An individual software consultant is planning to start his own startup from his monthly earning as consultant.
Option 1: Simple Sole Proprietorship Firm with same PAN Number:
Advantage: Since all his monthly expenses like office and salary will be from same PAN all of them will be shown as expenses. So his tax liability on earnings as individual consultant will be brought down.
That is when money is transferred from individual earning to expenses for sole prop, there will not be any additional tax liability.
Option 2: if the new startup is a partnership firm or a LLP or Pvt ltd company (with a different PAN number), and then his monthly earning are to be used for the expenses of the new firm, there will be an additional tax liability.
eg: it will be application of income when transferred to partnership firm/LLP, so his individual earning will be first taxed, and then the PAT will be invested in the new firm.
Please suggest how this additional tax liability can be removed?
Kindly also suggest if there is any error in understanding or presentation of the issue.
Thanks in advance.
CAclubindia
