How to set up a branch office of a foreign company in India?

How to set up a branch office of a foreign company in India?

How to set up a branch office of a foreign

company in India?

The Indian market has seen significant growth in the past few years and has turned out to be a lucrative workspace for companies in India as well as abroad. This has attracted foreign companies to start their branch office (BO) in India to boost profits. As India continues to grow at an unprecedented pace, arousing foreign companies’ keen interest to tap the resources and opportunities, there are a set of regulations, rules, and compliances that they need to follow to set up their branch office.

If the company follows all the rules and meets all the requirements leading to the right establishment presence, it can make all the difference between wasted efforts and success in setting up the branch. One of the main challenges is the lack of a viable and good commercial space in major cities of India under their budget. Therefore they can take the alternative of setting it up in business centers to establish a strong physical presence. The Government of India is making all the attempts to help foreign companies looking to set up a branch office in India. Let’s look at the important aspects that you need to consider while setting up a branch office of a foreign company in India.

Branch office of a foreign company in India

The main reason as to why foreign companies set up a branch office is to help them with easier management and carrying out activities in that particular area or country. It can be seen as an extension of the parent company, headquartered in a different country. The companies act, 2013, has all the provisions required for setting up a business in India. According to the companies act 2013, a foreign company is a company or body corporate incorporated outside India and which has a place of business, whether by itself or through an agent, in this country. The RBI under section 11 issues directions to the authorized person for conducting foreign exchange business, and this includes setting up a branch office as well. FEMA,1999 together with RBI, established the rules for the formation of a branch office.

Eligibility requirements for setting up of branch office by a foreign company in India

The foreign exchange management act (FEMA) governs the establishment of a branch office for a foreign company or corporation in India. There is a set of established regulations to which the foreign company has to adhere to in order to start a branch office. One of the most fundamental factors to become eligible is that the business must use its assets only to perform the company’s activities and other associated operations. Also, the foreign company cannot acquire any piece of land or purchase it for renting purposes and must strictly use it to carry out business activities. Two more important qualifications are

Necessary registration requirements for setting up a branch office in India

The procedure of setting up a branch office of a foreign company in India can take up several weeks. Most of the time will be taken by RBI as it can take up to 4 weeks to approve and grant permission, given all the requirements are met, and all the documents are handed over on time. The company needs to provide a detailed history of all the activities and objectives of the parent company. A list of proposed and intended activities that are going to be carried out at the branch office in India is also needed to be informed. The company also needs to inform the main reason as to why they chose India to set up its branch office. Finally, they need to fill a number of forms provided by RBI and make sure that the company functions under a sector that fully allows foreign direct investments (FDI), and if the operations of the company do not fall under the required sector, then it should send the form to the foreign ministry. Once all the required and important information is disclosed, and transparency is maintained, the process of registrations gets easier.

What are the important documents required for setting up a branch office?

A wide set of documents are needed to be deposited by the branch office of the foreign company to set up in India. The company also needs to fill the required set of standard forms given by competent authorities while attaching a few more documents with it. Documents that are required by the parent company to be submitted are:

What is the procedure for setting up a branch office of a foreign company in India?

Once all the above-mentioned eligibility requirements, documents requirements, and other compliances are met, the company can submit the application of form FNC along with the mentioned documents. The official exercises due diligence with respect to the background of the applicant. If all the requirements are met satisfactorily by the applicant’s company, the branch office can be set up in India. However, before receiving the approval letter, a copy of the FNC form is forwarded to the reserve bank of India (RBI), and a unique identification number (UIN) is allotted to the branch office. Only after receiving the UIN, the approval letter is given to the branch office. The registration of the branch office can take up to 45 days, and renewal of the registration is not required for up to 2 to 3 years. Once the approval is given, the branch office needs to set up the office within 6 months, and in case the office is not set up within 6 months, the approval lapses. The branch offices are also allowed to shift their office from one city to another inside the territory of India without any special approval.

Compliances under the companies act, 2013

Under the companies act, 2013 if any foreign company establishes a branch office in India or any other place of business, it shall be treated as a foreign company under section 2(42). This act defines a foreign company as “A foreign company is a company or body corporate incorporated outside India having a place of business in India whether by itself or through an agent, physically or through electronic mode and conducts any business activity in India in any other manner.” The foreign companies are governed under the chapter XXII of the companies act, 2013 and companies (registration of foreign companies) rule, 2014. Every foreign company is required to file an eForm FC-1 to MCA or the ministry of corporate affairs within 1 month of the establishment of a branch office in India. In case there needs to be an altercation in the documents submitted, the company needs to submit the detailed list of altercations as prescribed by the format by the registrar of companies in eFORM FC-2 within 1 month of alteration.

Important conditions for setting up of branch office in India

Taxation in India

Income tax is applicable on the profits earned by the branch office of a foreign company in India that is 40%, and additional surcharges as applicable. Goods and services tax (GST) is also applicable to the supply of goods and services by the company.

Net worth requirement

The parent company or the foreign mother company must have a profitable past record for at least 5 continuous years. The company must be able to show a net worth of more than or equal to $100,000, which must be supported by a financial statement.

Permission for-profit remittances

The profits made by the branch office in India are freely allowed to remit from India to its parent company abroad without having to pay any additional charges or fines. However, before sending the remittances, it must make payment of applicable taxes and also audit the books of accounts.

What are the basic rights granted to branch offices in India?

Right to acquire a property

The branch office of a foreign company is allowed to acquire immovable property like buildings or plots of land for the purpose of setting up factories, offices, or any other infrastructure. But if the company originates from Pakistan, Bangladesh, Sri Lanka, Iran, Bhutan, China, and Afghanistan, they are not allowed to acquire or buy land in India. However, they are only allowed to carry out permitted activities supplemented to the operation of the parent company. One can also lease the property, but the lease period must not exceed a period of 5 years.

INR current accounts for carrying out business transactions

The branch offices of the foreign company are required to open their bank accounts with any bank in India. They must open a current account that is non-interest bearing and make all the transactions through that account.

Remittance of profit

The branch offices can remit profits to their parent company abroad after it’s subjected to taxes and after the documents are produced to authorized dealers.

Term deposit account

This type of account is sanctioned only by an authorized dealer to the satisfaction of the bank that the deposit is made out of surplus funds of the company. The branch office must, however, utilise the funds only for their Indian offices and within 3 months of maturity. These accounts are not available for shipping or airline companies.

Funding of branch office by a foreign company

There are three important way through which the funding of branch office can be raised in India-

Debentures and borrowings

These are redeemable and can be either convertible or non-convertible. Companies can issue bonds, debt securities, or debentures, and when these get converted into equity shares, they are treated as foreign direct investments.

Share capitals

These can either be equity shares, which is the most common way in which Indian companies usually finance. Another option is called preference share capital which is convertible shares, and such shares are regarded as FDI.

Advantages that risk consulting services bring for your business

Advantages that risk consulting services bring for your business

Advantages that risk consulting services bring for your business

Businesses face several risks arising from unexpected events such as injury to employees, natural calamity, economic downturn, change in customer behavior, increased competition, or any other that may affect their operations. Such risks that threaten a business’s march towards its goals are called Business Risks.

Therefore, businesses are required to have in place a robust business risk management plan that can help to prevent such events or minimize the risks, thereby saving your revenues and your future.

The risk management process ensures that the team identifies the potential threats before their occurrence and implement practices to avoid the risk, lessen its effect, or deal with the impact. Not all businesses would be able to develop such a strategic business risk management strategy. That is where the role of risk consulting services providers becomes significant.

