India has 2 types of taxes – Direct (Income Tax) and indirect taxes (GST) Income Tax About the statute Governed by the Indian Income Tax Act 1961 along with IT rules Imposed by the Central Government of India It is levied on individuals, Hindu Undivided Families (HUFs), firms, companies, and other entities There are broadly 5 heads of income Salaries Income from House Property (Rental Income) Profits and Gains of Business/Profession Capital Gains Other Income We are primarily concerned about business profits only. The income tax for companies’ profits is calculated as follows The net profit of the company for a financial year is computed as per the companies act Suitable adjustments are made to ascertain the taxable profits from the net profits. An example of an adjustment is Depreciation where the methodology given in the companies act is quite different from that in the IT Act and hence, the adjustment has to be made to the net profit A company is taxed as follows- In most cases, especially in cases of companies with turnover less than 400 crores – it is 22% + 10% surcharge + 4% cess (25.168%) of taxable profits For larger companies, it’s 25% + 4% cess (26%) The taxes are to be paid in various ways (and can be seen in Form 26AS after login to the IT portal) Tax Deducted at Source – A certain percentage of tax is deducted at the source of income and paid to the government on behalf of the taxpayer Advance Tax – We must estimate the total tax payable in a given year and the same has to be discharged in 4 instalments as follows ‍ ‍ If the total tax payable > TDS + Advance tax due to whatever reasons, then the company must pay the balance tax, with interest on or before filing the IT return Interest is charged at 1% per month and is computed for various delays- Not Filing Return on time [234A] Not paying entire taxes by March of the year [234B] Not paying advance taxes properly above [234C] After the year-end, the company is required to compile all information and then file a return of income In case the turnover of the company is more than 10 Crores (assuming that the company has <5% cash transactions), the company also has to get a tax audit done by a CA – Form 3CA-3CD In case the company has transactions with related parties outside India (eg: Holding-Subsidiary), then the company has to hire an external CA for a Transfer Pricing (TP) Certification as well (Form 3CEB) The due dates are as follows ㅤ Goods and Services Tax About the statute Governed by Central GST Act + State GST Acts It is a comprehensive value-added tax that is levied on the supply of goods and services in India. It subsumes many indirect taxes that were previously levied by the central and state governments, such as value-added tax (VAT), central excise duty, service tax, and others. It is intended to make the taxation of goods and services more transparent and simpler, and to create a common market across the country by eliminating tax barriers between states. GST Rates GST is levied at different rates on different goods and services, based on their nature and use. There are three main GST rates in India: 5%, 12%, and 18% while some essential items are taxed at a lower rate or are exempt from GST. How it works Registration GST registration is mandatory for businesses with an annual turnover above a certain threshold, which is currently INR 40 lakhs Payment of GST & ITC Businesses that are registered for GST are required to charge GST on the goods and services they supply and to pay the collected GST to the government. They are also required to file regular returns with the GST authorities, disclosing the details of their supplies, GST collected, and GST paid. If the output tax liability is more than the available ITC, the balance has to be paid to the government. If the output tax liability is less than the available ITC, the excess ITC can be carried forward to the next tax period. For example, if a business has paid INR 10,000 as GST on its inputs and has INR 15,000 as GST liability on its outputs, it can claim ITC of INR 10,000 and pay the balance GST of INR 5,000 to the government Returns GSTR 1 – Details of all sales GSTR 3B – Summary of sales, purchases and payment details Returns are filed monthly or quarterly based on the turnover of the company Key definitions Direct Tax Assessment year: The year in which the income earned during the previous year is assessed for tax liability. Previous year: The year in which the income is earned. Tax slab: The income tax rate that applies to a particular range of income. There are different tax slabs for different categories of taxpayers in India, such as individuals, Hindu Undivided Families (HUFs), and companies. Taxable income: The income that is subject to income tax. This includes income from salary, business, capital gains, and other sources. Exemption: