Letters for registration at FRRO Mumbai

As I said in my previous post, here I give you the links for downloading the templates of letters for registration at FRRO Mumbai. I hope somebody finds them useful:

Request letter for registration at FRRO Mumbai:

http://www.ecam.co.in/EntrepreneurBlog/RequestLetter_Template_FRRO_Mumbai.doc

Undertaking letter for registration at FRRO Mumbai (as per format given to me a couple of days ago):

http://www.ecam.co.in/EntrepreneurBlog/UndertakingLetter_Template_FRRO_Mumbai.doc

They may change one day, but at least for the time being these should work well and you may not need to go more than once if you have everything prepared.

By the way, I forgot to say in my previous post, you need to bring three sets (i.e. two extra copies) of all the papers.

Registration at FRRO

This may not be very useful for most entrepreneurs in Mumbai, but it is part of my life as an Entrepreneur here because of not being an Indian citizen. Besides, I think it can be useful to many other people.

Part of the information that I am going to give here can be found at http://www.immigrationindia.nic.in/

Every person living in India with a visa which lasts for more than 180 days needs to register at the Foreign Regional Registration Office or FRRO. FRRO Mumbai is located very near VT and behind St. Xavier’s college. The exact contact details are:

Telephone No.: 022-22620446 (O) 022-22620721 (Fax)

E-Mail Address:  frromum@nic.in  dcpsb2.frro@indiatimes.com 

Address: 3rd Floor, Special Branch Bldg., Badruddin Tayabji Lane,
Behind St. Xaviers College, Mumbai-400001.

This registration must be done within 14 days from landing in India and must be done at the city where you have your residence.

They often change the papers required, just as it happened this month, and this is what inspired me to write this post in the blog so that those registering can have the latest information. The site http://www.immigrationindia.nic.in/ gives some information in the “Registration Req” link, but is not updated and they don’t give you any templates there which they do give when you are there. Currently, the documents required for Employment Visa are:

• 4 recent passport size photographs;
• Photocopy of photo page and valid Indian Visa page of the passport;
• Proof of residential address in India;
• Request letter
• Undertaking letter
• Contract agreement from employer

The undertaking letter is what has changed recently. Before they had a very small format which was required, later on they added the requirement of an Indian person signing the letter (and you must accompany the letter with an identity proof of that person, such as passport copy), and now they are giving a new template for the letter which must be printed in the Company’s letter head. I will be uploading that template in a future post.

The request letter is for the company to request the registration of its employee. It should mention the passport number and address of the foreigner. I like to include other information as well, just in case, such as visa number and nationality. I will also upload that in the same post as the other.

Make sure you know where the time period of the contract agreement is specified in the document and where are the details regarding salary as this is what they look for and you could save them some valuable seconds by finding it for them.

People wanting to register who have other types of visa, such as student visa, need other documents such bonafide certificates from their institute. I guess they won’t need a contract agreement, but I assume that they also need the undertaking and request letters.

TDS on salary

Calculating the TDS to be deducted from an employee receiving monthly salary could be a little more complicated than doing it for external professional services.

First, it is required to forecast what will be the total gross income of an employee during the whole year. This calculation should include the earning he or she may have got from a previos employeer if the recruitment has been done in the middle of the financial year.

Then, you will need to calculate the liability of tax payment based on the income. For example, a person earning from 1.5 lakhs to 3 lakhs is liable to 10% tax on the amount above the first 1.5 lakhs. Subsequently, there are other slabs at different rates which every year may vary therbexact figures. Thus, it is important to check those slabs while calculating.

Once you know the total tax liability, then you should divide that amount by the nuber of months remaining in the financial year (12 if it is the beginning of the year) and deduct that amount every month.

Remember to file the TDS payments every quarter before the 15th of next month!

Education cess to be removed from TDS payments

Until now, whenever you made a deduction at source for tax (TDS) you also had to deduct an additional percentage which would be destined directly for education budget in India.