Risk consultants provide risk consulting services to help businesses with managing risk in business, including understanding the risks and implementing corrective methods. The risk consulting services may pertain to economic risk, financial risk, competition risk, compliance risk, reputation risk, security risk, market risk, and operational risk.

However, businesses do not understand the criticality of risk consulting services. We help you in this context by sharing the advantages of risk consulting services as below:

Risk consulting services ensure more information at hand for businesses

Risk management consultants are skilled and knowledgeable in analyzing the risks of businesses and identify the reasons behind them. They are better equipped with the information required to create a strong risk management plan that can help the businesses to achieve a win over the risks and achieve their goals.

Their knowledge on the various potential risks that can affect a business, ways to minimize the risks to operations, handle the impact if the risks occur, and measure the bad effects provide the required morale and support to the businesses. They can share their knowledge of handling risks, financing, auditing, compliance, and accounting with the businesses’ teams to deal more effectively with the risks.

Experienced professionals bring their expertise in risk consulting to the table

Risk management consultants have the relevant experience of dealing with multiple types of risks in their years of risk consulting services to businesses. When risk consulting vendors work with different types of businesses, their knowledge and expertise in managing risks in business grows. They develop unique skills in handling the risk management process for different types of industries.

If they know the risk faced by a business, it is easier to provide effective risk consulting services so that the risks to the business are limited and managed well before major setbacks. Furthermore, even if the risk is unknown to them, they can employ their expertise in a comprehensive risk assessment and development of business risk management policies to reduce their impact.

Risk consulting guarantee a third-party perspective for better insights

Risk consulting service providers bring a new perspective, a new thought process, and a unique solution to the risk management process that the internal team is incapable of. Probably the internal team fails to identify the risks on time, fails to understand the intensity of the impact of the risks, or is not able to design the risk management strategy on time.

The internal functional teams or departments may have arguments on the source of risk, impact on their respective functions, or the strategy to address the risks. All these situations can lead to significant damages for the business, such as loss in revenues, fines or penalties, or negative publicity. Therefore, it is for the best of the business to have a neutral perspective from third-party risk consulting vendors for easy and timely identification and resolution of risks.

Risk consulting assures you of healthier business processes

Risk consulting vendors keep a close eye on you by studying your operations, identifying the risks and their impact, and designing and implementing solutions. This entire risk management process ensures that any inefficiency associated with any business operation is identified and corrected. Thus, it results in completely compliant processes that are made more well-organized and effective.

With the assessment and analysis of your core business process, risk consulting services providers identify your strengths and areas of improvement. Such an analysis can guide you to gain a competitive advantage over other industry players. Their experience in similar industry’s risk consulting practices makes them competent enough to identify the right opportunities for growth and leverage them for benefits. Besides, you can leverage this competency to drive your business growth.

Risk consulting improves your attractiveness to investors

Once risk consulting services providers start improving your business processes with solid risk management strategies, your business starts performing better and draws more revenues. It becomes less risky, operations become more efficient and effective, and the finances of the business become positive and resilient.

These are the times when the business starts attracting investors. Investors look for such businesses, which have low risks, strong finances, and seamless operations. Therefore, risk consulting brings those benefits that a high-risk business would never have thought of – attractive investment opportunity for investors and completely compliant in the eyes of government and shareholders.


These are the reasons why risk consulting is essential for your business. The decision is on you to finalize the best risk consulting vendors for your business after evaluating several factors. Select the finest risk consultants who can generate value for your business. Ensure that they put in efforts for risk identification, risk analysis, risk control, and risk treatment for your business survival.

Financial performance assessment: Top KPIs to track and measure

Financial performance assessment: Top KPIs to track and measure

Financial performance assessment: Top KPIs to track and measure
While you are engaging in your business operations, devising new robust strategies, and innovating some path-breaking products or services, you must not forget to understand the impact of all of the above on your business growth. These affect the financial health of your business and help you earn more profits or result in losses. You must keep a regular check on your financial performance through key financial indicators. You can use these key financial metrics to measure the success of your strategies and operations and take corrective actions whenever and wherever required.

Gut instinct also works sometimes; however, in the case of financial reporting, it is best to put your bet on financial performance measures. Financial performance metrics are defined as indicators companies use to track, measure, and analyze the financial performance of the company.

The company sets financial goals in terms of profits or revenues to compare the performance in comparison to other companies, industries, or some internal goals. Financial performance indicators generally help the investors decide whether to invest or not and in strategic planning.

Knowledge of these financial metrics is essential to gauge the business’s performance and then make relevant adjustments to the goals and strategic objectives of different functional teams and the organization as a whole.

The key financial metrics generally are segmented under different categories of liquidity, efficiency, profitability, solvency, and valuation. Managers and other stakeholders of the organization must focus on the following key financial indicators:

Profitability: key financial indicators

Gross profit margin

Gross profit margin is one of the key financial indicators that indicate the profitability of a company. The profitability is calculated as the gross profits as a percentage of revenue. Therefore, the formula for gross profit margin is the difference between revenue and cost of goods sold, divided by revenue.

It indicates the effectiveness of the company in generating revenues with due consideration to the costs of production of products and services that are used to generate those revenues.

This financial indicator is generally compared with the industry average to match how the company is performing against its competitors. If the gross profit margin is lower, then the company may be under-pricing; if the performance measure is higher, then the company must control its overhead costs.

Net profit margin

Net profit margin is a key financial metric, calculated as the net profit as a percentage of revenue. It is a measure of profitability, as the gross profit margin. It indicates how much of each unit of money earned in revenues by the company translates into profits.

It gives a good assessment to the investors looking for investment opportunities. Through this financial metric, investors can gauge whether the management of the company is capable of generating enough profits from the sales without going overboard with the operating costs and overhead expenses.

A good net profit margin differs by industry and the business structure. Generally, an industry average is defined, and players can compare their net profit margin to the industry average to compare their performance with that of the competitors.

If the company has a high net profit margin, it means the management is effective in cost control while a lower net profit margin indicates either poor pricing strategies or ineffective cost structure, or both.

Return on equity

Return on equity (ROE) is one of the key financial indicators for a business in terms of profitability. Return on equity is calculated as the division of net income by shareholder’s equity. It indicates how efficient a company is in generating returns on the investment that is received from the shareholders of the company.

It is a ratio used for comparing the competitors since it is used to gauge which company is capable enough to generate cash internally.

If ROE is gradually decreasing, it means that the company is not capable of using its equity capital efficiently, while if it increases gradually, that means the company’s management is efficiently using the shareholder capital for generating profits.

Return on assets

Return on assets is a key financial metric that measures the profitability of a business. It calculates the profitability of a company in comparison to its total assets. The formula for return on assets (ROA) is net income divided by total assets.

It indicates how efficient a company’s assets are in generating revenues, meaning from each currency unit of assets they possess, how many currency units of earnings are generated.

A higher ROA number indicates that the company is effective in generating more money from investing less. The return on assets figure differs from industry to industry.

There are industries, which require a large initial investment. In such cases, the ideal ROA of the industry is less. For example, the return on assets for the services industry is higher while it is comparably lower from transportation and utility companies, as they need high investment initially.

Liquidity: key financial indicators

Current ratio

The current ratio is categorized as a key performance measure of liquidity. It measures whether a firm is capable enough to meet its short-term obligations.

It is calculated as current assets divided by current liabilities. Investors and analysts use this financial metric to understand if the company is capable enough to maximize the current assets on its balance sheet to fulfill short-term obligations such as current debt or any other payables.

Generally, a current ratio between 1.2 and 2 is considered as the optimum value. If a company has a current ratio below one, it means that the company does not have liquid assets to fulfill its requirement of short-term liabilities.

