A Guide to Nidhi Company Registration in India – Process & Requirements

What is Depreciation?

Depreciation is the systematic allocation of an asset's cost throughout its productive lifespan. It acknowledges that assets contribute to revenue generation over multiple periods and should be expensed accordingly. Without depreciation, businesses would show dramatic profit fluctuations - significant losses when purchasing assets followed by artificially inflated profits in subsequent years.

The Indian regulatory framework recognizes two distinct approaches to depreciation. The Companies Act 2013 employs a useful life methodology for financial reporting, while the Income Tax Act prescribes specific rates for tax calculation purposes.

From an accounting perspective, depreciation appears as an expense in the Profit & Loss Account, reducing reported profit. Simultaneously, accumulated depreciation diminishes the asset's book value on the Balance Sheet, reflecting its decreasing value over time.

Several factors influence depreciation calculations, including the asset's original cost, estimated useful life, and expected residual value. Different methods may be applied based on regulatory requirements and business preferences.

Understanding depreciation is critical for businesses as it significantly impacts financial statements, tax liabilities, and strategic decision-making. The varying approaches between the Companies Act 2013 and Income Tax Act create temporary differences that require reconciliation during tax calculations.

The Purpose of Depreciation

Depreciation goes beyond tracking asset wear and tear, it aligns asset costs with the revenue they help generate, ensuring accurate financial reporting through the matching principle.

Without it, businesses would expense the full asset cost upfront, causing erratic profit figures, losses during purchase years and inflated gains afterward.

Key purposes of depreciation:

• Cost Allocation: Spreads asset cost over its useful life
  
• Profit Measurement: Matches expenses with related income
  
• Tax Efficiency: Enables tax deductions under the Income Tax Act
  
• Asset Replacement: Aids in planning for future replacements
  
• Financial Stability: Smooths profit reporting over time
  

In India, depreciation is a non-cash expense. Companies Act rates differ from Income Tax Act rates, leading to temporary timing differences reconciled through deferred tax accounting. Both systems aim to fairly allocate asset costs over time.

Importance of Depreciation

Depreciation serves as a cornerstone of sound financial management, with implications reaching far beyond routine accounting entries. The strategic implementation of depreciation practices significantly impacts business operations across multiple dimensions.

Why is depreciation so critical for businesses?

Financial statements without proper depreciation would present a severely distorted view of company performance. Consider purchasing a ₹50 lakh manufacturing machine—expensing this entire amount immediately would dramatically reduce that period's profit. Subsequently, future periods would show artificially inflated profits as the machine generates revenue without corresponding expenses. This creates misleading financial trends that can confuse investors and stakeholders about the company's true financial health.

The depreciation methodology varies substantially between regulatory frameworks. A company typically uses straight-line depreciation following Schedule II of the Companies Act for financial reporting, while simultaneously applying the Written Down Value method at Income Tax Act rates for tax purposes. This dual approach helps optimize both financial reporting accuracy and tax efficiency.

Depreciation impacts businesses in five critical ways:

1. Financial Stability - Prevents dramatic profit fluctuations by distributing asset costs over multiple periods
   
2. Resource Planning - Helps accumulate funds for eventual asset replacement
   
3. Investor Confidence - Provides more realistic performance metrics for investment decisions
   
4. Tax Planning - Creates opportunities for tax-efficient asset management
   
5. Business Valuation - Affects key metrics used in determining company worth
   

For Indian businesses, understanding depreciation rates under both regulatory frameworks is essential. The Income Tax Act allows depreciation as a deduction when calculating income under "Income from Business and Profession," directly affecting taxable income. Meanwhile, the Companies Act 2013 focuses on representing the true economic consumption of asset value.

Without proper depreciation accounting, businesses would struggle to present an accurate representation of their financial reality. The systematic allocation of asset costs ensures financial statements reflect a company's true economic position, providing stakeholders with reliable information for decision-making.

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Types of Depreciable Assets

Identifying qualified assets is the essential first step for businesses looking to claim depreciation benefits. Under both the Companies Act and Income Tax Act, depreciable assets fall into two primary categories that form the foundation of depreciation calculations.

