Foreign Consulting Income under Service Tax?

To open current account of proprietoship concern, nationalised or cooperative bank will open it even if you give an address proof of proprietor and PAN. A proper introduction from a fellow current account holder will also be in order and they may not insist on a registration. You can no doubt make a voluntary registration for VAT or Service Tax but that costs. In VAT you have to make advance payment of VAT and give an NSC as security. In service tax you pay service tax without exemption for services rendered to domestic clients. Normally the ICICI Bank and HDFC Bank ask for VAT or any other registrations in name of proprietorship or a cheque from existing bank account of proprietorship. You open one account in a nationalised bank or cooperative bank and then issue them the cheque from that bank to open the account. I suggest you bank with nationalised bank or cooperative bank having forex first before going to these fancy banks. They will slaughter you with charges down the line.

However, if your turnover exceeds 9 lakhs, registration with Service Tax is compulsory but your service to foreigner is exempt from tax as an export subject to you complying with conditions of bringing remittance to the country etc. Therefore you need the bank account in the name of proprietorship. You cannot register in proprietorship, issue bill in proprietorship and receive payment in individual. Do not get carried away by the fancy banks to have an account in there. Our nationalised banks are far better than them these days. As a suggestion, go the the foreign exchange authorised branch of a smaller nationalised bank. Services are excellent and payments come on time provided your remitter fills the MT 1xx form correctly.

If you have only the foreign income and really are desperate to bank with HDFC or ICICI, then take a voluntary basis registration of service tax. You will have to file returns even if you do not cross the limits.

You could be resident of a state where you are liable to pay professional tax or deduct professional tax on what you pay to employees salary over Rs.3000 per month. You may be liable to deduct TDS on salary over Rs.160,000 per annum paid to anyone in which you can take a TDS registration in your individual name with proprietorship as a branch. You can take enrollment from Proffessional Tax for your business in the name of your proprietorship. You can register under professional tax for deducting from employees. However the enrolment is mandatory if you are doing business or profession, the latter is required only if you qualify. In Incometax you can obtain TAN in name of proprietorship. It is issued to you Individually but your proprietorship name is recorded. I am sure HDFC or ICICI should accept these as proof for proprietorship. Go through these only if you re desperate as you are obliged to file returns if you get these registrations.

Sunil,

Thanks for the detailed and prompt reply. I appreciate it.

I am a single person business working from home and don't expect to have any employees (not even a cleaner/helper), so will I still need Professional Tax registration?

You are right about Service Tax Registration - it would be totally unnecessary and cumbersome (unless, as you said, my consulting income goes beyond 9 lakhs - I am not sure if I will get that much business from just this one client). I don't have or plan to take any local customers.

I already have a Savings Account with HDFC Bank and hence this question. Nationalized / Cooperative bank not within walking distance. After posting this question, I came across IDBI Bank Current Account application form and they accept a CA certificate for Sole Proprietorship business. I have sent an email to HDFC Bank representative to see if they accept a CA certificate. I will let you know what they say.

Thanks again for the clarifications.

The service provided by you is an export of service and hence no ST is payable. As no ST is payable, no need to register with service tax department.

No such registration is required for opening current account, it is just tantrum of HDFC. Look for another bank to open a current account.

In Maharashtra you need to enrol yourself with professional tax at the Vikrikar Bhavan, Mazgaon. The payment is Rs.2,500 per annum and they give you an enrolment certificate in name of your proprietorship. This is mandatory whether you work from office or house. All business and profession owners have to enroll themselves with Professional Tax in Maharashtra State. I too have an enrollment since 25 years as that started since the time I took a Sales Tax Number. Only I am not sure which entry your service comes under. Go to them and check up. They will be only too happy to enroll you as you have saved their investigation department tthe botheration of sniffing you out. Only be careful about the date you say you started your profession. It is better to start your profession with immediate effect and not back dated otherwise they ask for PT of previous years also with penalty and interest (say you tell them you started the profession 3 years back). Just declare that you started new proprietorship, give them your qualification certificate and declare what consultancy you do. They will fit you in the correct entry.  You will get the enrolment in a day and you relegiously pay every year befor June 30. If you wish, you take enrolment now and pay 2500 and between april and june 2010 you pay for 4 years and they will consider it as paid for 5 years (pay for 4 and get 1 free). Only when you file your income tax returns, if you pay 10000, charge only 2000 as professional tax on profession, trade and callings  to your P&L a/c for each of the 5 years for which you paid lumpsum only. For 2010-2011 financial year you account only 2000 and show the Maharashtra Government as your debtor for 8000 and every subsequent year you show Rs.2000 under this head and so on.