A company with a current ratio of two has twice the current assets as compared to the liabilities to cover its short-term debts. However, a too high value of the current ratio is also not good since that indicates that the company is incapable of using its current assets efficiently.

Quick ratio

The quick ratio is one of the key financial indicators that measure the liquidity of a company. It is similar to the current ratio, except that it excludes the inventories and prepaid from current assets.

It measures the ability of a company to use its quick assets to fulfill its current liabilities. The quick assets here include cash and cash equivalents, accounts receivable, and marketable securities.

In general, a ratio of one or higher is considered a good quick ratio. It is a more conservative measure as compared to the current ratio. A lower quick ratio means the company has several unpaid bills, lesser sales, and poor collections of accounts receivable.

Another point of concern is when the quick ratio is significantly lower than the current ratio. In such a case, it means that the company lacks liquid assets to cover its short-term liabilities, and therefore, relies heavily on inventory, which should not be the case.

Leverage: Key financial indicators

Debt to equity ratio

The debt to equity ratio is one of the key financial metrics of leverage of a company. The formula for debt to equity ratio is a company’s total liabilities divided by the shareholder’s equity. This ratio indicates how much shareholders’ equity and debt are used to finance the assets of the company.

An ideal debt to equity ratio varies from industry to industry, depending on the usage of fixed assets in that industry. Generally, the ideal debt to equity ratio must not be more than two, except for some asset-intensive industries such as mining.

A too high debt to equity ratio means a company is unable to pay its debts due to financial distress situation, while a too low debt to equity ratio means that the company is over-dependent on its equity to finance the business. Both the situations are bad for the company ad must be avoided.

Debt ratio

Debt ratio is another leverage-measuring indicator. It is calculated as total debts divided by total assets. It indicates how much of a company’s assets are financed by the debts it takes.

Generally, the debt ratio is industry-specific; however, a ratio of less than or equal to 20% indicates a healthy company, while if the ratio is higher than 30%, then the company is in distress and must take immediate actions for improvement.

Investors use this ratio to assess the risk level of a company. If the company has an extremely high debt ratio, it must take measures to increase the sales, lease more assets of the company, or must issue new or additional shares to improve its cash flow in the company.

Efficiency: key financial indicators

Asset turnover ratio

Asset turnover ratio, also called total asset turnover, is a key financial indicator to measure the efficiency of a company. It measures the efficiency of a company in generating sales revenue from its total assets. The formula for asset turnover ratio is net sales divided by the average total assets.

The higher the value, the efficient the company is in generating revenue from its assets, while a lower ratio value indicates the inefficiency of the company in using its assets to generate sales. Like many other ratios, the ideal asset turnover ratio differs by industry since some industries are asset- intensive while some require fewer assets.

If the total asset turnover is declining over time, the company can improve its figures by increasing sales, selling assets, automate the inventory management system, find efficient use of its assets, and accelerate collections.

Inventory turnover ratio

The inventory turnover ratio is one of the key financial metrics that measure the efficiency of a company. It is calculated as the net sales divided by the average inventory at the selling price.

It indicates the number of times the company uses or sells inventory in a given defined period, specifically a year. In the general sense, it is a measure to check if the company has an excess inventory as compared to its sales figures.

For most industries, a good turnover ratio lies between 5 and 10. This number indicates that the company is not required to place frequent orders with the suppliers and has enough inventories on hand to satisfy the demands.

A higher number indicates a more efficient organization since it is capable enough to save on storage costs and other holding expenses. Low inventory turnover means the company is overstocking and unable to sell its products.

Other key financial indicators

Customer acquisition ratio

Customer acquisition ratio is one of the key financial performance measures to identify how much revenue you are generating from every new customer that you acquire. The formula for customer acquisition ratio is net expected lifetime profit from customer divided by the cost to acquire a customer. The ideal customer acquisition ratio is one.

The numerator of the formula includes the average purchasing price of the customer and the purchasing frequency, while the denominator includes all the marketing and onboarding costs. However, the components making up the numerator and denominator differ from industry to industry.

A high customer acquisition ratio means you are earning higher profits from every one unit of currency that you spend on acquiring a new customer. On the other hand, a low ratio means your investment in acquiring a customer is not fruitful enough to generate profits for your business, and you are losing money.

Budget variance

Budget variance is a key financial indicator for any business. It is calculated as subtracting the actual spend from the planned budget for each item in the budget over a defined period. To calculate the percentage variance, divided the above number by the original budgeted number.

If the actual revenue is more than the budgeted revenue or if the actual costs are less than the budgeted costs, then the budget variance is considered favourable. In the case of the opposite situation, the budget variance is unfavourable. An unfavourable budget variance depicts poor management decisions.


There are many other key financial indicators in addition to the ones stated above. However, it depends on your industry of operations, goals, and objectives. Nonetheless, they are significant for any business to measure growth, success and design future business strategies.

Artificial intelligence and the future of accountancy

Artificial intelligence and the future of accountancy

Artificial intelligence and the future of accountancy
Do you want to streamline your invoice management process? Do you wish to expedite your account closing procedure? Are you looking for an efficient system for expense management? Do you intend to make your audit process more accurate, efficient, and secured? If you answered ‘Yes’ to any of those questions, we have the answer for you – Artificial Intelligence (AI).

Similar to other industries, artificial intelligence is making its impact in the accounting world as well, specifically making it more competitive. Although accounting is a traditional industry, accounting has been automated. AI’s impact on accounting adds new vigour to it by transforming the repetitive, standardized tasks to the generation of insights that can drive strategic decisions for businesses.

Artificial intelligence is defined as the simulation of human intelligence in machines so that they think like humans and imitate their actions. Machines or bots learn to read data, interpret the information, tune it for better analysis, and perform the required tasks.

It combines other technologies and innovative concepts such as computer vision, deep learning, natural language processing, machine learning, and reasoning to improve the strategic importance of the accounting function.

Artificial intelligence for the future of accountancy

AI and accounting walk hand in hand. What started with the automation of basic accounting tasks has shifted gears to more intelligent, results-driven, strategic insights. The three primary ways in which we see the use of artificial intelligence in accounting and finance are:

Efficiency in repetitive tasks

AI has the strength to collect and collate data from various sources in any format – structure or unstructured. Artificial intelligence in accounting information systems allows accountants to sort and visualize the data in multiple formats.

AI-based invoice management systems automate the invoice processing to eliminate errors, improve the recording of invoices, increase the number of invoices recorded, and manage relationships with suppliers. AI-based auditing process removes the requirement for auditors to go through the entire process of creating tests, writing scripts, and applying all rules.

Furthermore, artificial intelligence enables the execution of repetitive and standardized tasks earlier performed by accountants, thereby providing them more time to focus on understanding the data generated.

Reduction in frauds and errors

With the rise in online activities, there is a surge in online payments, online banking, and other online financial transactions.

However, in such transactions, the chances of financial crime such as fraud also surge higher. This is where the role of artificial intelligence in accounting and auditing becomes pertinent.

AI enables the correct matching of expenses with the appropriate categories so that expense management is possible without any errors. AI also facilitates the detection of errors such as duplicate entries, incomplete invoicing leading to fraud situations, or some objectionable payments.

These benefits of AI enable accountants to make the right payments and remain compliant with statutory requirements, thereby achieving full compliance and protecting the client’s finances from any frauds.

Drawing insights for better decision-making

We know that AI can detect anomalies in data and can analyze data efficiently and effectively. These data may refer to the invoices from suppliers, sales made to customers, demographics of customers, or any other data.