Tangible Assets

These physical assets constitute the backbone of most business operations and include:

• Buildings: This category includes residential structures with a 5% depreciation rate, hotels and boarding houses at 10%, and temporary wooden structures at a higher 40% rate
  
• Furniture and Fittings: All furniture including electrical installations qualify for a 10% depreciation rate
  
• Plant and Machinery: This diverse category encompasses motor vehicles (15% rate), while computers and software receive an accelerated 40% rate
  
• Vehicles: Commercial vehicles like taxis, buses, and lorries used in hire businesses attract a 30% depreciation rate
  
• Books: Professional annual publications qualify for 100% depreciation, while non-annual publications receive 60%
  

Intangible Assets

Though lacking physical form, these assets hold significant business value and generally receive a uniform 25% depreciation rate:

• Franchises
  
• Trademarks
  
• Patents
  
• Licenses
  
• Copyrights
  
• Know-how
  
• Other similar business or commercial rights
  

The Block of Assets Concept

The Income Tax Act introduces a unique "Block of Assets" approach, where assets with similar characteristics are grouped together. Initially, tangible assets are categorized as building, machinery, plant, or furniture. For assets to form a block, they must attract identical depreciation rates.

Once assets are grouped into a block, they lose their individual identity for depreciation purposes. This approach significantly simplifies tax compliance by eliminating the need to track numerous individual assets.

Qualification Requirements

For assets to qualify for depreciation claims, they must meet two essential conditions:

1. Ownership: The assets must be owned by the assessee, either wholly or partly
   
2. Business Usage: The assets must be used for business or professional purposes
   

Year-round usage isn't mandatory—even seasonal utilization qualifies for appropriate depreciation benefits. This provision acknowledges the reality of businesses with cyclical operations.

Companies typically classify their assets based on nature, useful life, and applicable depreciation rates as prescribed in the respective acts, ensuring proper accounting and taxation treatment.

What is Written Down Value or WDV Asset?

Written Down Value (WDV) serves as the foundation for depreciation calculations under the Income Tax Act. Rather than using the original cost, depreciation is computed on the remaining value of an asset or block of assets after deducting previous depreciation claims.

How is WDV Calculated?

WDV essentially represents an asset's cost minus all accumulated depreciation claimed until date. For tax purposes, this calculation becomes particularly important since depreciation applies to the WDV of entire asset blocks rather than individual items.

The formula for determining WDV can be expressed as:

Opening WDV of block + Cost of new assets purchased during the year - Money received from assets sold = Closing value of block before depreciation

After determining this value, you apply the applicable depreciation rate to arrive at the final WDV. Consider this practical example:

A machinery block with 15% depreciation rate has an opening value of ₹5,00,000. New equipment worth ₹40,000 was purchased and used for less than 180 days. The depreciation calculation would be:

(₹5,00,000 × 15%) + (₹40,000 × 15% × 1/2) = ₹75,000 + ₹3,000 = ₹78,000

The closing WDV after depreciation would therefore be ₹4,62,000.

Once assets are grouped into a block, they lose their individual identity for depreciation purposes. This unified approach significantly simplifies tax compliance for businesses.

WDV vs. Straight-Line Method

The WDV method typically results in higher depreciation charges during earlier years, which gradually decrease over time. This contrasts with the Straight-Line Method where depreciation remains constant throughout an asset's lifetime.

While the Income Tax Act mandates the WDV method for most assets (with exceptions for power generating units), the Companies Act 2013 offers businesses flexibility to choose between Straight-Line, WDV, or Unit of Production methods based on asset types and business requirements.

The WDV approach better reflects economic reality, as assets generally lose more value during their initial years of use and experience diminishing depreciation as they age.

What are the Conditions for Claiming Depreciation

The Income Tax Act establishes specific conditions that businesses must satisfy before claiming depreciation benefits. These requirements ensure proper tax treatment while preventing misuse of depreciation provisions.

Ownership Requirement

Ownership stands as the fundamental condition for claiming depreciation. The assessee must own the asset, either wholly or partly, to qualify for depreciation benefits. However, several notable exceptions exist:

• When an assessee constructs a building on leased land, depreciation can be claimed on the structure despite not owning the land
  
• In mortgage situations where assets are built on mortgaged property, depreciation remains available
  
• For finance lease arrangements, lessees can claim depreciation despite not being legal owners
  

Conversely, in short-term hire-purchase arrangements, depreciation claims aren't permitted as ownership hasn't effectively transferred.

