Legal structure for independent software developers in India

Over the last year, I have been trying to find the best legal structure for independent software developers in India. Here is what I found:

• Sole Proprietorship is the best legal structure for independent software developers. As an individual professional, you don’t have any liabilities. So, you should not worry about it. As a proprietor, your profits are taxed at the same rate as personal income. For companies registered with ministry of corporate affairs, tax is levied at 25% rate on the profits. Also, annual audit is mandatory. With lesser audit requirements, Sole Proprietorship is more attractive. Also, as a sole proprietor, there is no requirement to have additional directors or partners in the business. To be a proprietor, register with Ministry of small and medium enterprises (MSME).
• While registering with MSME, maintain separate bank account, for the business. Also ensure there is a separate company credit card.
• If the annual turnover is more than 50 Lacs, book of accounts need to be audited. So, maintain a book of accounts with an accounting software.
• As a proprietor, advance tax should be paid as per the schedule announced by the Income Tax department. The advance tax is payable on a presumptive basis based on the revenue of the previous year. Failure to pay advance tax will lead to additional interest charges.
• GST is NOT applicable if gross revenue is less than 20 Lacs in a year. Also, location of customer determines GST applicability. If customer is outside India, GST is not applicable as it is considered export of services. If customer is inside India, 18% GST is applicable.
• Export / Import should be registered only for goods. For software services, there is no need to get the IEC or Import Export Code.
• If revenue is greater than 20 Lacs per year, the proprietor should get a GST. If services are exported to international locations, a LUT (letter of undertaking) classifying services as export should be obtained. Finally, GST returns should be filed according to the schedule — monthly, quarterly, and annual.

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