Such clean, analysed data can lead to better insights for the decision-makers who can base their next strategies on these insightful data. With the use of artificial intelligence in accounting, accountants can do budgeting, cash flow forecasting and financial planning to ensure they do not face any uncertain losses.

Decision-makers can use such actionable insights generated from AI-based accounting to adjust their expenses or make changes to the processes to reduce business expenditure and thus deal with financial challenges more efficiently.

The hey can leverage the use of AI in accounting and finance to understand the right time of targeting customers with marketing efforts to generate sales and understand customer behavior for future advertising strategies.

Impact of artificial intelligence on the accounting profession

With all these benefits and many more benefits being explored in the future, many people will safely assume that artificial intelligence will replace accountants. No, that is not and will never be the case. It requires the right combination and collaboration of the human mind and advanced technology to make the most of the benefits to businesses.

The impact of artificial intelligence on accounting will keep on increasing, but human intelligence will have its role to play in this setup. AI technology will replace the repetitive tasks of humans and make financial transactions error-free and faster, but human intelligence is required to run this technology.

Accountants’ insights-generating competency is essential to assess the large amounts of error-free, clean data that can help businesses in key decisions.

Therefore, AI will not replace accountants; AI will assist accountants in the conduct of accounting services with more efficiency, effectiveness, and more value. However, accountants have to develop more skills to make the right use of AI in finance and accounting to generate benefits for businesses and the economy as a whole.

AI will collect data from multiple sources and perform calculations, but accountants will be required to analyze the information and draw conclusions. Accountants must have the following skills:
Ensure a big jump to your business growth with AI-based accounting processes

KMS accounting services

KMS accounting services include basic bookkeeping services, cash flow forecasting services, business valuation and restructuring, account reconciliation services, and updating of backlog accounts.

Our team boasts of expert accountants with extensive experience in varied industries who not only provide accounting services, but also make it easier for organizations to take strategic decisions.

Our accounting services facilitate smart budget preparation, proper accounting record-keeping, tracking of malpractices, and effective decision-making.

Khandhar Mehta & Shah

Khandhar Mehta & Shah is an accounting firm based in Ahmedabad, India. We provide a myriad of services including accounting, GST consulting, outsourcing, company formation, audit and and assurance, and advisory.

Our strengths lie in using our rich experience to improve your productivity, giving you access to a specialized skilled and proficient team, delivering through the latest technologies, and generating

frequently asked questions(faqs)

No, AI will transform the accounting industry, but accountants are very much needed.
Yes, AI can make most of the accounting tasks faster, error-free, and timely.
The educational requirements may not reduce, but may add up with additional courses in developing skills such as data analytics, business modelling, statistics, and others.

Khandhar Mehta & Shah – Generating value for your business

Bookkeeping Basics for Small Businesses

Bookkeeping Basics for Small Businesses

Introduction to Bookkeeping

Small business owners have many lessons to learn in the initial phase of the development of their operations. Nevertheless, that does not mar the excitement of signing the first deal or having the first customer and the enthusiasm of the first profits. They start small; their finances are small, the operations are on a smaller scale; however, multiple tests and trials have to be dealt with on a daily basis, similar to any large business enterprise. One of the key challenges that businesses generally ignore is bookkeeping, which is essential for efficient financial management.

Small business owners make big business plans for the key processes of sales, marketing, strategy, and customer relationships. However, when it comes to bookkeeping, their focus reduces, and hence the business suffers.

Accurate bookkeeping is a vital activity for the smooth running of healthy business operations. However, the foremost thing that small business owners must do is to understand bookkeeping, identify the key rules of bookkeeping, and comprehend the small errors or pitfalls in the recording of transactions that can become a threat to business growth in the future.

Therefore, small business owners must make efforts to learn the basics of bookkeeping to understand where the business stands through the cash on hand, debts owed, and the other financial ins and outs. Furthermore, this ensures to prevent any fraud situations from any customers, employees, or vendors.

We provide the small business owners with the following basics of bookkeeping so that they can understand the finances better for ensuring the long-term success and sustainability of their ventures.

Defining bookkeeping

Bookkeeping is the process of recording and organizing a business’s financial transactions, which is a part of the accounting process. The key transactions of bookkeeping include sales, purchases, receipts, and payments. The supporting documentation for each financial transaction, such as a purchase order, receipt, or invoice, is also recorded as evidence of the transaction. It helps the businesses to understand the main causes of expenses and the key sources of revenues. Bookkeeping is different from accounting since accounting includes recording, summarizing, analyzing, and consulting of finances of business while bookkeeping is just collecting of data, and hence, is only a subset of accounting.

Basic types of accounts

Bookkeeping requires business owners to record each transaction in the relevant, appropriate category for better understanding and management of the financial transactions. Small business owners must maintain these 10 basic types of accounts for an efficient bookkeeping process:


Any business transaction passes through the Cash Account since the owner either pays cash or receives cash for a transaction. Bookkeepers can maintain two journals for Cash Account – one for Cash Receipts and one for Cash Disbursements.

Owners’ Equity

An account recording the amount a single owner or multiple owners put into the business is called an Owners’ Equity Account. Liabilities subtracted from assets result in Owners’ Equity, also called net assets.


Whatever transaction related to sales of products or services is conducted is recorded in this account. It is the incoming revenue, which must be tracked carefully to know the total income generated from the sales.

Accounts Receivable

When a business owner sells products or services to a customer on credit, that transaction is recorded in Accounts Receivable since the money from customers is due. This account sees changes whenever the payment of a past transaction happens.


The transactions involving the purchase of raw materials or finished goods from suppliers to be used for business purposes are recorded in this account.

Accounts Payable

When the business owner purchases something from its vendors and does not make the payment at that time, then that transaction is recorded in Accounts Payable since they owe money to suppliers. This account must be maintained well to avoid double payments and ensure timely payments.

Loans Payable

If a business owner borrows money for buying equipment, furniture, or any business-used thing and the payment is due, then that transaction is recorded under Loans Payable along with the due date of payment.

Retained Earnings

The net income of business after deducting all the dividends declared by the entity is recorded under Retained Earnings Account. Investors and lenders track this account to understand the business’s performance from the start.


The Inventory Account tracks all the transactions wherein the product or service is ready for selling, but the sales have not happened. It requires close monitoring since it is a current asset.

Payroll Expenses

Money used to pay the employees is recorded in Payroll Expenses Account. Maintaining this account well is essential since it is used for complying with tax requirements.

Bookkeeping and key decisions

Once small business owners understand the importance of bookkeeping and the significant basic accounts to be maintained, there are few key decisions to be taken to ensure a proficient process of bookkeeping in the entity.

Single-entry vs. double-entry bookkeeping

Besides the types of multiple accounts required to be maintained for a well-organized bookkeeping process, business owners must decide on whether to keep single-entry or double-entry accounts. If the business is extremely small and the number of transactions is less, single-entry bookkeeping works, wherein one entry is made for each transaction.

For example, if there is no requirement to deal with any equipment or inventory and if there are not many cash transactions, business enterprises can move ahead with single-entry bookkeeping. In the case of double-entry bookkeeping, two entries – one debit and one credit transaction are added to two different accounts.

This is required in highly complex organizations with a larger volume of transactions. Double-entry bookkeeping is more challenging than single-entry bookkeeping; however, accuracy and balanced books can be ensured with double entries of each transaction.

In-house or outsourcing

Making journal entries for every transaction and managing the supporting documentation is a tedious and complex task. Without special training in accounting, it is difficult for entity owners to manage it themselves.

However, the decision depends on the owner based on the factors of costing, accuracy, and trust. If the number of transactions remains very few, managing it in-house by hiring an accountant is best, while if the business involves multiple, complex transactions daily, outsourcing to a CA firm is better.

