The end? Maybe...

It's been more than two years since I posted my last contribution to this blog.

Life has changed, I'm not in Mumbai any longer, and although I am still in business... maybe I don't have much to contribute to a young entrepreneur starting up in Mumbai at this moment.

Well... maybe I'll be back in the future to continue with this blog, but currently, I have just started a new blog more related to what I have been doing lately.

The link to that new blog is http://pymesenindia.blogspot.in/ .  However, it is in Spanish!

All the best for your new enterprises and if I can be of any help, do let me know!

I want to start selling, should I register and charge VAT (Value Added Tax)?

Recently, a reader who is about to start an online business asked me this question... At that moment I didn't know the answer, so today that I visited my Chartered Accountant decided to clarify this (also because I'm thinking of a new venture on these lines).

A company is only required to register for VAT if its turnover for sales of goods is above Rs. 5 lakhs (Rs. 500,000). Thus, while your turnover is below that, you need not register for it, nor charge your customers for this.

Certainly, you can register for it even before if you want to. It will cost about 20 to 30,000 Rupees, and eventually you will recover this money from the government at the end of the Financial Year as a settlement when you file your income returns.

If you are starting your business, my advice is that you wait and only when you see things are moving on well and you are getting close to Rs. 5 lakhs turnover, then approach your C.A. for VAT registration. Surely your clients will appreciate it.

Note that Sales tax and VAT are one and the same thing.

But VAT is separate from Service tax. Even if your company's turnover for services is above 10 lakhs and you are registered for Service tax, this is completely independent and does not affect VAT.

According to my CA they will unite these two in the future into one (called Goods and Sales Tax, GST), with benefits for tax deductions... But this may not happen until 2012 or 2013.

When is Service Tax applicable for a Private Limited company ?

The very basic information: if your turnover is less than 10 lakh Rupees (Rs. 10,00,000) you do not need to charge Service Tax to your clients, thus you don't even need to have a number for it, i.e. you don't need to register yourself for this purpose.

But I was gladly surprised to discover some time ago that even if your total turnover is great than 10 lakhs you may still not need to charge Service Tax! And it all depends on what services you are providing.

There are certain services that according to the fiscal law they are not liable to Service Tax, thus if you are providing those services, you (and your clients) need not worry about this hassle.

Even better, it could be that your company is providing more than one service, some of them taxable and others not. As long as those that are not taxable do not exceed 10 lakhs, you need not charge Service Tax.

It's important that you confirm with your Chartered Accountant that you need not register for Service Tax, and in turn, he will have to do some thorough research about this issue. Also, remember that rules change every year and something that was not taxable last year, may become taxable the next one so be careful and keep an eye on this.

Just in case you are into this business... IT services do have Service Tax. But Translations and Interpretations don't! At least for this year...

Speech by Indian Ambassador at Business Meeting in Asuncion

This is an interesting speech by the Indian ambassador in Paraguay:

"...The economy of India in the last few years is growing at a rate of 8% or 9%. In spite of the global crisis, in 2009 the economy of India grew at a 6%. This year is going to grow 8%.

This is not going to be a miracle of 1 or 2 years. The economy of India is going to sustain this growth in the decades to come...."

Speech of the Indian Ambassador to Paraguay, Argentina and Uruguay at a Business Meeting in Asunción, Paraguay.

Translation and subtitles by Encyclomedia http://www.ecam.co.in

Social Sense and Inspiration

Following one's inspiration and likings is a very important part of being an entrepreneur. Without it, would be quite difficult to enjoy our work and we would not be able to continue in this task which is not easy and requires a lot of perseverance.

Dr. Carlos Llano's life, who expired a few days ago, is quite inspiring and exemplary. From being bed ridden for one year as a tuberculosis patient, to becoming a doctor in Philosophy, then getting to be a manager of a very successful company... following his likings (Philosophy), his skills and what he had learned in his business life, got to found one of the best Business Schools in Mexico.

