maintenance is also higher than other business structures.&nbsp;

However, if you want a business structure which is relatively affordable and easier to set up, a partnership firm will be an apt business structure as the minimum capital required is Rs 50,000. It requires minimal legal formalities, and the cost of maintaining a partnership is also lower than a private limited company, as it has fewer compliance requirements.

The best business structure for the lowest cost and complexity is a sole proprietorship, which does not require extensive registration or legal formalities. Many proprietors don’t even register the company, running it in their name with their personal bank accounts.&nbsp;

Some entrepreneurs want total control over all business affairs, while some seek the expertise and skills of others to make mutual decisions. If you are the former, you can choose sole proprietorship as the business structure. The sole owner of the proprietorship has complete control over the management and the profits, as it is not a separate legal entity. 

However, if you are the former, you can create a partnership firm, as all the partners have ownership and control based on the profit-sharing ratio determined at the time of incorporation. In the case of private limited companies, the shareholders have ownership, but the board of directors controls the entity. Hence, the decision-making is collective and requires mutual agreement on implementing business ideas.&nbsp;

Funding is an important aspect of the success of a business, allowing entrepreneurs to ensure constant cash flow into the business. Private companies are the ideal business structure to create a business that can raise funds as needed. Private limited companies are popular when choosing a business structure, as they can issue equity shares to investors. Private limited companies can raise funds through venture capital, private equity, angel investors, and even an initial public offering (IPO) if they meet specific criteria. It becomes easy to issue new shares, buy back old ones, or sell or buy them.

Partnerships can only raise funds through the personal resources of the partners, whereas proprietors leverage personal resources or borrow funds from banks and other financial institutions. Both business structures can not issue equity shares to investors or borrow funds by pledging their assets as collateral. If they want to change the partnership structure or add investors, they must dissolve the current partnership and create a new one.

Registered under the Companies Act 2013 with the Ministry of Corporate Affairs are legal business entities held privately by various shareholders.&nbsp;

Private limited companies in India need approval by the Registrar of the Company concerning their name and can have a minimum of two and a maximum of 200 members/directors. Shareholders have limited liability that extends only to their share capital. Foreigners can invest in private limited companies under the automatic route, and owners can transfer ownership through share transfer.

Examples of businesses suitable for Pvt Ltd

The business structure of a private limited company is suitable for businesses that require high investment and are large to medium size. This can include capital-intensive manufacturing, IT, real estate, retail and large-scale service enterprises.&nbsp;

Questions to ask yourself before you choose Pvt Ltd

Ponder upon the following questions before choosing the private limited structuring.

Compliance and Role of CAs and Lawyers in Pvt Ltd Companies

Compliance is critical to running a private limited company in India. Seek the advice and guidance of qualified professionals, such as Chartered Accountants (CAs), Company Secretaries (CS) and lawyers, to ensure effective compliance with all legal and regulatory requirements.&nbsp;

<a href="https://cleartax.in/s/government-schemes-businesses">Government Schemes</a>

The Indian government has established numerous schemes to support private limited companies such as:

Partnership firms have at least two members who agree to share profits based on a pre-defined ratio. There are two types: general partnership and limited liability partnership (LLP).&nbsp;

General partnerships are registered under the Partnership Act of 1932. The partners have unlimited liability with a maximum of twenty members.&nbsp;

LLPs are registered under the Limited Partnership Act of 2008. Partners in LLPs have limited liability and can have an unlimited number of partners.

Examples of businesses suitable for partnerships

Compared to private limited companies, partnerships are easier to set up and do not require a high initial capital investment. This business structure is ideal for mid to small-scale businesses. Some examples are professional services such as CAs, lawyers, retail or wholesale businesses and small-scale manufacturing businesses.&nbsp;

Questions to ask yourself before you choose Partnerships

What makes partnerships an ideal business structure? Here are some questions to consider before starting a partnership firm.

Partnerships in India must comply with legal and regulatory requirements. A CA or lawyer can help manage financial matters, create and manage the partnership deed, and ensure the firm obtains a PAN and TAN Card. CAs assist with bookkeeping, accounting, and relevant financial documents. Lawyers help ensure stability in case of disputes or dissolution of the firm.

An individual owns, controls, and manages a proprietorship business with minimal regulatory compliance and no registration with government authorities. However, the proprietor must obtain relevant licences and tax registrations from the State/Central government based on the business's nature. Proprietorships have unlimited liability, and a person can be the company’s stakeholder.

Examples of businesses suitable for Proprietorships

Proprietorships as a business structure are the most sought-after for individuals who want to open a <a href="https://www.skydo.com/blog/scale-faster-with-skydo-payment-solution?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">small-scale business</a> without the hassle of extensive regulatory and registration processes.&nbsp;

Some examples of businesses suitable for proprietorships are freelancers and consultants for content writing, graphic design, agriculture businesses, retail shops, small-scale manufacturing and online businesses such as e-commerce stores.&nbsp;

Questions to ask yourself before you choose Proprietorships

Proprietorships provide the highest flexibility to run a business. However, consider the following questions before choosing the business structure.

Compliance and Role of CA and Lawyers&nbsp;

CAs and lawyers are limited in proprietorships as they do not require registration under the Companies Act. Proprietorship owners may <a href="https://www.skydo.com/blog/how-can-the-right-chartered-accountant-help-your-tech-export-business?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">engage a CA</a> to obtain tax and business licences and file taxes. Lawyers can assist in legal disputes with creditors or third parties.

Choosing an ideal business structure is critical to creating an effective blueprint for the business and ensuring that the execution of business activities leads to success. However, you must consider factors such as size and nature, liability protection, tax implications, costs and complexity, ownership and control with the funding aspect before choosing among the three business structures.&nbsp;

It is always wise to seek professional advice from experts who analyse the objectives and goals of the business to pitch you with the right structure. Once your business has the right structure, you can move forward and execute further business activities to attain profitability, sustainability and success.&nbsp;

Q1. Which is better proprietorship or partnership?

Ans: The choice between proprietorship and partnership depends on factors like individual preferences, risk tolerance, and business goals. Proprietorship offers sole control, while partnership allows shared responsibilities. You can choose one that suits your envisioned goals.

Q2. Is Pvt Ltd better than a proprietorship?

Ans: Private Limited (Pvt Ltd) companies often provide more credibility, limited liability, and potential for growth compared to proprietorship, making them generally preferable for businesses seeking formal structure and expansion.

Q3. Which is better partnership or Pvt Ltd?

Ans: The decision between a partnership and a Pvt Ltd company hinges on factors like ownership structure, liability concerns, and growth aspirations. Pvt Ltd entities usually offer a more formal structure and limited liability.

Q4. Is it better to be a partnership or a limited company?

Ans: Choosing between a partnership and a limited company depends on factors like business size, structure preferences, and liability considerations. Limited companies provide a more formal structure, limited liability, and potential for substantial growth, making them suitable for larger enterprises.

Private Ltd, Partnership or Proprietorship: What should you choose? Th