When the businesses are just following a passion or hobby with rare transactions, then the Do it Yourself (DIY) route is manageable. If the business owners and their team are too occupied in operations to ensure growth that they are not able to focus on bookkeeping, then hiring a professional would be the best decision.

Excel or software

Many computer software is available that can help business enterprises with bookkeeping entries and maintaining accounting journals, different from maintaining physical papers and account books that were prevalent in olden times. Business owners, who choose to manage accounts themselves, have the option of either using:

Frequency of recording the transaction

Business owners must make it a habit to maintain daily records. Daily recording enables us to keep track of all the transactions, thereby helping the owners to keep an eye on the financial condition of the business. If not possible to manage it daily, the supporting documentation must be saved so that each transaction is recorded at the end of the week.

Furthermore, business owners must ensure to balance and close the books regularly – monthly or quarterly, depending on the volume of transactions. The balance of credits and debits calculated after every month or quarter must satisfy the equation of Assets equal to the summation of Liabilities and Equity. If not, the errors must be found, checked, corrected, and the final balance must be achieved for the closure of books.

Cash method or accrual method

It is crucial for business owners to decide whether they will use the cash accounting method or the accrual accounting method. In the cash method, the revenues and expenses are recognized at the time of actual receipt or payment of cash for the transaction. This method is easier to maintain, and the business owner is aware of the actual cash in business at any given time.

On the other hand, in the case of the accrual method, the revenues and expenses are recognized when the transaction occurs, even if the cash payment or receipt has not occurred. Herein, the business owner is required to track all the receivables and payables; however, it gives a more realistic and long-term picture of the business.

Benefits of good bookkeeping

If bookkeeping is done regularly and with accuracy, it can result in a multitude of positive consequences as follows:

Easier fixing of problems

Mistakes happen in businesses; under billing a client, overpayment for raw materials, double charge by the bank, improper credit of the deposit, or any other. With good bookkeeping practice, it is easier to notice any such error made in the transactions, and hence, it becomes easier to fix them.

Dealing with taxation on time

Handling taxes for a business is one of the most fundamental tasks. The business is operating means it will have central and state taxes, professional taxes, indirect taxes, and any other annual charges or fees. Payment of these taxes before the deadlines is essential to avoid late payment fees, penalties, or interest amounts. Besides, income tax filing is also a critical task, which should be completed on time with no errors.

Better planning and management of business

Reporting and recording each transaction helps the businesses to obtain a view of the current business situation, which, in turn, can ensure planning and budgeting for the future. If the accurate financial transaction is not collected and reported, it becomes difficult to understand how the business is doing, where it is headed in the future and the related financial planning for the same.

Increased probability of receiving financing

Accurate and timely bookkeeping enables business owners to provide the lenders with business reports on financial statements and income tax returns. This enables the businesses to demonstrate the actual financial scenario of the enterprise to investors for obtaining a business loan. If such critical statements are not available, it becomes difficult to obtain the approval of the lenders or investors.

Therefore, for successful operations of your business ad better financial management, it is advisable for small business owners to engage in a regular, accurate bookkeeping process.

Income Tax regulations for foreign nationals /expatriates working in India

Income Tax regulations for foreign nationals/expatriates working in India

Income Tax regulations for foreign nationals /
expatriates working in India

India is an attractive destination for foreign nationals intending to work in the country, so knowing about Income Tax Regulations for Foreign Nationals is a must. The main attractions include the diversity in people, languages, culture, food, and the vibrancy of the country. The lower living costs and the incentives available to families are the key factors that contribute to a good quality of life, and hence, expatriates like to work in India. Another great benefit of working in India is that since English is one of the official languages, it is easier to live in the country for foreigners who know English.

However, there are few cons of living in India because it is a lot different from any western country and hence far off from the expectations of an expat. One of the disadvantages is the long working hours in India as compared to the global average. The InterNations’ Expat Insider 2018 survey reported a global average weekly working hour of 44.0 hours, while in India, it was recorded as 48.2 hours. Some of the other drawbacks include poor education options, lesser options for leisure, and restricted accessibility of digital life.

Nonetheless, the most critical areas, which expatriates need to understand, are the taxation rules and related regulatory provisions. It is better for expatriates to hire professional advice and guidance for understanding the tax compliances, consequences, and other related procedures and obligations. However, below is an overview of the basic concepts and regulations that exist for expatriates or foreign nationals seeking to work in India.

Defining tax resident

The income tax amount that an expatriate is liable to pay is dependent on his/her residential status in a fiscal year. The fiscal year in India runs from April 1 to March 31 of any year. An individual is considered to be a tax-resident in India in a fiscal year if he/she is in India for 182 days or more in the tax year or 60 days or more in a tax year and 365 days or more in the preceding four years. If both of these conditions are not satisfied, then the individual is called a non-resident. A non-resident is taxed only for the income sourced in India or received in India. Other than the basic conditions, there are advanced conditions to classify the residents as ROR (Resident and ordinarily resident) and RNOR (Resident and not ordinarily resident). If the individual has been a non-resident in nine out of the 10 preceding tax years or has been in India for 729 days or less during the preceding seven tax years, then he/she is considered to be an RNOR. If none of these conditions are satisfied, then the individual is a ROR. While the ROR is taxed on worldwide income, the RNOR is taxed on the income received or sourced in India. An expatriate arriving in India for the first time remains a non-resident or RNOR for the first two fiscal years. However, if there exists a DTAA (Double Tax Avoidance Agreement) between India and the home country of the expatriate, the DTAA provisions will be applicable and not the Indian tax laws. Some rules may lead to an expatriate considered a resident of both the home country and deported country, thereby leading to the ‘Rule of Tie-Breaker,’ under which different factors are considered for defining the tax residence in the following order:

Permanent home:
The country in which the expatriate has a permanent home

Centre of vital interest
The country with which the expatriate has closer social and economic ties

Longer duration of residence
The country where the expatriate has a longer duration of residence

The country whose nationality he/she holds

Competent authorities
The country decided by the mutual agreement between the competent authorities of both the countries

Tax registration number

On arriving in India, an expatriate must immediately apply for PAN (Permanent Account Number) if he/she is liable to pay taxes in India. The details are filled in Form 49AA or Form 49A, whatever is applicable, and submitted to the Indian Income Tax authorities along with the required documents. It is also required for the registration of foreign workers with the Foreigners’ Regional Registration Office (FRRO). The registration with FRRO is mandatory to be obtained within 14 days of the individual’s arrival in India and must be renewed periodically during the working duration in the country.

Tax rates

The income tax rates that apply to expatriates for a specific range of taxable income are as follows:
In addition to salary, employees receive benefits called perquisites, due to which the taxable income increases. There are rules for each of the perquisites provided by the employer including motorcar, free or concessional educational facilities, meals, club memberships, residential accommodations, utilities, free or concessional travel, gifts, vouchers, tokens, ad help of sweeper, gardener, security or domestic work, and interest-free loans. Medical facilities and mobile phone usage for business purposes are exempt from tax. The non-employment income is taxed at different rates depending on the type of income. The non-employment income includes interest earned, royalties payable, and long-term and short-term capital gains earned on the disposal of capital assets located in India.

Tax implication of various components of compensation of employees

An individual’s employment with an employer leads to income, which includes all types of amounts received in cash or kind. These include wage, bonus, profits in lieu of salary, pensions, commissions, contribution to superannuation funds, and reimbursement for personal expenses, securities, or any other. The following components of the salary are taxable on the full amount:

There are some components as follows, which are taxed on a concessional value:

Home leave travel, reimbursement of specified relocation expenses, an employer-provided car with a driver are some of the fringe benefits provided by the employer to employees. The taxes on these are imposed on the employer and not on employees. Foreign companies having employees in India are required to pay the same taxes for these fringe benefits.