Income that is not subject to tax. There are various exemptions available under the Indian income tax laws, such as exemptions for investments in certain tax-saving instruments, charitable donations, and medical expenses. Deduction: A reduction in the taxable income that is allowed under the income tax laws. There are various deductions available, such as deductions for home loan interest, children’s education expenses, and medical insurance premiums. PAN (Permanent Account Number): A unique identification number assigned to taxpayers in India. PAN is mandatory for individuals and entities that are required to file an income tax return. TDS (Tax Deducted at Source): A tax that is deducted from the income of the taxpayer at the source of the income. TDS is required to be deducted by the payer of the income (such as an employer) and is credited to the government

One-liner This whole module is based on Indian Incorporation, US incorporation and cross border structures. Details Indian Incorporation: Overall there are 3 major types of incorporation: Private Limited Company, LLP & Partnership Firm. US Incorporation: The state laws and regulations that each state in the US are highly different from one another. However, Delaware, Wyoming, and Nevada in particular offer the most favorable tax and business legislation, making incorporation commonplace for businesses. The most used types of incorporation are: C Corp & LLC. For Indian company, one resident director in India is mandatory. In case of US, its not mandatory but its mandatory to have a registered agent and a registered physical US location. Key definitions Private Limited Company – A private limited company is a company that is privately held for small businesses. The liability of the members of a Private Limited Company is limited to the amount of shares respectively held by them. Shares of Private Limited Companies cannot be publicly traded. LLP – LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership. The LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name. C Corp- Similar to a private limited company in India, a C Corp is a legal structure in the US or a corporation in which the owners, or shareholders, are taxed separately from the entity. C corporations, the most prevalent of corporations, are also subject to corporate income taxation. The taxing of profits from the business is at both corporate and personal levels, creating a double taxation situation. LLC – Similar to LLP in India, LLC in the US is a limited liability company (LLC) is a business structure in the U.S. that protects its owners from personal responsibility for its debts or liabilities. Limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship. KPIs No limitations in doing any sort of transactions No surprises in the future regarding non-compliance No surprises in DD and fundraising process Easier and simpler workflows and methodologies in terms of operations, finance, taxes and compliances 10 best practices Research on Market and set up the structure for the requirements Understand local laws and regulations Establish a local presence by having a back-office or admin office approachable to the customers. Build a strong team and most importantly have a very strong finance and accounts team While setting up the US parent – Ind subs structure, keep in mind the compliance requirements. FEMA doesn’t recognize these kinds of structures and may amount to unnecessary hurdles. There is a workaround by gifting the US shares by the promoters to the founders. Bear these kinds of risks. Always keep in mind these 3 authorities – RBI (FEMA), Income Tax & GST department while incorporating any form of entity. It seems US parent & Indian Subs is the best structure from valuation, and brand creation per se but then it should be done with the workaround as mentioned above. 10 mistakes to avoid Blindly incorporating the company without having any futuristic plans pertaining to how compliances and finances will be managed. Not complying with FEMA and Income Tax Regulations. Top Recommendations for Tools US incorporation Stripe Atlas Firstbase India Incorporation Vakilsearch (now Zolvit) Indiafilings Cleartax Additional Reading https://entryindia.com/articles/setting-a-company-in-usa-by-foreign-business-owners-or-nationals https://medium.com/saasboomi/india-us-company-structure-for-saas-companies-6fb3442be7e https://www.usa-corporate.com/start-us-company-non-resident/how-to-start-business/?cn-reloaded=1 https://www.wolterskluwer.com/en/expert-insights/incorporating-in-the-us-factors-to-consider https://howtostartanllc.com/open-a-company-in-the-usa https://vakilsearch.com/usa-incorporation https://www.wolterskluwer.com/en/expert-insights/s-corp-vs-c-corp-differences-benefits https://www.volusion.com/blog/choose-a-business-structure-for-your-online-business/ ‍