Like Rajeshji said HDFC Bank is not the end. There are other better banks who will not slaughter you for charges. You yourself admit your business is below 10 lakhs. HDFC Bank is not the bank for you to go to for this kind of business.

If you are working only for 1 international client, be careful that you do not get into transfer pricing rules and you should organise yourself as an independent professional and not a dependent agent forthe foreigner. Otherwise you get into problem as deemed PE of foreigner / non resident. Just be an independent Consultant offering technical services. I do not know what consulting you do but just take care and ensure you are paid arms length price for your work especially if this work you do for this one client is the ONLY work you do.

Your consulting services come under ITSS and are an export of services as the recepient is outside India, the service is used outside India and the receipt is in CFE. No need of registration as there is no liability for export of services. In fact refund of ST paid on input services used in provding the export services are eligible for refund/ rebate. [ for you that may not be worth it as the refund is cumbersome and delayed as on date]

Sunil, Rajesh and Madhukar,

Thank you for the replies and advice. I am going to check with HDFC Bank if Profession Tax Registration Certificate will be acceptable proof - that was a great suggestion.

I am also against high-and-arbitrary charges of Private Banks. The reason I am exploring HDFC Bank is since I have a Savings account with them and also, its the closest bank near my home.

Again, thanks so much for your help!

I asked you to take Professional Tax ENROLLMENT and not registration. Enrollment is what the Professional or VAT Dealer or even the taxi or rickshaw owner takes. Registration is when you have employees and you have to deduct their professional tax and deposit with department. They are two different things. Be careful. If you take registration, even if you have no employees you will have to take trouble of filing 'nil' returns.

My bad. I used incorrect terminology. Thanks for the correction.

I understood the distinction between registration and enrollment on the Professional Tax website and downloaded the format for Certificate of Enrolment (form 2A). I have sent that format to HDFC Bank representative to determine if at least that is an acceptable proof.

Enrollment is a must if you engage in the profession. HDFC Bank or no HDFC Bank. If they do not open your account, as a stop gap open it elsewhere, get some remittances and then open at HDFC. They will accept your application when accompanied by a cheque from the account of the proprietorship and welcome existing businesses, not start ups unless there is an element of revenue like taking a large loan against security of your property. It is basically a polite way of declining without upsetting your SB Account that they want. No harm keeping 2 Banks. SBI asks for 10000. Smaller nationalised and Large Cooperative having Forex ask for 5000 for current account. HDFC and ICICI are costly. ICICI and AXIS have prepaid accounts.

If you would have had office premises (even on rent) I would have asked you to take a Gumastha Licence from BMC. Without employees 400 per annum. With 1-4 employees 1250 per annum. Banks accept that also as existence of business. Another thing you can do is take a landline in name of proprietorship from MTNL. That is a valid proof for address also. You can use internet connection that goes with it and the documents you give MTNL for your individual like passport etc. is acceptable. They issue bill in name of individual as proprietor of XYZ.