Social security benefits

If India has signed an SSA (Social Security Agreement) with the country of residence of the expatriate and if the expatriate has a COC (Certificate of Coverage) from the home country, then he/she is not required to make social security contributions in India. However, he/she must get that certified from the PF (Pension Fund) authorities of India after showing them the COC.

If no such SSA exists, then the expatriate is required to make the required contributions, and the employer company must contribute its part of the amount. Under the provisions of the PF scheme, both the employee and the employer contribute 12% of the monthly pay; this monthly pay is the total salary whether received in India or abroad. Of the 12% contributed by the employer, 8.33% is towards the Pension Fund while the balance 3.67% is towards the Provident Fund.

The expatriate can withdraw the pension after attaining the age of 58 years, provided the necessary conditions are satisfied. In the case of PF, the expatriate can withdraw the amount after attaining the age of 58 years or if the individual is retiring because of permanent incapacitation, as verified by a medical practitioner.

Daily allowances

When expatriates move to another country for a working assignment, they face a change in the living conditions and standards. Employers compensate their expatriate employees for these living changes through a daily allowance, which is an amount in addition to the salary paid to them. The daily allowance generally includes the expenses for local conveyance, lodging, and boarding that are incurred in India. If such a daily allowance provided to the expatriates for daily living expenditure is used for the said purpose, then it is exempt from income tax. If it is not used for those purposes but for some other reasons, then it becomes taxable. These allowances must be reasonable in comparison to the salary and the duties and responsibilities of the employee and must be used for the specified purposes while on deputation for the mentioned duties. However, it is mandatory for employees to:

Employees Stock Option Plans (ESOPs)

ESOP is a type of employee benefit plan, which encourages employees to acquire ownership or stocks in the company. Employers provide ESOPs to retain the employees in the entity. At the time at which ESOPs are exercised, they are taxable in the hands of the employee.

Professional tax

There is a professional tax imposed on employees in certain states in the country. The employer withholds this tax amount from the salary, and it is also a deduction when calculating the employee’s taxable income.

Tax return filing

An expatriate who qualifies as a ROR in a fiscal year is required to file tax returns in India by July 31, following the end of every fiscal year. Whether the expatriate has taxable income or not for that fiscal year, the following components are required to be reported in the tax returns:

Regulations for foreign exchange and remittance of funds

Most of the regulations related to foreign exchange and remittance of funds are liberal in India. However, in the case of specific remittances, exchange control authorities’ approval before the remittance is essential. Expatriates can open bank accounts with banks in India to credit their India-earned income.

Income Tax Clearance Certificate (ITCC)

At the time of departing India for the last time as an expatriate, individuals are mandated to submit the ITCC (Income Tax Clearance Certificate) to the immigration officials. The Income Tax authorities provide this certificate to the expatriate, thereby certifying that the individual has no pending tax dues or tax liabilities in India.

The expatriates coming to India must be careful of these regulations and rules, and the employers must provide the required guidance and support prior to expatriates’ deportation to the country.

EPF Provisions applicable to IT companies in India

EPF Provisions applicable to IT companies in India

EPF Provisions applicable to IT companies in India

Employees receive benefits from their government and their employers in any country across the globe. Some of these benefits are mandatory, while some are voluntary. According to the employers, such employee benefits keep employees happy and committed to their work. On the other hand, employees feel that employers and government value them, and these benefits enable employees to keep their families and future safe. One of the key benefits that employees in India receive is the retirement benefits through the Employees’ Provident Fund (EPF). In this article, we answer all your questions regarding EPF provisions applicable to IT companies in India.

What is the EPF Scheme?

EPF is a retirement benefits scheme available to all salaried employees. Herein, both the employer and the employee contribute equally at 12% of the employee’s basic salary and dearness allowance to the scheme. On the retirement of the employee from the organization, a lump sum amount is paid to the employee along with the interest component. The main purpose behind this scheme is to facilitate the saving of money by the salaried class of people so that they have enough amounts for daily life after retirement. The employees also have the option of a loan facility from the EPFO when needed.

Who operates and administers the EPF Scheme?

The Employees’ Provident Fund Organization (EPFO), which is a retirement fund body providing mandatory Universal Social Security Coverage to all salaried employees in India, operates and maintains this scheme. The Ministry of Labour and Employment manages the operations of EPFO under the direct jurisdiction of the government. Besides the EPF, EPFO also operates two other schemes – Employees Pension Scheme (EPS) and Employees Deposit Linked Insurance Scheme (EDLI). The Central Board of Trustees, consisting of one representative from each of the employers, employees, and government, manages and administers this scheme. EPFO provides the required support in the Board’s activities.

Are you eligible for EPF?

The key criteria to be satisfied by employees and employers under EPF are as follows:

How much do you contribute to the scheme?

The employer and employee contribute 12% of the monthly salary, which is the amount equal to the total of basic salary plus dearness allowance plus retaining allowance. Of the employer’s contribution of 12%, 8.33% is deposited in the EPS. The remaining 3.67% is retained within the EPF account. The contribution from both parties is deposited in the EPFO account.

In the case of employers with less than 20 employees, who register to this scheme voluntarily, employers and employees both contribute only 10% per month. The 10% contribution rate also applies to those organizations who are declared sick by the Board for Industrial and Financial Reconstruction; entities, which operate under the wage limit of INR 6,000.00; guar, beedi, jute, coir, brick, and gum industries; and companies, whose losses at the end of the financial year are greater than or equal to the net worth for that year.

In addition to the 8.33% contributed towards EPS and 3.67% towards EPF, the employer is also required to contribute 0.5% of the monthly salary to the EDLI. Furthermore, the employer is mandated to take care of the administration costs PF scheme, which is at the rate of 0.5%, respectively. Therefore, the total contribution of employers towards EPFO-run schemes is 13.00% of the monthly salary of employees.

How do you access your EPF account?

Universal Account Number (UAN) was introduced by EPFO and is different from the EPF number. If an EPF member intends to visit his/her EPF account in entire – that is, with former and current employers, then the UAN number helps. The member can view the accounts, close them if required, and transfer the balances. However, for any of this, the UAN number must be activated.

What are the interest rates?

The EPFO sets a fixed rate of interest that is applicable to these contributions for each year. For the financial year 2021-22, the applicable pre-fixed interest rate is 8.50%. The interest is calculated monthly but is transferred to the EPFO account yearly at the end of the year, i.e., March 31.

Are there any tax concerns?

EPF in India has the EEE (exempt-exempt-exempt) status. The interest earned on this amount is tax-free; the employee can show the 12% contribution to the EPF as a deduction under Section 80C of the Income Tax Act and the eventual withdrawal amount from the EPF account after the mandatory period of five years is exempt from Income Tax. However, the withdrawal amount from the EPF account is taxable under certain circumstances:

What are dormant or inoperative accounts?

In case there is no contribution towards an EPF account for a continuous period of 36 months, the account becomes dormant and hence, inoperative. In the case of dormant accounts of employees, with many years of service still left, interest is offered on these accounts. However, if the employees have retired and the EPF account is dormant, there is no interest amount applicable to the amount deposited in such accounts. Whatever the case be, the interest earned on dormant accounts is taxed at the rate applicable to the EPF member’s income slab. Employees can withdraw the amount from dormant accounts using the UAN number or just transfer the amount from the dormant account to the current EPF account.

What are the different conditions under which we can withdraw funds, and how much?

