Companies in India

Company

Company as a word in general itself means that two or more than two persons are involved for any activity or purpose and same is applicable for any business incorporation. Company can be made to carry out any kind of commercial activities such as trading, manufacturing, services etc.

Type of Companies

There were previously two type of companies before Companies Act 2013 was brought into effect on 12th September, 2013

1. Private Limited Company (minimum 2 directors required)

2. Public Limited Company (minimum 2 directors required)

As per new Companies Act 2013, a new format was introduced i.e. One Person Company (OPC) format which is also a type of Private Limited Company but only one director is required for its formation and operations.

Another type of format which was added in Company Act 2013 was LLP which is known as Limited Liability Partnership where 2 persons come together to form a partnership firm whose liability are limited by shares.

How a company is identified whether its a OPC, LLP, Private Limited or a Limited Company?

With the help of an example I shall try to explain you that what is the format in which a company is working

1. Private Limited Company - Adarsh Technologies Private Limited

2. One Person Company - Adarsh Technologies (OPC) Private Limited

3. Limited Liability Partnership - Adarsh Technologies LLP

4. Public Limited Company - Adarsh Technologies Limited

Nowadays, the most popular format for incorporation of firms are in LLP format as there are less regulations required for running the business and cost incurred is also less as compared to private limited firms and advantage is this format enjoys the same facility with respect to liabilities as private limited firms . 

 

 

Financial Regulators in India...

Reserve Bank of India(RBI)

Reserve Bank of India started its functioning from 1st April, 1935 and in the year 1949 it was nationalized. RBI's main function is to control the monetary policy of Indian currency. The main functions of RBI are as follows:

1. Regulator and Supervisor of the financial system- RBI is involved in the regulatory and supervisory role of the Indian banking system and to do so it frames broad range of parameters. This helps to get the confidence of the general public into the banking system. It keeps a check to see that there is no kind of fraud happening or supposed to happen in banking institutions.
2. Banker's Bank- For all the commercial bank that are performing action in India can open their account with RBI which acts as a central bank for them.RBI control the credit system of commercial banks through various rate/ratios. Being a central bank RBI also facilitate the banks in clearing the inter bank transaction though check clearance system or NEFT of RTGS.
3. Issuer of Currency- Only RBI holds the right to print/generate Indian currency, it has also the rights to destroy the currency which are not fit for circulation anymore. Currency is printed in Nashik district of Maharashtra.
4. Managerial of Exchange Control- RBI facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India. For keeping this check RBI uses Foreign Exchange Management Act (FEMA), 1999.
5. Detection of Fake Currency- RBI plays a very important role in detecting the fake currencies in the Indian market. For this RBI keeps on starting several awareness programs. 
6. RBI also plays a very important role in curbing inflation and also motivate the developmental programs that are running in India.

Policy Rates and Reserve Ratios

Repo Rate - This is the rate at which Central bank or RBI lends the money to commercial banks. As in when commercial banks fall in shortage of money in meeting the customers demand than in that case they need to borrow the money from RBI. When RBI don't want the money/cash to be surplus in market then it increases the rate of interest or else it decrease by some base points. Current Repo rate is 7.5%.

Cash Reserve Ratio (CRR) - CRR is nothing but the given percentage of total amount of that are deposited with bank needs to reserved/kept with RBI. Generally this may vary from 4-15%  of total of their demand and time liabilities. This is used to reduce the lending capacity of commercial banks. Current CRR rate is 4%.

Statutory Liquid Ratio (SLR) - SLR is the ratio which in forces the commercial banks to invest money to maintain liquid assets. SLR needs to maintained apart from CRR. For SLR money can be invested in gold or government bonds and securities. Current SLR rate is 21.5%.

Apart from these three rates and ratios there was another rate i.e. Reverse Repo rate and as per latest monetary policy Reverse Report will not be announce separately and that will be along with Repo rate.

Goods and Service Tax (GST)

These days a very hot topic/name is floating around us very frequently and that is Goods and Service Tax (GST). Many of us wonder what is this GST all about and why there is so much of hue and cry for this and if it is so problematic then why are we bringing that law at all. Today we will discuss about GST.