This extra percentage would somehow complicate calculations by producing odd figures. For example, the TDS for professional services is 10% plus a 3% for education cess on that, which would take it to a total figure of 10.3%. It doesn't sound like a big deal, but in fact it makes calculations and filling up of forms more tedious than they should be, as you have to specify them separately.

I have been told that the education cess figure will be removed from the payments on 1 October 2009 onwards. Thus now it will be only the 10% in the case of professional services, which makes it quite easy for the fomalities.

I understand this will not apply to all TDS concepts, but I will get to know more details only once we are closer to October 1.

TDS Calculation for professionals abroad

After a few hours at the C.A.'s office today, dicussing this and various issues, I have clarified the following with respect to tax deduction at source (TDS) for payments to professionals outside India.

As I said in my previous post, the TDS should be calculated depending on the country to which the money will go. The percentage will vary from country to country based on the treatise India may have with them.

However, those payees which do not carry out their service in India and will not do it throughout the financial year are excempted from this TDS. That means that, if the payee will not come to India to carry out its service, and always does it remotely, you will not need to deduct any tax and you can make the payment in full.

TDS for Payments Abroad

During all this time with my company being part of an international group of companies we have always been doing jobs for them and receiving their payments without any problem, just like the payments of other clients abroad.

But short time ago we got something done from one of our collaborators abroad, and realized that it is not that easy to do payments the other way around. For payments to other parties abroad you also need to calculate TDS and it could be quite complex.

India has different treatises with different countries, thus a different TDS applies for each country and each concept. Furthermore, there are some countries with which there is no treatise, and it is not very clear what TDS should be deduted (e.g. Argentina, which is my case).

Be careful before making payments abroad, ask your CA to do some research. Otherwise you may end up being disallowed that payment and having to pay tax for it as if it were your profit.

There seems to be an exception in case your payee is an individual who never has been to India and you are paying for professional services... But my CA is still doing research on that.

Back to business

It has been a long time from my previous post. The reason for that is a combination of several factors that made it really impossible to have any time, not so much for writing, but for thinking... which is what I need most for writing! I went in a business cum pleasure trip to Mexico... that involved a lot of preparation, and a lot of catching up with pending work upon arrival (one month trip makes many things pile up!).

Besides that, we have lunched a new service at Encyclomedia i.e. my company, thus I had to spend a lot of time setting up that, and at the same time helping out the person who is now in charge of the other services of the company. Some projects have finally started to come on this and work seems to be rolling, so now I'm somehow more at peace... of course, that doesn't mean I am without working a lot.

I have left several doubts unanswered from some readers, but I think I will better go ahead to discuss things about taxes. But if the doubt still there, you can ask me again.

The photo is the view I had from the beach-house at which I was studying and resting near Hermosillo, Mexico: at Bahía de Kino. By the way, this is my first post to the blog through e-mail.

Relationship between Domain Name Registration and Company Name Registration

A blogger, in a comment to a previous post about the legal process to set up your company, asked with respect to the name registration through Form 1A and later on Form 1, the following:

Another issue is to register your domain name over www under W3C.Mean when we register our company then MCA(Ministry of company affairs), provide a domain name for our company or we need to process it by our own.
If yes,then when we get the authorization to register a domain name directly after getting
Apply for ROC for the name of company or After the submission of form 1,8,and 32.

Maybe it makes sense that we would like the domain name of our web-site to be the same of our company, however, it is not a requirement and many times, because of lack of availability, it won't be possible. Thus, I really think the best is to register your domain name as soon as possible, without waiting for your Company Name registration, and even less, waiting for the Company Incorporation.

What you could do to make sure that they somehow match is to use for your domain name, only the main word or the acronym. For instance, my company is Encyclomedia Communication and Marketing Pvt. Ltd. Certainly, I would not have tried calling my web-site www.encyclomediacommunicationandmarketing.com: who would remember that?

I tried getting www.encyclomedia.com, or .co.in, but wasn't available. So, I chose www.ecam.co.in which is the acronym for the full name of the company.