Employees generally withdraw EPF on retirement. In the case of an unemployed employee and after retirement, the individual can withdraw 75% of the cumulative amount after one month of cessation of their services, while the remaining 25% can be withdrawn after two months of cessation of their services. However, the unemployed individual is required to submit a certificate of unemployment, which is signed by a gazetted officer. If the service period has been less than 10 years, the employee is allowed to withdraw the EPF amount. There are other conditions and reasons wherein the employee can withdraw the amount; however, there is a limitation on the amount that can be withdrawn:


In the case of marriage of self, son/daughter, or brother/sister, the employee can withdraw the balance from EPF; however, he/she must have completed at least seven years of service. Besides, the employee can withdraw only 50% of the employee’s share of contribution to the EPF scheme


In the case of education of self or son/daughter after class 10, the employee can withdraw the balance from EPF; however, he/she must have completed at least seven years of service. In addition, the employee can withdraw only 50% of the employee’s share of contribution to the EPF scheme.

Purchase of land or purchase or construction of the house

If the land or the house that is bought is in the name of the employer or his/her spouse or joint name and the employee has completed five years of service, only then the balance can be withdrawn from the EPF account. However, the employee can withdraw only 24 times the monthly wages plus dearness allowance in case of land while 36 times the monthly wages plus dearness allowance in the case of a house.

Renovation of the house

If the employee requires money for the renovation of the house, which is registered in the name of the employee or spouse or jointly, he/she should have completed at least five years of service. However, the withdrawal amount can be only up to 12 times the monthly wages.

Home loan repayment

In case if the employee has completed 10 years of services and requires money for home loan repayment, the employee can withdraw up to a maximum of 90% amount from the EPF account from both employee’s and employer’s contribution. However, the property must have been registered in the name of the employee or spouse or jointly, the accumulated amount in the employee’s EPF account along with the interest component must be more than INR20,000.0, and withdrawal is permitted only if the employee submits the requisite documents as a proof of availing of housing loan to the EPFO.

What are the advantages of EPF?

Following are the advantages of the EPF scheme:

Tax benefits

The majority of the components of EPF are tax-free. An employee’s contribution to the EPF is tax-exempt under Section 80C, and the interest earned on the amount is exempt from tax. If the employee withdraws the balance amount from the EPF account after the mandatory five years of continuous service, the amount is not taxable. Furthermore, even an inoperative EPF account that is dormant for more than three years continues to earn interest.

Pension benefits

Employer’s contribution of 12% of salary in the EPF account comprises of 8.33% that is diverted to the EPS account. Furthermore, 10 years of contributory membership of EPS leads to the generation of lifelong pension benefits.

Insurance benefits

EPFO also provides insurance coverage under the EDLI scheme. If the employee has an EPF account, then he/she is automatically eligible for this scheme. The employer contributes 0.5% of the basic salary up to a maximum of INR75.0 per employee per month, while the employee is not required to contribute separately for it. The benefit from this scheme is that if the person insured dies during the service period, the nominee receives a lump sum payment.

Option to withdraw prematurely

While it is advisable not to withdraw the EPF money before the compulsory five years of service; however, if members require money for home loan repayment, medical treatment, or in times of unemployment, then a partial withdrawal option is available to employees after five to 10 years of service.

Long-term savings

It ensures that the employees make long-term savings since the withdrawal of the entire amount before retirement is difficult.

Benefits in times of uncertain events

The employees and their nominees can withdraw the funds along with the interest amount from the EPF account in certain bad circumstances such as the death of the employee, disability of the employee, and retrenchment from the job.


Employees can easily access their EPF accounts through the EPF member portal using their UAN number, and they can also transfer their accounts while changing their jobs.

What are the disadvantages of EPF?

Following are the disadvantages of the EPF scheme:

How to set up an IT Company in Ahmedabad

How to set up an IT Company in Ahmedabad

How to Setup an IT Company in Ahmedabad

With a CAGR of 48% in IT investments over the decade from INR700.0 crores in 2005-06 to INR35,200.0 crores in 2015-16, the popularity of the Gujarat state in the IT sector has reached a new high. In 2018, the state accounted for more than 5,500 ICT companies, which includes 10% large entities, 30% medium entities, and 60% small enterprises. Let’s see how to Set up an IT Company in Ahmedabad.

The Gujarat government is working tirelessly to promote the development of the sector with positive policies and regulations that can encourage the incorporation of IT companies in the state. Specifically, the development of the state as an SME industrial ecosystem along with other new-age concepts of artificial intelligence, robotics, the internet of things, and machine-to-machine can give the required impetus to the IT industry growth. The proposal for the development of a technology hub in Ahmedabad can provide the right direction needed to Set up an IT Company in Ahmedabad and create a vibrant IT ecosystem in the city.

Information Technology (IT) and IT-enabled Services (ITeS) were accorded bonafide industry status on October 14, 2019, in the Gujarat state to improve the ease of doing business. Such a status means more development opportunities for the IT industry, which will result in an increased generation of employment. The state government’s ‘Gujarat State New IT Policy of 2016-21’ aims to develop a robust IT/ITeS ecosystem that contributes to the prosperity of the state and hence the nation. The key objectives of this policy were:

Set up an IT Company in Ahmedabad – an ideal destination for IT companies

Ahmedabad, lying on the banks of the Sabarmati River, is the largest city in Gujarat. It is one of the major metropolitan cities in the country, with a good amalgamation of historical significance and modern developments. It has a well-connected network with other major cities of the country via roads, railways, and airways. Ahmedabad contributes a lot to the overall economy of the state. It recorded a GDP (by PPP) of USD68.0 billion in 2017, with a rank of eight among the top Indian cities. It thrives mainly on the textile, gems and jewelry, chemicals, food processing, and pharmaceutical industries. Apart from being the center of trade and commerce, Ahmedabad has also become a hub for higher educational institutions and information technology companies in recent times.

Some of the key factors that contribute to making Ahmedabad a preferred destination for IT companies are as follows:
All these above-mentioned factors promote and encourage the entrepreneurs to develop IT and ITeS companies in the city, thereby contributing to the growth of the state. The entrepreneurial mindset and the ever-increasing IT capability of the youth of Ahmedabad give the required impetus to the establishment of IT companies in Ahmedabad. However, the question is how to set up an IT company in Ahmedabad? What are the rules and regulations to be followed and registrations required to operate in the IT/ITeS industry? What are the criteria to be fulfilled before setting up a base in Ahmedabad? We provide the answers here:

Registration procedure for IT companies: How to Set up an IT Company in Ahmedabad

The key steps for registration and incorporation of an IT company in Ahmedabad are as follows:

Deciding on the legal structure of the company

The first step is to decide on the legal structure in which the owner/s intends to operate the company. The options available include One Person Company, Limited Liability Partnership, Private Limited Company, Partnership Firm, and Sole Proprietorship Firm. Entrepreneurs thinking to Set up an IT Company in Ahmedabad choose the legal form depending on the business structure and the vision they intend to achieve. The comparison between various legal structures must be made based on the prerequisites, costs involved, advantages, and disadvantages.

Selecting the right business structure is a critical step since an entity’s income tax returns depend on it. The legal compliances that the entity has to abide by annually depend on the legal structure. Furthermore, some legal structures of business are observed as more investor-friendlier than the other structures because the investors find the former to be generating more returns. Therefore, every entrepreneur, before registration and  incorporation of the company, must think carefully about the type of business structure he/she intends to form. The decision is based on the following factors and principles:

The number of owners/partners in a business:

If an individual is ready to bear all the costs and risks, then a sole proprietorship works best. In this case, the individual gets to enjoy all the returns and benefits from the business and also can keep the entire business under his/her control. However, if he/she thinks to share the costs and risks and seek investments from other individuals, then LLP or private limited company would be the best structure. In this case, the control and decision-making ability are also shared along with the profits.