GST is a name of tax which will be replacing all the existing indirect taxes in India which are nearly 20 in numbers and amount to approx 30% in terms of taxation out of which common people even don't know the name of some of taxes that are imposed on them so once this GST is passed by both the houses of parliament(Lok sabha and Rajya sabha) it will replace all the indirect taxes. Currently GST is in force in nearly 150 countries and max rate of GST currently is in Denmark and Sweden which is 25% and lowest is in Canada which is 5%.

In India, the unified tax will take the form of a 'dual' GST, to be levied concurrently by both the Centre and States i.e. in short the unified tax will comprise of both Central and State GST. Liquor has been kept completely out of the purview of GST. Petroleum products has been excluded from the list of product that will be covered under GST for the first three years from day when GST will be adopted however, if there is any kind of loss incurred by State governments than the Central government will bear that cost.  

Benefits of GST

1. As there will be only one tax throughout India all the goods and service will be available at same price at pan India level and it will ease in doing business as mobility of products from one state to another will become easier.
2. Reduction in corruption level.
3. At least general public will be well aware of that in what respect they are paying the tax.
4. Indian GDP may increase by 2-2.5 %
5. There can be an increase of 12-15% in exports of products.
6. As the taxation system will be eased and become transparent by replacing all the indirect taxes by a new one i.e. GST so the foreign investors/companies will be attracted to do business in India which will result in more job creation.
7. In long run the price of products may come down.

What will be the rate of GST?

Till date the proposed rate at which GST will be imposed is approx 27% which is too high and will be finalized by the GST council at later stage and which may be around 18-20% as per the statement given by Finance Minister Arun Jaitley in Lower House. One percent extra can be charged by State governments from where the goods are originated.

Financial Regulators in India

Hi Friends, I am back after long and today I will be discussing about various financial regulators in India who are responsible for taking care of the money invested by us in different financial instruments such as stock exchange, Insurance,bank etc. Below is the list of such regulators:

1. Securities and Exchange Board of India.
2. Reserve Bank of India.
3. Ministry of Finance.
4. Ministry of Corporate Affairs.
5. Insurance Regulatory Authority of India.
6. PFRDA.

Securities and Exchange Board of India (SEBI)

SEBI was formed or was enacted in the year 1992 to safeguard the interest of the investors who invest their money in stock exchanges or mainly we can say in the equity market. SEBI also promote the development of securities market. SEBI has its headquarters at Bandra Kurla Complex in Mumbai and has Northern, Easter,Southern and Western Regional offices in New Delhi, Kolkata, Chennai and Ahmedabad respectively.

Functions and Responsibilities of SEBI

SEBI has the responsibility of responding or to keep check on each and every activity that is happening in securities and capital market. SEBI is responsible for the stock or the company for which the stock is going to be listed in the share market. SEBI should respond back to the concern of the investors (if any). It keeps an eye on the intermediaries that are involved in the act of trading such as brokers. In case of fraud related to trading or very high fluctuation in trading market for a particular stock/segment SEBI has the right to investigate the case and if the person/organization is found to be guilty than SEBI has the right to impose a hefty fine or penalty on that person/organization or can barred it from the activity of trading. In order to ensure that day by day SEBI is functioning in very efficient manner it has the right to make any rule and regulation related to securities and capital market without taking permission by any other other government body/agency, this is due to the statutory status provided to it by an amendment passed by Parliament of India in 1995.

Powers of SEBI

SEBI has the following powers given to it so that it can functions efficiently:

1. It has right to approve any law related to stock exchanges.
2. SEBI helps the stock exchanges to pass any amendment to an existing law.
3. It inspect the books of accounts and call for periodical returns from recognized stock exchanges.
4. It also do a time to time inspection of the books of accounts of a financial intermediaries.
5. It gives the right to a certain companies to list their shares in one or more stock exchanges.
6. All the brokers working for securities and capital market needs to be registered with SEBI.

Please wait for next blog for getting info on other regulatory bodies....