Imagine my Company Name had been rejected... I don't really think it would have been a big problem. In the worst of cases, I would have setup another domain (even if totally different) and re-direct it towards the IP where www.ecam.co.in is stored. But by that time, there would already be more visitors than I would have had if I had never opened the web-site, thus I would have more prospect clients from the very beginning.

A note about DIN for foreign nationals

When I was getting my DIN (I'm Mexican) I tried just submitting my papers notarized in India, with the notaries outside Bandra High Court. However, my application was rejected. Later on, I got my documents attested by my embassy in New Delhi, sent them again to MCA, and got them approved. I thought this might be a rule, but it seems I was wrong.

Raju, a reader of the blog, sent me the following message:

[...] I also had a quick question for you with regards to applying for DIN as a foreign director. We are currently facing some issues with getting the documents for DIN attested by the right person/people. My business partner is from the US and it might be difficult for him to travel back to New York to get the documents notarized. On your post on DIN, you mentioned something about embassy charges. Did you get your documents notarized/attested at an embassy in India? If not, is there no other option but to get the documents attested from the US?

After telling him my story, and him trying it out, he came back with the good, but confusing (for me) news:

Just wanted to drop you a note to say we finally managed to get the DIN approved. It was our 4th attempt. :-) The notarization from the US Consulate was rejected but we were told by the MCA DIN Cell that if the foreign director is in India, an Indian notary can do the attestation as long as a notarized copy of a valid Indian visa is also submitted.

Well... I guess it is matter of trying out different things until it works!

Thanks to Raju for telling me his experience and allowing me to post it here.

This article was also posted as a clarification into the original post about DIN.

How much TDS I should deduct?

I think it is nobody's cup of tea to pay taxes, nor to deduct taxes from anybody else. But as an employeer or business person who subcontracts job or gets services from other people it is our duty to deduct taxes from them. If we don't we could be penalized as well.

For each type of payment there is a different slab and different rate of TDS (Tax Deducted at Source) we should deduct. Of course, I haven't dealt with all types of payments, and will write here only about those I know but they all share the following characteristics.

• The amount deducted in any given month from the total invoiced should be paid in the first seven days of the next month.
• If a payment is delayed to the next month (from day 8 onwards) or more months, an interest of one percent per month delayed should be paid.
• The TDS payments should be filed quarterly, within the first fortnight of the next quarter.
• Delay in filing is more heavily penalized, at Rs. 100 per day of the delay, thus it could be a very expensive delay if you were to delay filing the TDS payments for any reason.

We can take an example. Let's say you have made a payment of Rs. 25,000 to a freelance developer on the 5th of April. The TDS applicable would be for Professional Services at 10.3%. The payments and dates would be as follows:

• 5th April, Rs. 22,425 (Rs. 25,000 - 2,575 TDS).
• The Rs. 2,575 should be paid before 7th May.
• And this payment should be filed along with all other TDS payments of April, May and June before 15 July.

Imagine that for some reason, you delay the TDS payment and you do it just before 7th June. Then you will have to pay Rs. 25 extra (i.e. 1%)... If one month later Rs. 50 (i.e. 2%) and so on and so forth 3%, 4%, 5%, etc.

By the way, I have some pending comments to reply to... sorry, lately I haven't had much free time. In fact, I wrote this post while traveling on my PDA (greatly helpful devices!). But I will surely get back to that soon.

Start working ASAP

At my post Legal process to start the company, I had said the following:

When setting up a new business you would like to start giving your service or selling your product immediately so as to begin receiving returns very soon. And it is in deed possible (at least that's what I did)...

And Chitra, a reader of the blog, said in a comment at Final Submission to register your company:

You are right in some sense but clear me one thing if we r going to develop a software company or some what a web development company,then do u think it is possible to start the service(or starting a project)exactly before registration of the firm.
Or in general, for a product based firm it will be tough to set up the machinery before any legal process.

I guess there are two options.