Income tax rates imposed on the business type:

The income tax rates are different for different legal business structures. In the case of a sole proprietorship firm, the individual’s income is combined with the business income. On the other hand, in the case of a private limited company or partnership firm, the tax rate is different and applicable only to the business income.

Risks of a business:

Legal structures such as LLPs and companies have limited liability, meaning that whatever shares a member holds in the business or the amount of contribution he/she has in the company, the liability of each member is also limited to that share only. The personal assets are not impacted by the business liability. The scenario is different in the case of HUF, a sole proprietorship firm, and a partnership firm because these have unlimited liability. That means members or partners contribute for the entire amount in the proportion of profit sharing ratio; members have to withstand the other members’ wrong decisions and transactions equally.

Multiple compliances and increased complexities:

Private limited companies and LLCs are required to comply with a multitude of reporting requirements and record-keeping, which becomes difficult and complex to manage. In the case of sole proprietorships and partnerships, the compliances reduce in number.

Initial investment:

If the individual intends to have less investment initially, then a sole proprietorship firm, HUF, or partnership works better. If high initial investment and high compliance costs are not a cause of worry for the individual, then an LLP, a private limited company, or a one-person company is the best to opt.

Selecting the business name or company name or brand name

Once the legal structure is decided, the next step is to decide on the name of the entity before moving ahead with the registration process. However, entities are required to follow few company name rules. The name must always be searched on the trademark website and the website of the Ministry of Corporate Affairs. It must be a unique name and not copied from the name of any other company. Following this, entities must book the domain name.

The company name must be in three parts: The keyword, which is the brand name, followed by the business activity word, which shows the key business activity of the entity’s operations and last is the structure word, which shows the type of company – LLP or private limited or any other. The keyword (brand name) must not be the same as any other company’s name.

Acquiring DSC and applying for DIN

After the selection and approval of the name of the company, it becomes essential to acquire a digital signature. Since the process of registration of a company is online, it is essential to obtain a digital signature for the incorporation process. Subscribers and directors are mandated to obtain and possess a Digital Signature Certificate (DSC). Once DSC is obtained, the next step is to apply for the Director Identification Number (DIN). An individual intending to be a director in a company must apply for DIN. For this, the individuals are required to fill and submit the form DIR-3 or through SPICe forms.

Preparation and submission of required documents

For forming any type of company in the country, a host of documents are necessary to be submitted along with the application form. The documents include the following:
Proofs of Foreign Director needs to be apostilled by respective country’s Apostilation Authority. Along with the submission of these documents, the e-form is filled on the Ministry of Corporate Affairs (MCA) portal. The applicant must also draft the Memorandum of Association (MoA) stating the objectives of the company and the Articles of Association (AoA) stating the rules and regulations of the company.

Certificate of incorporation

Once the entire set of required documents is submitted along with the application on the MCA portal and is found to be correct as per the regulations, it takes around 10-15 days for formal registration of the company. A Certificate of Incorporation is sent to the applicant as proof of registered company. Fulfilling the requirement to comply with other regulatory obligations such as PAN, TAN, GST, Professional Tax, ESIC Registration, Bank Account Opening, and any other Once the registration is complete, there are a multitude of other formalities to be completed. These include:

The pros and cons of outsourced accounting services

The pros and cons of outsourced accounting services

The pros and cons of outsourced accounting services

If you are already in the industry and running a business for years now, you must be knowing the importance of maintaining and handling books of accounts. However, if you are new to the business industry and are trying to figure out things that you need to take care of first, you must know that handling your finances and books of accounts should be one of the elements that will top your priority list. 

From a downtown bakery shop to a high-end real estate business, finance is going to be a huge need of business as it acts as the oxygen for your firm to survive. The biggest nightmare for any businessman is a decimating business due to failed handling of finances, and therefore to avoid such a situation, it’s best to invest in professionals, someone who takes care of your books and maintains transparency. 

Now, if you are a small or medium scaled business who cannot afford a full-fledged CFO or a team of accountants on your payroll, or if you are a large-scale, fully established company but want to save those extra bucks while not compromising on quality; an outsourced accounting service should be your first option. However, with every positive comes negative. So does outsourced accounting services; now it depends upon you to decide whether or not the pros outweigh the cons. 

Below we have mentioned a list of important pros and cons you must keep in mind before choosing outsourced accounting services:

Pros of outsourced accounting services

Cost and time-efficient

Outsourced accounting services are extremely cost-effective as you save on accountants’ monthly salary and save on other employee packages like health insurance, vacation benefits, or pension. Investing in outsourced accountants will also save you the cost of investing in software and other equipment essential for carrying out bookkeeping services. An outsourced accountant also saves time as now instead of handling the books, worrying about transparency and reliable results, you can now concentrate on other important tasks related to business like upgrading the quality of products and services, taking care of employee’s needs, or management of the staff.

Yielding valuable expertise and knowledge

If your in-house accountant is getting recruited through the recommendation of an executive-level employee or has entered as a fresher, you can’t be sure about the results and might not expect professional work. But when you outsource accounting services, you can rest assured that your books of accounts and finances are in safe hands. You can also learn valuable and expert knowledge and work under professional guidance when it comes to financial matters. Outsourced accountants have years of industry experience as they have worked with various industries and in different companies that let them have a versatile outlook towards an array of problems.

Reduced risk of frauds

Fraud is an unfortunate event that every CEO dreads but is prevalent in almost every small and medium-sized company. In fact, one can spot many frauds in large and famous companies as well. Mostly pecuniary in nature, frauds take place because the helm of accounts is in the hands of only one person. Mostly such frauds go unnoticed, but over the years, when one takes a close look, a large chunk of profit has already drained out, and there is nothing one can do to reverse this. Therefore, outsourcing accounts comes as a big savior as outsourced accountants mean multiple pairs of eyes analyzing your reports and transactions that increase internal control of your company and also a significant decrease in the frequency of frauds.

Cons of outsourced accounting services

Additional hidden costs

Paid services can lead to a point where one service snowballs into another as you enjoy and take benefits of the service. However, these services are not always free of cost, and you might not even realize when you have already extended services beyond your pack or plan. This can add additional charges, which you might initially forget about. But to avoid this, you can always make your monthly relationship clear by discussing the current plans and how much you must expect at the end of the month.

Reduced control

It’s natural when you outsource a service to a third party, the control of that particular sector gets reduced. One might not come down to your cabin every time they need to make a decision regarding a financial matter. However, you can always call for a weekly or monthly meeting to get updates and reports regarding your financial position. If you are willing to delegate that control, trust, and reduce the workload to an outsourced accountant while looking at the bright side, it shouldn’t be a problem.

Gap in communication

You can always walk into the cabin of your in-house accountant and ask about the current status of how the position of your finances is. You can see him working and communicate clearly whenever you feel like. However, when you outsource an accountant, you might not get the reply or answers as instantly. As they are not physically present at the office, there can be some limitations, mostly regarding communications. Therefore, to avoid a murky relationship with your accountant, make sure you plan schedules, divide responsibilities, and discuss your plans and goals with your accountant to bridge the communication gap.


Your outsourced accountant is engineered in a way where he can transform the financial functioning and augment your staff accordingly. He will create a customized management report and control services to provide a platform to drive profits and increase cash flow. While there are some cons related to outsourced accounting services, these can be overcome by taking the required measures and focussing on the bright side. Depending on your priorities, you must compare the pros and cons before making an informed decision.