How to Open Small Business in India
How to Open Small Business in India
Small businesses are the backbone of the Indian Economy. As per the MSME report, there are over 36 million small businesses in India providing employment to over 80 million persons. Small businesses contribute over 8% to the GDP and account for 45% of the total manufacturing output and 40% of the export from India. The Government of India recognizes the tremendous contribution made by small businesses and support them through a number of subsidy schemes and initiatives. In this article, we look at how to open small business in India.
Small Business Ideas
A small business can be started as a service or manufacturing unit. As per Ministry of Micro, Small and Medium Enterprises, any service sector unit with an investment in equipment of not more than Rs.2 crores is classified as a small business. In the manufacturing sector, any unit with an investment in plant and machinery of less than Rs.5 crores is classified as a small business. Going by the above definition, there are various businesses that can be started as a small business. Click here to view small business ideas that are home based.
While choosing a small business idea to implement, the Entrepreneur must keep the following key areas into consideration:
- Market Opportunity
- Investment Requirement
- Entrepreneur’s Experience
- Business Objective
- Raw Material Requirement
- Staffing Requirement
- Business Entity
- Business Licenses Required
- Break-even Point
- Financial Projections
Most small businesses in India are started as a proprietorship or partnership firm due to ease of compliance. However, to afford limited liability protection and creation of a registered entity, the Government of India introduced Limited Liability Partnerships in India in 2008 through the Limited Limited Partnership Act, 2008. Therefore, those small businesses that would have an annual turnover of more than Rs.10 lakhs in a year can start a LLP to enjoy additional benefits like limited liability protection, easy access to bank finance, easy business transferability, etc.,
Limited Liability Partnerships also do not require an audit if the annual sales turnover is less than Rs.40 lakhs and the capital capital contribution is less than Rs.25 lakhs, making it an ideal entity for small businesses with lesser compliance requirements. In case the small business has significant investment in equipment or machinery likely to exceed Rs.25 lakhs or if the business would have an annual sales turnover in excess of Rs.40 lakhs, then a private limited company can be registered.
Once the business registration is obtained, the small business might have to get various tax registrations as it crosses certain milestones. The following are major tax registration required for any small business and the milestone at which the registration must be obtained.
PAN Card: PAN is one of the first registration any small business must obtain right after registration – as it is required for opening bank account and doing various financial transactions in India. In case of Proprietorship Firm, the PAN Card of the Proprietor is used. For other entities like Partnership Firm, Limited Liability Partnership, Private Limited Company, One Person Company and more, a separate PAN is issued.
TAN Registration: TAN is required for those businesses required to deduct tax at source, also known as TDS. So once the small business is required by the law to deduct tax while making payment, TAN can be obtained.
Service Tax Registration: Service tax registration would be required for any business that provides more than Rs.9 lakhs of taxable services in a financial year. The business must collect and remit service tax from customers once the annual taxable services revenue exceeds Rs.10 lakhs.
VAT Registration: VAT Registration would be required for any business that sells goods and products. VAT or Value Added Tax is controlled by the State Governments. Hence, the requirement and process for VAT registration varies from state to state. Most states require VAT registration for any business that sells goods or products worth more than Rs.5 lakh in a year.
In addition to the tax registrations, a small business can get one or more of the business registration from the following when the need arises.
Udyog Aadhaar: Udyog Aadhaar has been introduced by the Government in lieu of MSME registration to make the process for registration of small businesses easy. Udyog Aadhaar registration can be obtained by the small business to avail various schemes promoted by the Government aimed at small businesses. Click here to know more about the process for online Udyog Aadhaar registration.
Trademark Registration: Trademark registration can help a small business protect its identity and investment in advertisement. Small businesses can now actively compete against larger businesses due to the low cost of advertisement through channels like social media, internet, etc., Therefore, it is important for all small business to obtain a trademark registration and protect the brand from competitors or future litigations.
Import Export Code: Import Export Code or IE Code is required for businesses involved in the import or export of goods from India. IE Code is an optional registration.
ESIC Registration: ESIC Registration is required for a small business once it employs more than 20 employees. Having ESIC registration could help the small business hire effectively and provide better benefits to its employees.
For more help on how to open small business in India, talk to an IndiaFilings Business Advisor.