Where to invest and how to save tax

In my previous article I discussed about different type of taxes that we pay to our government which is one of the most important part of its earning but its very tough to give your hard earned money whether it is a tax or anything else so we try to save tax or try to pay minimum that we can pay and our government has allowed us too till certain limit for saving tax other than the exemption of Rs 200000 given by it. We can save tax by doing saving by depositing our money in equity, bonds, Mutual funds, insurance, PF, PPF, EMI of loan, donations, Education fee till a certain amount and also apart from this we get tax exemption for the rent that we pay for housing. This investment gets tax exemption just for giving relief to public as they will get tax exemption and will have savings(with certain return) for future and in turn government will be able to maintain liquidity of money in the market for various purposes. Apart from Rs 200000 according to section 80(c) we can get tax exemption for another Rs 100000 and another Rs 20000 (in infra bond) only by investing at different places according to need. Now lets discuss about different ways of investment in various forms for saving tax:

Equity--> In this we invest directly in the stock market but we can get tax exemption for a amount of Rs 50000 only and the income is below Rs 1000000. So this is not  very lucrative for saving tax but people invest at risk of losing/gaining huge amount depending on the stock performance.Do invest directly by yourself only when you have good knowledge about it or else one may lose money.

Bonds--> Bonds are issued by companies to raise fund for their projects from public directly i.e collection of people who buy the bond of a company acts like a bank and gets fixed interest from the company which is generally interest is 2-3% higher than what bank gives on fixed deposit but we can invest till Rs 20000 only in Infrastructure Bonds (according to various sections) for tax saving purpose and amount invested above Rs 20000 will not serve the purpose of tax exemption and also bonds in any other category will not help in saving tax.

Fixed Deposit(FD)--> This type of investing facility is provided by every  bank and Post Office in which the investor is paid a fixed rate of interest for particular period of investment of money.

Term Deposit(TD)--> This type of investing facility is provided by every  bank and Post Office in which the investor is paid a fixed rate of interest for money invested for a year only. In this investor gets the interest but cannot avail the tax exemption benefit as it is a short term investment.

Recurring Deposit(RD)--> This type of investment facility is also provided by Banks and Post Office in which the investor invests his money in monthly/quarterly/half-yearly mode for certain period generally for 48 months(post office) for which they get interest. In RD investor deposit money for 48 months but has to keep the money for 60 months and then can take out the money after that as the maturity period is reached but if needed can take out the money before maturity period.

Mutual Fund--> In this type of investment one can avail tax exemption benefit only if we keep the money in the company locked for a minimum period of 3 years or else other benefits can be availed but not tax benefit. In Mutual Fund money is invested in share/stock market i.e in equity and debentures. If money is invested in equity then the profit/loss is dependent on the market performance. Money can be invested through one time deposit or through SIP(systematic investment planning) i.e particular amount of money is deposit it to person portfolio every month through ECS from bank account and units are allotted according to current NAV. If  money not locked for 3 years then person can take out money invested till date at current value if needed without closing the portfolio.

Insurance--> This investment is done mainly for insuring our self  from any tragedy if any happens in future and if every thing is fine for the insured period then we get the maturity of the insured amount with interest. But if we want to take out the money by pre-maturity then we must keep in mind that if we have not invested  money at least for 3 years then no money will be given as pre-maturity but in endowment policy case the pre-maturity amount increases with increase in period i.e more the money is invested or kept with the company more is the maturity amount. In this investment type if some one is insured for a amount of Rs 200000 and suppose has given only 5 installments and policy is active and if by chance some thing miss happens(death) then the nominee will get whole Rs 200000. Apart from this tax exemption can also be availed (according to section 80(c)). Insurance is of two type:-

a) Endowment Policy--> In this the insurance is done for long term period i.e 15, 20 or more years and the installment amount is paid in monthly/quarterly/half-yearly/yearly mode whichever suits the person and insurance amount is comparatively much more higher than the installment amount.

b) ULIP(Unit Linked Insurance Policy)--> In this the insurance is done for short term period i.e 5yr at least and the money is invested in share market by the company which may give higher return than endowment plan but risk is also high but that does not affect the insured amount but if everything is normal(health) for the locking period i.e 5 yrs or till the amount is kept with the company the return/maturity amount is affected (higher profit/loss). But now days companies have come out with a plan in which they give the highest NAV value touched on a particular day irrespective of how much down the NAV goes so the investor is on safer side and not much affected by sensex/market and gets maximum profit.

Provident Fund(PF)--> This is mandatory saving scheme imposed by Government of India for all govt employees and private companies permanent employees for their better future and saving gives tax exemption as per exemption policy applicable. Minimum amount is fixed for saving but no max limit is there only after the consent of employer and employee.

