STORIES @ ZEPO

Registering an e-commerce business in India: Sole Proprietorship 101

Off lately we have been getting a lot of queries about getting businesses registered, so we thought that we’d make it easier for you. 

Any e-commerce business which wants to accept online payments, needs to be a registered company. So as to be able to integrate an authorized payment gateway on the website.

We wrote this post to be a one- stop guide for all your queries about getting your brand up and working to start selling online. And the easiest way to do that is to register your business as a Sole Proprietorship. 

Let us begin with understanding what a sole proprietorship has to offer.

For starters, sole proprietorship is the easiest firm to start, has lower legal compliances and is fairly easy to tackle. A proprietorship business and its proprietor (i.e. you) are a single entity in all legal matters. Indian law doesn’t treat the two differently as is the case with a company registered as a Private Ltd or a Public Ltd or even a Partnership firm. And in view of this, you are taxed at individual rates instead of the corporate rates. So it greatly reduces your tax formalities as you have to file only one personal income tax return.

So you and your brand are one soul, with no biases whatsoever. You can even run it out of your home, for which no special registration is required. But a note for whenever you intend on expanding and setting up a physical commercial store, you will have to fill in some paperwork with your local municipal corporation and will need to check in with the Shops and Establishment Act.

Now to dive straight into the nitty- gritty of Sole Proprietorship, we explain to you in detail how to register, the cost of setting up your online brand, taxation of a sole proprietorship and business licenses required.  

Registration of Sole Proprietorship

You can register your ecommerce business under sole proprietorship at your nearest local municipal corporation office. You need to submit the Shops and Establishment Form to complete your registration. Along with it, you are needed to submit an undertaking. The fees for registration may vary depending on the state and the city’s municipal corporation area. 

For the greater Mumbai municipal corporation area, the Shops and Establishment Registration form, the undertaking needed with it and the fee schedule for the same can be found on the following links. 

1. Registration Form
2. Undertaking
3. Fee Schedule

You can find a list of municipal ward offices in your city on your city’s municipal corporation’s website.

Note: While registering, you will be needed to submit an address proof for the Shops and Establishment registration. You may submit an address proof for your home or any other place you will be working out of.

Cost to set up a Sole Proprietorship business

There is absolutely NO additional cost required. All you really need is a current account in the name of your business, at a bank of your choice. That is it! All you need to do is, at the local bank branch of your choice, ask for a form for proprietorship firms and get a bank account ready for all financial transactions.

When opening an account you may also need to submit an address proof such as an electricity or telephone bill or a rental agreement if you’re going to be renting out a space or your shops and establishment registration.

Taxation

You don’t need a separate PAN for your business for taxation purposes. Your personal PAN will serve the purpose. And when filing Income Tax returns, you will have to file returns in your personal name.

As you and your sole proprietorship business are one soul, you don’t need to pay corporate tax rates. As mentioned earlier, individual tax rates apply as all profits, losses, assets and liabilities are the property of the proprietor. And the proprietor pays self employment taxes on any profits made, making it all the simpler.

Service tax is applicable only if you’re selling a service to your customers. And similarly if you are selling goods, VAT, Excise and/or Sales Tax are applicable. But all these taxes come into play once you’ve crossed an annual turnover of 10 lacs. You may also need to consider Professional Tax, if you’re employing people.

Business licenses

Depending on the nature of the business, you may need different registrations and licenses.

1.      Recommended- Shops and Establishments Act: This registration would be needed incase you want to set up a physical shop and plan to employ people. And it is very essential for getting your own payment gateway for your online store. 

2.      CST/ VAT registration: If you are going to be selling goods, then VAT or CST (between states) may be needed once your annual turnover crosses 5 lacs.

3.      Service tax: Registration for service tax is mandatory and may be required once your annual sales turnover crosses 10 lacs. 

4.      Professional Tax: This tax is mandatory if you have even one single employee. Each state is allowed to create its own guidelines, so it would be advisable to check whether it is mandatory to register for professional tax in your particular state.

All these registrations and licenses may vary from state to state, so please do check your state’s guidelines and regulations (exemptions, if any) to know better.

Before you go ahead, think up a catchy name for your online business. And get it trademarked. Avoid going in for generic names, as you’ll have to suffix your city name or India at the end for it to be distinguishable.

Now that everything is on the table we wish you the best in setting up your brand! We hope it kicks ass! :D

PS. Don’t wish to register your business to get a payment gateway? Now you can accept online payments on your ecommerce store without registering your business. Here’s how: Payment Gateway for Individuals and Non-Registered Businesses

Did we miss a point? Share your experiences with us in comments. We would love to hear the ground reality of trying to register your company. Is it a very tedious process?

Reference Links: 

1. You may also like to check out the following link, about starting a business in various cities in India. It includes details about Shops and Establishment registration, Sales tax, Professional Tax, etc. 

Doing Business in India

2. The following link provides some good insight into the Shops and Establishments Act in Karnataka.

When do I need to apply for a Shops and Establishments Registration for my business in Karnataka?

Courtesy: Doing Business, International Finance Corporation