Many small business owners are unaware of the license procedures that are required for operating their business. The license for a business depends on various factors like the type of the business, the regulations, and policies imposed by the government and the area in which they are planning to start the business. The license is a legal permit given by the local government to the company that indicates that it runs an authorized business and it is not only applicable to the new business, but even an existing company has to renew their application after a particular period. There are some businesses that require more than one license to operate their business legally in that state which is time-consuming and expensive, even though it is a tedious and frustrating process, obtaining all the legal documents and certificates enables the business to operate without any issues. Because if a company is found in non-compliance, they have to pay penalties and they are chances even for permanent closure of the business.
There are some common license and permits a company has to obtain if they are required to operate their business in India. They are,
Service Tax: The tax imposed on the services is called the service tax, and it was introduced under the Finance Act of 1994. This tax is required by the businesses that are providing taxable services over nine lakh. If the revenue of the company hits over ten lakh for the first time, the service tax can be collected by from the customers. In general, the business owners collect 14.5 percent from the customers and pay the service tax to the government. It must be deposited each month and file their tax return every month during April and October.
PAN: The Permanent Account Number must be obtained by all types of business, either in the name of the entity or in the name of the proprietor. It is necessary for the company to quote the PAN in all the payments that are related to the business like the service tax. The company has to provide the PAN if they want to open a business bank account.
TAN: The TAN is the Tax Collection and Deduction Account Number which is a ten digit alphanumeric code and it must be acquired by all the business that pays the salary, commission, dividend and interest. They have to quote the TAN in the TDS and it is approved only when the PAN is under the company’s name.
VAT/CST Registration: The Value Added Tax is referred as the sales tax that is levied at different stages of production of the goods and services in the form of the indirect tax. Though this is an indirect tax, this tax form is understandable and transparent in nature. This tax is levied at each stage of the production and even on the imported goods, but at the same rate as that of the local products. Any company that has crossed five lakh per annum can register this sales tax. The Central Sales Tax is also a sales tax imposed on the goods that are transported between the states. This tax is similar to the sales tax imposed around the world for the sales of the products and it yields revenue to the government.
Both these taxes are required by the service providers, traders and manufactures and they can complete the application for both the tax at the same time. The businesses must pay these taxes to the government every month and file the monthly returns. A business requires a commercial establishment to get the registration.
Shops and Establishment License: This tax is enacted by all the states in the country to provide statutory obligations of the employees and their working conditions in the un-organized employment sector. This tax is required by the commercial establishment like the banking, hotels, restaurants and other entertainment and amusement centers.
Central Excise License: This is the tax imposed on the production or manufacture of the goods and it is collected in terms of the Central Excise Act of 1994 under Section 3. This is different from the sales tax and it is applicable for all the manufactures. Those who have obtained the Central Excise must obtain the Central Excise registration number. The Central Excise registration number is a fifteen digit number, where the first ten digits in the PAN number, the next two digits corresponds to the status of the applicant and the number of premises is denoted by the last three digits.
Importer Exporter Code: This is required by the company or business that imports and exports the goods and services from India. This is issued by the Directorate General of Foreign Trade and the Ministry of Commerce and Industries.
Professional Tax: This tax is levied by the respective Municipal Corporation and this is imposed by many states in the country. And it must be obtained in the entire jurisdiction in which the company has offices within thirty days of appointing a person there. The company must deduct the tax according to the specification issued by the state from the employee’s salary. This tax must be filed by all the employees each month.
Employee Provident Fund Registration: This is created for the purpose of ensuring the financial stability and security for an employee during the retirement. A portion of the salary of the employee is deposited to the EPF and even the employer has to contribute their share towards the fund. Any business or company that has more than twenty employees must register in this fund.
Employee State Insurance Registration: This fund is stipulated by the regulations and policies by the Employee State Insurance Act of 1948 which provides social security and medical insurance for all the employees in the country. It provides medical and fund benefits for the employee and their family through their large network of hospital branches and dispensaries in the country. The non-seasonal factories that employ more than ten employees and other establishments that have more than twenty employees must register the ESI.
Need for license
The main purpose of getting the permits and license for the business is
- To identify the business and an assurance that states that the business owners and the entrepreneurs are accountable for their actions in the business.
- Protect the safety and public health of the employees working in the company.
- To maintain the financial status and the tax purpose of the company.
Drawbacks of not obtaining the license
The lack of proper permit, license and tax registration of a company is considered as an illegal business and can face many legal issues, penalties and can doom the entire business. Because of the pressure faced by the government against the raising traditional taxes, they are looking out for alternate steps to take action against the businesses that fails to obtain proper registration and license.
Before launching a company or business, the business owners and the entrepreneurs must make sure that they have obtained all the necessary permits and licenses to operate their business in that particular location. This establishes that the company or business operates in an authorized and legal manner and offers many tax and medical benefits. The details about the rules and regulations of obtaining the license and permit to run a business are provided by the Ministry of Corporate Affairs.
Anand Rajendran, CEO of Uptra.in, a leading provider of legal services, including company registration. He is the Head of Communications at Uptra Consultancy Services, India’s largest online legal services facilitator.