Encyclomedia's team translated this video-biography and added the subtitles in English.



Don't miss out his message for business-men: "Social Sense".

Encourage entrepreneurs... an ad from Hindustan Times

On Sunday morning while cycling from Goregaon to Santacruz (where I live), I saw this billboard of Hindustan Times. At that moment I didn't stop to take a picture because was in a rush. But today I saw it again at a bus stop and finally did it.



I think it is a wonderful ad with a great logic. If we really want to solve the jobs issue in Mumbai it has to be done by creating more employment, and the best way to do that is by encouraging entrepreneurs to work harder and better. Helping them so that their work is more efficient in creating new businesses and companies that will generate more jobs.

This will also help more people to take the leap to be entrepreneurs themselves.

Entrepreneurship incubators

During my College days here in Mumbai (just a few years ago) I was glad to see in the last year that something started moving in an Entrepreneurship cell. It was perhaps not very much: I remember going with it to visit an Entrepreneur in Mahim and perhaps a few other things were organised. But it was the beginning of something which I hope would expand greatly.

And now I am happier to see that it has grown quite a bit. In fact, this week they have had a wonderful event which I hope has a lot of success. Unfortunately, I got tied up with work and won't be able to attend any of the sessions (as I had said I would), but I am sure they will be very well conducted and a wonderful help for the to-be Entrepreneurs coming out of Engineering Colleges. This of course, was part of the E-Week celebrations that have been going on across the country.

At CRCE (my College) they had the following events:

9th Feb: Seminar on how to make a business plan.
10th Feb: The College Chef Competion
11th Feb: Business Quiz Competition

Also, today I read another interesting piece of news, the Science and Technology Minister Prithviraj Chavan said yesterday that "Every university have to have a incubator,", referring to the business incubators that the Government is going to start supporting across the country, aiming at increasing the number of entrepreneurs.

He said:
"There are over 5,000 incubators in the world. Of them, nearly 1,400 are in North America. Over 1,000 are there in China. Their number is only 40 in India,"

Source: Press Trust of India

India, Mexico to discuss feasibility to free trade pact

The Economic Times published on Tuesday 26th of January 2010, in its printed edition a very short article which is quite interesting for people like me that are in the business between India and Mexico:

India and Mexico would discuss the feasibility for a free trade agreement in May to boost two-way trade, a senior Mexican official said on Monday. A high-level joint group on economic and financial matters would have its second meeting in May to discuss the FTA among other matters, the Mexican ambassador to India, Jaime Naulart, said here. "It is at a very nascent stage and we are looking at the feasibility of such an agreement," he said during an interactive session with members of the Indian Chamber of Commerce. Addressing the members of the chamber, Naulart said Mexico saw the FTA as one of the tools to solve the country's economic problems.

This Free Trade Agreement would be a wonderful opportunity that we must take advantage of when it comes. I hope the information will be easily available soon!

The Entrepreneurship Process. Block #1

I received the link to this video through a group of Mexican Entrepreneurs in LinkedIn. It is an interview with Mrs. Silvia de Torres Carbonel, the Director of the Entrepreneurship Centre at I.A.E. the leading business school in Argentina. It is in Spanish, but offer below a few notes in English in a point format.

• The Entrepreneurship process is a process started at an individual level, i.e. in the person.
• It is an attitude, not a characteristic of the person.
• It takes you to be alert for opportunities, enthused about them.
• The enterprise is born in the heart, mind... and hands of the entrepreneur. Which need to be able!
• The entrepreneur is a person that generates employment.
• Entrepreneurship is the key for generating employment, especially in developing economies like ours (referring to Argentina, but also applies to India and Mexico, of course)

A successful entrepreneur is:

1. A person that is open.
2. A person extremely flexible in the execution: we don't always have all the resources, we must get them.
3. Knows how to leadership the starting organization.
   

This is the first of 3 blocks.

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).