Starting a software export company - Part I

In the next few blogs, I am going to write the steps that are involved in forming a software export company in India. The thing is, when I started Retina Software Private Limited, I would have appreciated a good step-by-step guide to forming, registering, bonding and STPI registration process, there wasn't one. With trial-and-errors during those phase, RSPL is proudly running as a Private Limited Company and a registered unit of STPI.

So, why another company?

As a member of STPI, India, companies are liable for a tax-holiday, the holiday was till 2010 and is recently updated for one year more. Hopes are that it will continue to grow for some years more. This means the 30% corporate tax that is imposed on Companies in India, is "Free" for Software Export Units.

Wait, the clause attached is MAT, Minimum Alternate Tax, this is short of an advance tax that get deposited which is 15% of the companies book profit. The MAT is advance tax and carried forward for several years, so in other words, whenever tax holiday is over, the taxes paid in MAT will be adjusted with the taxes to be paid in that year.

Private Companies in India is also liable for Profit distribution tax, that is, dividend tax of 15%.

So a simple example math is:-

Company Profit: 10 crore,
MAT: 1.5crore
Left: 8.5crore
Dividend (if taken): 1.275crore on 8.5crore dividend distributed.

Total Tax: 1.5 + 1.275 = 2.775crore, almost the normal tax paid by corporates.

The solution:-

Propreitorships, Partnerships are not liable for either MAT or dividend tax, so if you want true profit of STPI scheme, your company should be one of those model.

Hence, the new company.

The company I am forming is going to be as simple as a Proprietorship, with all good effect of it, proprietorship suffers from one problem, of less credibility and full liability on the owner. Less credibility is not an issue given we are in product development exclusively for Retina-X Studios, LLC.

The step one is deciding a name and finding a place. Our new office is going to be at 8/199 Malviya Nagar, Jaipur which is very close to 8/266 Malviya Nagar. You need to get a rent agreement signed with the landlord, and it should carry the name of the company you plan to form.

We have completed this much, the second step before starting operation is registration with local government in what is called the Shop-Act.

To be continued...