I have given you many options only because of your desperation, but in business you really should not be desperate to do business with someone. It has to be the other way round. Then success will be all around you. For the convenience of banking you are doing instead of following the path ABCDEFG you are literally going DBACEFG. Today with online world, the bank is the least important for just current account transactions. I go only with the Bank that gives me a loan without mortgage and charges me reasonable rate of interest. Even if I have to pedal 2 kms. BTW,  in order not to burn fossil fuel I use cycle to go to ATMs and Banks. Unfortunately in Mumbai you cannot do that. I have my offices in Mumbai bang next to railway stations for that reason itself. I live very far away from Mumbai. So I bank with a nationalised bank 300 km from my house. I need money I transfer online to SB AC and draw by ATM. My BEST, MSEB and MTNL bills are all on ECS. Therefore I cannot understand what convenience you get with Bank next to the house. You need to visit Bank only to collect your foreign exchange inward remittance certificate. Nothing else. Reimburse them courier charges, they will courier it to you.

Dear Friend

in my views its not cmpl to got registerd if they want proof then give your IT Return copy in which name is given

and in my views u should add service tax and take ST Number if yearly billing is more than 10 lacs rs.

Nitin. It is still better to register only after crossing 9 L. This includes both domestic and export of service. HDFC Bank usually does not open account for proprietorship without any Gvernment issued documents in name of PROPRIETORSHIP. The income tax ITR4 acknowledgement is in name of individual. Therefore I suggested P Tax as that is mandatory and will come in name of proprietorship. If you have office, you can take gumastha licence in name of proprietorship. That too is an identification in name of proprietorship. Usually these new generation private banks shy away from start up proprietorships unless there is a lot at stake. Have a deposit of 10 L with them in your personal name and give them your wealth management portfolio then they will come to your house to open the current account and help you fill forms to obtain your IEC Code number as a start up. Then they would not want to lose you as a client. If it is an existing proprietorship elsewhere they simply ask for a cheque from the other account of proprietorship, take other KYC documents of proprietor and open the account.

Thanks everyone for more notes.

Here's a googly I received later on... will I need an Import Export Certificate (IEC)? I am an individual software programmer who will provide service to a Foreign Company over internet through a Sole Proprietorship business with no employees. I sign into that US Company's network over VPN and then directly work over their virtual computer in their network through Remote Desktop. So there is no physical delivery of code on a CD from Mumbai to USA.

Given the above nature of business operation, would anyone know if I will require an IEC?

If you opened your bank Account and receive inward remittance, no problem. However, I suggest you take the IEC. Costs 1000 (maybe revised) but a one time fee only unless you change the address and is very helpful. Even if you receive any parcel from anywhere by air or sea at any time, without IEC you cannot clear it. At any point, Government may give you benefits of duty free imports for any equipments you may need during course of your profession. You can avail benefits. Having IEC does not harm. If it is mandatory for you to quote an IEC Number during course of your business or profession (it is mandatory for all import export transactions in customs at least), you must have one.I do notknow what documents you need to pass on your goods and services.However if it is required to quote the IEC Code number in any document before providing your services, obtain one. An exporter shipping physical goods cannot ship without IEC. If you want to obtain any benefits as a Small / Medium Enterprise or register your business as a small business (same authority as SSI) to obtain benefits at a later date, an IEC also helps.

It is not difficult to get one. You can get help from people sitting downstairs at DGFT Building next to Aykar Bhavan in Churchgate. People who sell forms there offer good help in documentation at least and submission. Eventually you receive the IEC code by speed post at your premises. If you do in proprietorship name you will have to ask your bank to attest the form and your photograph etc and certify you hold account with them. Even an individual holding SB account is entitled to one.

The rule is one IEC Number per PAN.

Thanks for the prompt reply Sunil.

You have explained the benefits of IEC very well. Trouble is that I don't plan to expand this business but I plan to treat it more as a One Client Consulting assignment (similar to a full time job).

Do you mean that I will need an Importer Exporter Code (IEC) even if do NOT have any physical parcel, not even a CD, to physically send from India to USA? All I do is logon over Internet on to the Client's computer and provide services over their own computer. I do not even have to email anything. Everything is already on the Client's computer in USA.

1) Will I still need an IEC?

2) Even if I do get an IEC license number, then where do I use that number - on what documents? There is nothing going out through Customs.

Thanks!