Public Provident Fund(PPF)--> This scheme also gives a person tax exemption but is not compulsory. PPF account can be opened in Post Office and banks easily. Maximum limit of saving through PPF is Rs 1 Lac a year and minimum amount is Rs 500 a month and also minimum period of locking is 15 years. This scheme is a central govt and is applicable to everyone who all are interested.

EMI---> All the installments given to repay loans are applicable for tax exemption. 

Tax and its type in India

What is a Tax and why we need to pay it?

Tax is that amount which we pay to government i.e a certain part/percentage of money that we earn and this may be in the form of direct or indirect taxes (in form of labor) and failure to pay make one liable of facing judicial action. We pay taxes in various form such as Income Tax, Sales Tax, Toll Tax etc. which is looked over by various concerned authorities. This tax is compulsory and not voluntarily paid as this is the major source of income for the central and state governments for carrying out various work of the society such as making roads, providing clean water, defense services/policing etc. Taxes are imposed by Central and State governments separately on various services and resources accordingly.  

Types of Taxes in India

1. Income Tax--> This is the type of tax which is imposed on person depending on his earnings mainly it include service class people who are salaried in private/public/government sector companies.This comes under direct tax. We don't need to pay tax for all the amount which we earn as government gives some exemption/relaxation in taxes i.e there is a slab for each group and people falling under that  and the slab is as follows:
           Less than Rs 250000        --------- Nil (For senior citizen it is 300000)
           Rs 250000 - Rs 500000   --------- 10%
           Rs 500000 - Rs 1000000 --------- 20%
           Rs 1000000 and above     --------- 30%
So in this case if someone has earning of Rs 1100000 and no investment is done than he will have to pay tax of Rs (30000+100000+30000)= Rs 160000
           Till Rs 200000                  ---- Rs 0
           Rs 250000 - Rs 500000   ---- 10% of Rs 250000 i.e Rs 25000
           Rs 500000 - Rs 1000000 ---- 20% of Rs 500000 i.e Rs 100000
           Rs 1000000 -Rs 1100000 ---- 30% of Rs 100000 i.e Rs 30000

Apart from these slab exemption government gives us relaxation to save tax for amount up to () by doing investment in different government securities, bonds and taking insurance for self and family through different sections of income tax exemption and avail tax exemption accordingly. This exemption benefit can be availed on bank EMI also. From this year 50% tax can be saved for amount invested in equity but till the investment of Rs 50000 only and when income is below Rs 1000000. We pay TDS i.e advance tax on monthly or quarterly basis so that fine is not imposed at the end for non payment of tax and if TDS is paid more than the actual tax to be paid then we can claim back our extra money paid by filling income tax return i.e by filling form 16 A.

2. Sales Tax--> This is the type of tax which is imposed on all the sale of products which is done in Indian market i.e sale starting from car to clothes and any other thing

3. Service Tax--> This is the type of tax which is imposed by government for the service provided by various industries and firms such as for example if we have our dinner in a restaurant than we have to pay tax for it which is 10.2% till date.

4. Toll Tax--> This is the type of tax which is taken by Toll Plaza on highways(national/state) from the car and truck passing through them so that cost of making and maintenance can be recovered which is invested either by government or private company. Toll tax is decided depending on the cost involved and the time frame in which it has to be recovered. Toll Plaza are available on highway on every 100 km.

5. Capital Gain Tax--> In this the owner has to pay tax for every sale of property, equity, bonds or any other valuable asset for booking profit i.e the tax is applicable for the difference between the sale and purchase of the asset. This is applicable for the transaction done in short period only i.e if the period is less than 1 year the tax is eligible except for property for which the minimum period for CGT is 3 years.

6. Value Added Tax(VAT)--> VAT is somewhat similar to Sales Tax as sales tax is imposed by central government for its earning but VAT is charged by state government for its major earning and VAT varies from state to state. VAT is added cost to the MRP of the product and VAT depends on the nature and type of product. But government has not included every product under this Tax system. But government has given proposal to take Goods Service Tax(GST) as tax by merging sales and service tax.

7. Education Cess--> This is the type o tax which is taken by government for improving the education level in India and is applicable on all type of taxes but mainly on income, sales and service tax and it is 3% of total tax payable.

