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Trade License

Trade Or Business License for Sole Proprietorship – Do We Really Need It?

Trade license - do we really need it for proprietorship? If we talk about a trade license, it can be highly important for proprietorship. However, how to get it? Read this guide to learn how to apply for a trade license in India.

A trade license is an official document granting authorization to the applicant (an individual seeking to start a business) to begin a specific business or trade within a specific location or area. It guarantees that the business or trade complied with all relevant security regulations the State Municipal Corporation laid out. This protects residents from being affected by health risks. However, it doesn’t allow the business owner to engage in any business activity that is not within the scope of the license. Additionally, this license is not transferable ownership of the property to the person who holds the license. Do we really need the trade license for proprietorship? Continue reading to know the answer.

Trade License for Proprietorship

There isn’t a formal procedure in India to establish sole proprietorships since the sole proprietorship is a long version of the proprietor. So the existence of a sole proprietorship company is only possible by opening an account with a bank under that of the sole proprietorship company or obtaining the necessary licenses to conduct the business. 

If you want to open a bank account as a sole proprietorship, the RBI’s KYC guidelines require that two of the following documents are necessary that you must present  in the Bank:

  • Certificate/registration document issued by Sales Tax/Service Tax/Professional Tax authorities
  • Income tax returns and sales
  • The certificate/license is issued by the municipal authorities of the Shop & Establishment Act
  • CST/VAT certification
  • Registration/licensing document issued in the name of the proprietary concern by the Central Government or State Government Authority/ Department, etc.
  • The license is issued by the authority that registers, like a Certificate of Practice that the Institute of Chartered Accountants of India issues, the Institute of Company Secretaries of India, Institute of Cost Accountants of India, Food & Drug Control Authorities, and Indian Medical Council
  • Utility bills like water, electricity, and telephone bills for landlines on behalf of the private company
  • The entire Income Tax return (not just acknowledgment) in the sole proprietor’s name in which the company’s earnings are properly authenticated and accepted by Income Tax Authorities
  • Banks can also accept the IEC code (Importer Exporter’s Certificate) issued to the company’s proprietary business by the department of DGFT as identity proof for opening the bank account and so on

Any of the above documents are vital for opening an account at a bank under the name of the proprietorship. So, the Proprietors usually first get the license or registration/certificate to verify the legitimacy of their sole proprietorship company.

The Goal of a Trade License

In the past forty years, trade license have come into use in the nation. Now, the municipal corporation controls them as per the state government. This ensures that nobody is affected by any business or trade nuisance or health risk. Government officials make it a necessity to conduct certain trades or businesses within a particular region and to make sure that nobody is engaged in illegal business or trade. The license within the community ensures that each company is adhering to the relevant rules and guidelines and adhering to safety regulations. This license is mandatory to ensure the government can regulate trade. The main purpose of issuing this document is to regulate the location by preventing individuals from operating certain kinds of businesses from their homes to ensure the safety of the local and business setting.

Benefits of Trade license

  • Secure the consumer’s interests from illicit trade, enhancing the business’s trustworthiness over time.
  • Implement appropriate safety measures to prevent incidents involving fire.
  • Avoid exploitation of the workers who are on the premises.
  • Institute Businesses fairly and ethically and safeguard the interests of everyone.
  • Help businesses grow and increase credibility to a significant degree.

Who Needs to Get a Trade License?

Business entities that want to start trading must obtain a trade license from the relevant Municipal Corporation before commencing business activities:

  • CSC (Commercial Shopping Complex)
  • Local commercial
  • The metropolitan city’s central
  • LSC (Local Shopping Complex)
  • District centers
  • Community centers
  • Pedestrian shopping streets
  • Service market/Service Centre
  • MLU (mixed use of land)
  • Commercial zones

Conditions for Obtaining the License

The requirements for getting the right to trade in a specific state are:

  • The applicant must be free of any previous criminal record
  • The applicant must not be a minor. Compulsorily, he or she must be over the legal age of legal, i.e. 18 years
  • The business must be based on a state-specific basis and per the guidelines in the Municipal Corporation
  • The business must have legal status

Who can Issue a Trade License?

  1. The Department of municipal corporation handles the trade license. Different departments such as engineering, industries, health, and more.
  2. India’s government India allows the license in a way to regulate the cities throughout the nation.
  3. It grants permission by way of letters or documents/certificates to carry on any business or trade where it is located. The licensing process differs from state to state based on local government agencies (Municipals) and rules.

Different Types of Trade Licenses Are Available

  • Industries licenses: small, medium, and large manufacturing factories
  • Shop license: dangerous and offensive trades such as the sale of firewood candle manufacturers, barber shops, cracker manufacturers, laundry (dhobi) shops, etc.
  • Food establishment license: Restaurants, food stalls, hotels, and canteens, the sale of vegetables and meat, bakeries, etc.

Fees for Trade Licenses

The cost of a trade license varies between states since the license is granted by each state’s state agencies (Municipals). The fee for a license is determined per the rules and regulations governing the respective state. In certain states, you have to pay fees for a trade license annually. In other states, it’s determined based on the percentage of turnover for businesses. 

Companies Engaged in Manufacturing or Trading

  1. VAT or Value Added Tax tax applies to all products and services sold in India. Any person involved in the manufacturing or trading business has to get VAT registration to run a business regardless of the form of business organization. 
  2. Suppose you want to establish a sole proprietorship company that deals in the selling of goods and services. In such a case, you could obtain VAT or TIN Registration using the Proprietor’s PAN card from the relevant state government.
  3. Once you obtain the VAT registration and register your business, monthly, quarterly, and Half-yearly VAT returns or annual ones need to be submitted with the proprietorship.
  4. Shop & Establishment Act license is necessary for all businesses that operate a retail store, factory, or an official place of business. Shop & Establishment Act license is typically granted from the Department of Labour in the state. 
  5. Also, it’s necessary for the operation of businesses in the majority of states. Thus, establishment and shop licenses prove that the business is a proprietorship.

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