One is dedicate yourself full time to do the process of setting up the company. This way, the process will be quicker and you will perhaps do it better because you will be fully concentrated on it. However, there will be quite a few idle times because you will be just waiting for some of the approvals.

The other option is to work as if the company already existed. You can work in a sole proprietorship basis (which does not require any legal work). Or you can associate with another already setup company which belong to a friend and do the services through that. Or you can start offering the service to clients, invoicing them, if required, in a personal basis, as a professional does. Or you can just tell your clients that you are about to open the Pvt. Ltd. ("I'm just waiting for the final approval") and you will send the invoice at that time. There are countless things you can do.

Besides, during this time, since you are starting, you can have a main focus on the marketing. The only fear could be that you build brand name of a company for which you are not yet the owner, but I think there is little to fear in this respect. You can check availability of the name in the MCA web-site, and besides you will get the approval for the booking of the name (form 1A) in just a few days or maximum weeks. I don't think there are very high probabilities of loosing the name (perhaps the full name yes, but not the main keywords).

A new beginning... taxes

I have somehow finished writing about my experience on setting up the company legally. Most probably, there are quite a few things I have forgotten to write... if I remember, I'll do it later.

Now, the new Financial Year is beginning and I thought it would be a good opportunity to start writing about my experience with this issue. Most probably, what I will write will not help for the year that has just ended, but I hope it will help you for this year 2009-10.

I will be making posts about things such as:

• TDS (employees, contractors, professional services, etc)
  
• Personal tax
• Corporate tax

Nobody likes giving money just like that to the government in taxes. Thus, we always look at ways of reducing our liability. But before you do anything, don't forget to ask the experts as otherwise you may get into serious trouble.

I have also found a few good websites and blogs for this topic of taxes. I'll be sharing them as we move ahead of course: they know much more than I do.

Final submission to register your company

By now, if you have followed all the process to register your company you will have finished with quite a few things. You decided you wanted a Private Limited company. You got your DIN (Director Identification Number) and your Digital Signature. You have already received your confirmation for the name you chose for your company. Also, you drafted your MoA and AoA, of course with the proper legal advice. You have shelled out some money for stamp duty and registration fees. Finally, you are ready to give the last step and soon afterwards get your Incorporation Certificate for your newly approved Private Limited Company.

The last step is to submit form 1, form 18 and form 32. Of course, this will go along with the MoA, AoA and all the colourful rubber stamps you got in your papers at the time of the stamp duty and paying the registration fees.

• Form 1: Application and declaration for incorporation of a company.
  
• Form 18: Notice of situation or change of situation of registered office.
  
• Form 32: Particulars of appointment of managing director, directors, manager and secretary and the changes among them or consent of candidate to act as a managing director or director or manager or secretary of a company and/or undertaking to take and pay for qualification shares.

There are just a few things to take care while doing this.

First, that they are quite important forms for the future. For instance, when you want to open a bank account or do a similar procedure, you will be asked for copy of these forms (at least 18 and 32).

The other issues, since by this time you will be doing it with legal advice you need not worry much about it. But they are such as making sure you have the latest form, etc.

As usual, I like to tell people that is important you get to know about those things before meeting your CS (Company Secretary) so that the meeting is much more efficient and you are somehow in the same "frequency". Thus, it is better if you try downloading those forms and read what all information they ask for there. You can get them from the MCA website.

Ethics and business

I firmly believe that ethics and morality go before business, any time, even if at times it may be difficult.

If you had visited my blog earlier, you may have noticed there was a video at the bottom. It came from an application which gave an advertisement and then a video from a "channel". For my blog I had chosen Times Now, the TV news channel, because it had interesting news and some pieces about culture or Indian cooking I thought could be interesting for the readers as well.

But a few days ago I received an e-mail from a reader telling me the video being shown was a little "off", meaning immoral. I wrote to the providers asking them not to publish such videos but it seems it was not possible. I thought of giving it a few days...

This morning, when I opened my blog to see a comment which had been posted, I found another video which I thought was not apt for all public... I have removed the widget. It's a pity because there were also interesting news, and in theory I was earning some Rupees through that advertising (perhaps after 10 years I would have been able to buy a new keyboard out of that money!). Goodbye videos on my blog!

