Business Licenses in India

Introduction

Once upon a time, India was known as the land of the ‘license raj’. However, after reforms in 1991, setting up businesses in India, by and large, has become less complex and cumbersome compared to the pre-1991 era, according to observers. An individual who wishes to run a business not only has to research and finalise his business plan, funding and servicing/product model but also comply with various regulations and obtain the required licenses in India.

Business licenses are primarily issued by the government to allow individuals to run businesses. It is important to note that a license which has to be issued will be based on the business requirements of a company after its registration or incorporation. However, there are various other factors which may also determine the type of license which has to be issued such as the type of business ownership, business location and number of employees among others.

Types of business licenses in India

Shops and Establishment LicenseTAN Service Tax RegistrationVAT RegistrationProfessional TaxCentral Excise LicenseImporter Exporter CodePAN Card

There are various types of business license issued in India as listed below:

Shops and Establishment License

A shop has to mandatorily register itself under the Shops and Establishment Act under 30 days of commencement of operations. In many cases, there are different laws for different states in the country such as Bombay Shops and Establishments Act 1948, Karnataka Shops and Establishments Act 1961 and Delhi Shops and Establishments Act, 1954 among others. The businesses which come under the ambit of the Shops and Establishments Act are as follows:

A movie theater or any public amusement area Trading or insurance companies Restaurant, cafe, eating joint or hotels Administrative service which employs individuals for office work

The Shops and Establishment Act covers various pertinent aspects such as working hours (day and week), maintenance of records, opening and closing hours, overtime, national holidays, religious holidays, employment of women, maternity leave, termination of service, casual leave and display of notices among others.

TAN

Tax Deduction and Collection Account Number or TAN is a 10-digit alphanumeric number which has to be quoted by individuals who have to collect or deduct tax on payments made by them on behalf of the income tax department. For instance, individuals who pay salaries and rent should ensure that tax is deducted at source and duly paid to the income tax department. In other words, TAN has to be mandatorily quoted in TCS/TDS returns (not excepting e-TDS returns) and TCS/TDS payment challan among others. As per Section 203A of the Income Tax Act 1961, an assessee who is liable to deduct tax deducted at source has to mandatorily quote his TAN in any TDS related communication with the income tax department. In case TAN is not quoted by an assessee, Rs.10,000 will be levied as penalty on him. Furthermore, banks will refuse to accept TDS returns if TAN is not quoted.

Service Tax Registration

Service tax is an indirect tax which is levied on certain services as specified by the Government of India under the Finance Act, 1994. A service provider pays service tax to the government. A service provider can collect the service tax from the consumer of service as well in some cases as listed below:Services provided by foreign service providers Services provided by a transport agency Services provided by mutual fund distributors It is important to note that service tax registration should be obtained by any individual who offers a taxable service above Rs.9 lakhs in a financial year. Also, if a service provider does not obtain service tax registration, he will attract a penalty under section 77 of the Finance Act, 1994. However, small scale service providers who offer taxable services under Rs.10 lakhs in a financial year are exempt from paying service tax. Service tax should be deposited in select banks on a quarterly (partnership or proprietary firms) and monthly basis (companies and societies).

VAT Registration

VAT is a multi-point tax levied on value addition and therefore, collected at various stages of a sale with a provision for input tax credit. In other words, if VAT is paid on purchases, the amount can be appropriated against VAT on sales. Consequently, the remaining amount is deposited with the state government since VAT is a state-based tax. Each state government has its own specific rules pertaining to VAT depending on the type of goods sold or manufactured. Traders should obtain VAT registration, if they register sales above Rs.5 lakhs (or Rs.10 lakhs in some cases) p.a. VAT/CST/TIN utilize the same 11-digit number. VAT is not applicable on goods which are exported from India. Payments related to VAT should be made in select banks only on a quarterly (partnership firms and LLPs) and monthly basis (companies). It is important to note that VAT is borne by consumers.

Professional Tax

Professional tax is a tax levied by a state government. Any company which is engaged in any business or an individual engaged in any profession should register and pay professional tax. There are fixed professional tax rates for employers regardless of their declared revenues. Likewise, there are fixed professional tax rates for employees on the basis of income slabs. Professional tax has to be filed on a monthly or quarterly basis.

Central Excise License

Central excise duty is an indirect tax which is levied as per Central Excise Act, 1944 on goods manufactured in India. All manufacturers should therefore, obtain central excise registration. A central excise number is a 15-digit number with the first 10 digits of PAN number, the next two digits indicate applicant’s status while the last three digits indicate the number of premises. In case a manufacturer does not obtain the central excise registration, he will attract a penalty of Rs.10,000 or 7 years of imprisonment.

Importer Exporter Code

The Importer Exporter Code (IEC) code is a 10-digit code which is issued by the Ministry of Commerce to individuals and indian companies for conducting international trade. The importer exporter code has lifetime validity. It is important to note that only one importer exporter code can be obtained on one PAN.

PAN or Permanent Account Number (PAN) is a 10-digit alphanumeric number issued by the income tax department. PAN has to be mandatorily quoted in any document related to financial transactions. In other words, PAN of sellers and buyers should be quoted in the purchase or sale documents of any type of services or goods. All types of businesses, therefore, need to have PAN cards.