8. Gift Tax--> Gifts received for amount more than Rs 50000 in a year is also considered as part of income and is applicable for tax. Gift received during marriages by parents and relative gets exemption from tax and also if a daughter-in-law gets a gift by father-in-law tax is exempted but the gift received by son-in-law by father-in-law is applicable for tax. Tax is calculated as per income tax rules.

9. Stamp Duty--> Tax or cost paid to government for buying or transferring any property or asset and also for making any legal document is known as stamp duty. It varies upon property to property.

10. Professional Tax--> This tax is taken by many state government by employee of private companies and is paid by all professional personnels.It varies from state to sate and is compulsory to be paid and is paid every month.

11. Custom Duty--> This tax is imposed to all the goods or products that are imported i.e is bringing goods from a foreign country. It depend on the nature of the product.

12. Excise Duty--> Excise duty/tax is payed/applicable on goods manufactured and distributed within the same country and is applicable for very low range of goods i.e on very few products. This different from Sales Tax and VAT i.e excise is paid in addition to these taxes.

13. Corporate Tax--> This tax is paid on generating income through corporate operations in the country. This tax is classified depending on Domestic and Foreign companies.

These are the major taxes applicable in India but other than these taxes many other taxes for government income for improving services such as Water Tax, House Tax (paid to municipal corporation), Road Tax (paid while buying a vehicle) etc.

Mutual Funds:What, How,Why???

Today when we hear about this term Mutual Fund we definitely think what it is and if know it then we have many other queries related to that so let us discuss about it.

What is a Mutual Fund?

Mutual Fund is a type of fund where a huge lump of money is pooled from various persons/investors from different parts of country by a trust/company and are collectively invested and managed in capital market (such as equity, debentures etc) by professionals or skilled individuals associated with this industry. In case of profit or loss being made by the company it is equally beard by the individuals equally according to the contribution made by them. Advantage of this for all those who are interested in capital market is that they can invest in a diversified, professionally managed basket of securities at a relatively low cost and low risk and the Disadvantage is that this a completely dependent on Stock Market so is full of risk i.e one may make huge profit and loss as well.

Which companies are there in India to invest in Mutual fund?

There are many companies in India which are associated with this industry, in fact, nearly every company dealing with finance has its mutual fund company:

1. Reliance Mutual Fund

2. ICICI Mutual Fund

3. Birla Sunlife Mutual Fund

4. UTI Mutual Fund

5. Shriram Mutual Fund

6. HDFC Mutual Fund

7. SBI Mutual Fund

8. Kotak Mutual Fund

9. Tata Mutual Fund and so on....

What is the difference between investment through Mutual Fund investment and directly investing in stock market by our own?

Actually there is no difference here the money is invested by professionals who have good knowledge of this and they keenly watch the market activities and buy and sell accordingly and they know what is the best time to invest where but the profit which we get as return is less as compared to when we invest directly because the wages of employees, other costs and company's profit are take from that only but when we invest by our self we should have proper knowledge about the company's profile and the current market scenario or else individual can lose their money in market or money will be blocked for longer period and will be of no use risk of losing is very high as compared to mutual fund investment. Where as we can get other benefits like insurance and tax saving plan from mutual fund company according to their scheme if any.  

How a Mutual Fund company work?

Company's through their recruited agents/advisor collect money and give it to a fund manager (professional/skilled employee) to invest in capital market which generates some return after sometime and is then given back to investor accordingly till the date the investor keep his money with that company.

How to become a advisor for the company?

For becoming a advisor/agent or make carrier with this industry firstly you have to clear a basic exam of NSE-India i.e AMFI (Association of Mutual Fund in India) and after getting certified you may consult associated companies or they will consult you after sometime. This is need to be certified because one should have prior knowledge of what it is all about.

What is NAV?

NAV is also known as Net Asset Value i.e The value of all the assets minus the liabilities and this is the thing which we get after investment in a mutual fund company i.e NAV per unit alloted to us. For example if we invest RS 2000 and NAV is Rs 20 then we will be allotted 100 units and NAV changes from time to time according to capital market up and down so the next value will be NAV value * No. of unit allotted.

Why to invest in Mutual Fund?

The answer is very simple to grow your money at some risk and some safety having some additional benefit and without tension of money management.