Talking about Business Ethics, perhaps you would like to visit and subscribe to this other blog. I subscribed a few weeks ago and seems to be good stuff: Business Ethics Blog, by Chris MacDonald.

Sorry for the pause in posts about the legal process, but the last two posts have come out somehow spontaneously. Next post will be about the forms 1, 18 and 32.

Outsourcing and lifestyle

I came across (not by chance) this article today at MercatorNet: Is outsourcing exploitation?. And I think it is quite an interesting read for those of us working in India and who have somebody working under us. Especially of course, if our clients are abroad. And even more importantly, if we have other companies as providers for us.

Outsourcing is definitely helping the life of many people. Slowly the lifestyle is improving in many parts of the world, and the gap between developed and developing countries is becoming smaller.

Some would like it to be quicker: let's work for that. We are the ones supposed to be helping the people working with us or for us to improve society in general.

Problems with re-submitting

Have I written about re-submission of e-forms earlier? I think I did, but I was quite optimistic. A few weeks back, I submitted a form 1A (to register the name of a new company which we are incorporating). However, it was rejected because a non-compulsory field was not filled up (if it is actually compulsory why they don't mark it as compulsory? I don't know).

At first, I tried re-submitting but the status of my SRN was "to be clarified" thus I couldn't re-submit. I contact the support of the MCA website and they quickly and efficiently changed my status.

Then, again I tried re-submitting. After downloading the latest e-form, filling it up (which in this case does not need digital signature), pre-scrutinizing it and trying to upload it, I was told: that I needed the latest version of the e-form. I thought: "this must be a small programming mistake which will be corrected in a few days time". So, I waited. After a few days, I tried again, but didn't work. So, I again sent an e-mail to same highly efficient people that had helped earlier... this time I wasn't so lucky. They didn't reply.

I decided to try again uploading after a few days... nothing. I wrote again to the support people, and no reply. Finally, the time for re-submitting is due. I have been sent an e-mail telling me that, if I want to submit the form again, I will have to do it afresh (i.e. paying the fee again). I've written to the support team complaining about this, but I only get silence... this is really quite disappointing!

I guess I could try fighting for this out, but perhaps the most efficient and less costly way of getting my things done is simply to spend again the Rs. 500 for submitting the form and forget about the issue (hopefully this time it will work fine). Perhaps I shouldn't forget so easily about this and claim my rights... but unfortunately I don't think I have the time, nor the patience to do so.

Stamp duty and registration fees

I've always been amused by the amount of signatures and colorful stamps that the people in the government offices like. The process of registering a company is not an exception.

Once you have got drafted the MoA and AoA, and the forms 1, 18 and 32 are filled up (my next post will be about those forms) you will need to get them stamped, paying stamp duty and registration fees.

Unlike the other expenses which are fixed and relatively low (in the range of 500) this fees are slightly different.

The exact amount keeps varying. I don't know how often (may be every few months) and is directly proportional to the authorized capital which you request.

There are several sites which give you the ranges, some more updated than others. Sorry I don't give a link this time but I'm writing from my PDA where it is rather difficult to surf and the info I have is in my laptop. But to give you an idea, for a company with authorized capital of Rs. 5 lakh, the registration fees are about Rs. 17,000.

(For those who are not in India, Rs. 5 lakh is equal to Rs. 500,000)

By the way, I don't think it would be a good idea to try doing this without your Company Secretary's advice.

Drafting Memorandum and Articles of Association

When I first started setting up the company, I wanted to do as much as possible (I hoped everything would be) on my own, until I reached the point for drafting the Memorandum of Association and Articles of Association. That's what made me decide that I needed professional help.

The MoA and AoA (short forms for Memorandum and Articles of Association respectively) are drafted by solicitors. I think the best way to do it, is through your Company Secretary who already knows well what you want and what you need, and for sure will be in contact with a good solicitor who can do the job within your budget (considering the fees of the CS are already within your budget, of course).

The MoA and AoA are quite important for the future development of your company. They will state what your company does. Hence, if the panorama of the MoA and AoA is not wide enough, you will find yourself into trouble when you plan to expand the services or products offered by your company, as in theory, your company should not be doing that stuff. Thus, when drafting the MoA and AoA ask the solicitor to try to include as many services and products as you can think of, which of course, are in a way related to the main service you are starting with.

For instance, if you are planning to set up a company to sell pencils, don't write just pencils in your MoA and AoA. It would be better if you write manufacturing and selling of stationery items, paper making and recycling, printing, publishing, etc, i.e. all kind of related activities which one day may fall in your sphere. The idea is that, when more business opportunities come your way, you do not be constrained by something as small as this. I guess you would just have to re-draft the MoA and AoA, but why to take the trouble if you can avoid it?

Re-submitting an eForm

In the latest form I submitted I've been asked to clarify certain points. Now what do I do?

This happened to me this week after submitting Form 1A the other day. Few days after submitting I checked the "Transaction status" and found out that it was "Waiting for Clarification". As far as I had read, it was required to re-submit the form. However, when I tried doing it, the system didn't allow me.

I contacted via e-mail the MCA people and they replied very quickly and to the point after one or two days. Now they had changed my status and I could re-submit the form.

Today, while trying to do so it took me a while to find out how to do it, but finally got it: in the home landing page there are three tabs below the main horizontal menu which say: Services, eForms and MyDocuments. My mistake was to think everything I could do in the site was under the tab services. For re-submit you have to go to "eForms", where you will find a button "eForm Upload". There, if you enter the SRN (Service Request Number) and click the Re-Submit button you will get a Java app window through which you will be able to upload.

Again, make sure you have downloaded and filled up a fresh Form 1A before you re-submit, otherwise, the system will reject you automatically.

e-Filing: Submitting forms at Ministry of Company Affairs

Submitting a form has always scared me as something being a waste of time: filling up a form without knowing for sure what to write, standing on a queue for a long time, getting a challan and go to pay it at another place, go back with the receipt and get the acknowledgment, etc. Or get a middle man who would do this for you and twenty other people at a much quicker pace but opening a wide space for illegalities and corruption which ultimately harm the whole system.

Thank God, the Ministry of Company Affairs decided to do away with all that not very long ago. Now-a-days, you can only submit forms through their e-Filing system at www.mca.gov.in. From there you can do everything, from downloading the pdf form to paying the fees and getting your approval or whatever you are trying to get.

Today I submitted my application for a new company which I’m opening with my friend.

First, you need to register in the site. At least, for submitting Form 1A it is enough to register as a “Registered User” (the other option is “Business User”).

Once you are inside, do read the steps for filing forms. An interesting warning they give there is that you should download the latest form every time you want to submit a form as they change often (in my case I had filled up an old Form 1A I had saved from last year, and had to do it again in a newly downloaded form).

You will see it is quite a simple procedure: download the form, fill it up, pre-scrutinize it (correct any errors you may get), add your digital signature to the form, submit it… all of this through a Java applet (get ready to wait for few seconds/minutes while the whole thing is uploaded). Then, you will be re-directed to the payment get-way which may be through net banking (there are only a few options of banks), credit card or printing a challan and paying at the bank physically (I guess this is in case you want to remain in the old good times).

After you have paid you will get a confirmation message, but which disappears in almost no time. Thus, just in case, check the payment status. If it says PAID, then great, otherwise you will have to use the re-submission facility (you should have taken note of your SRN) and pay again.

All of this is, of course, for Form 1A, where you don’t need the signature of a Company Secretary or Chartered Accountant. Later on, for other forms you will need it and most probably they will do the for you.

By the way, as a correction to my previous post a name through Form 1A is now only for 60 days, instead of 6 months as it used to be earlier. For renewing you have to pay Rs.250 in case you haven’t incorporated your company yet.