Business Purpose Utilization

Assets must be employed for business or professional purposes to qualify for depreciation. This doesn't mean the asset requires year-round usage - even seasonal factories with limited operational periods qualify for full depreciation benefits.

When assets serve dual purposes (both business and personal), depreciation is allowed proportionately based on business usage. For example, if a vehicle is used 70% for business and 30% for personal purposes, depreciation can be claimed on 70% of its value.

Additional Key Conditions

• Asset Sale Restriction: If an asset is sold, discarded, or damaged in the same year it was purchased, the assessee cannot claim depreciation on it
  
• Co-ownership Provisions: When multiple parties co-own an asset, each co-owner may claim depreciation based on their ownership share
  
• Mandatory Application: Depreciation is compulsory under the Income Tax Act - from Assessment Year 2002-03, it's deemed allowed even if not explicitly claimed in financial statements
  

Keep in mind that for taxpayers using presumptive taxation schemes, the deemed profit is considered to already include depreciation. The prescribed rates under the Income Tax Act must be followed regardless of different rates used in financial statements under the Companies Act.

The Written Down Value must be carried forward after reducing the depreciation amount, ensuring proper asset valuation in subsequent years.

Different Methods of Depreciation Calculation

Businesses employ several methodologies to calculate depreciation on assets, with approaches varying based on regulatory requirements. The Companies Act and Income Tax Act prescribe different methods, each serving distinct financial and tax objectives.

What are the Key Depreciation Methods under Companies Act?

The depreciation landscape in India is shaped by specific methods allowed under different regulatory frameworks:

Under Companies Act 1956 (Based on Specified Rates):

• Straight Line Method
  
• Written Down Value Method
  

Under Companies Act 2013 (Based on Useful Life):

• Straight Line Method
  
• Written Down Value Method
  
• Unit of Production Method
  

Under Income Tax Act 1961 (Based on Specified Rates):

• Written Down Value Method (Block-wise) - Primary method
  
• Straight Line Method (exclusively for Power Generating Units)
  

How Do These Methods Work?

Straight Line Method (SLM) distributes depreciation equally throughout an asset's useful life. This straightforward approach uses the formula:

Rate of Depreciation = [(Original Cost – Residual Value) / Useful Life] × 100

The annual depreciation amount equals: Depreciation = Original Cost × Rate of Depreciation

Written Down Value Method (WDV) calculates depreciation on the reducing balance of an asset. This method applies a fixed percentage to the asset's remaining value after previous depreciation. Unlike SLM, WDV results in higher depreciation in earlier years, gradually decreasing over time.

Unit of Production Method, introduced in Companies Act 2013, links depreciation to actual usage rather than time. This method proves particularly beneficial for assets whose value diminishes based on production output rather than mere passage of time.

Throughout the depreciation lifecycle, businesses must reconcile differences between accounting and tax treatments. A company might simultaneously apply SLM for financial reporting (Companies Act) and WDV for tax purposes (Income Tax Act), creating temporary differences that require deferred tax adjustments.

These methodological differences lead to varied depreciation amounts and significantly impact financial ratios, tax liabilities, and overall business valuation. The selection of depreciation method therefore represents a strategic financial decision rather than merely an accounting choice.

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Impact of Depreciation Method

The selection of depreciation methods significantly influences a business's financial statements and tax obligations. The difference between methods prescribed under the Companies Act versus the Income Tax Act creates varying depreciation amounts for identical assets.

When businesses apply the Straight-Line Method under Companies Act for financial reporting while simultaneously using the Written Down Value Method for tax calculations, timing differences naturally emerge. These differences necessitate deferred tax accounting to ensure financial statements accurately reflect future tax implications.

Here's a practical example demonstrating depreciation calculation under the Income Tax Act:

This calculation affects financial reporting significantly. Under Accounting Standard-22 (AS-22) or IND AS 12, companies must account for temporary differences between accounting and tax depreciation. Consider an asset costing ₹150 with a carrying amount of ₹100 but a tax base of ₹60 (after ₹90 in tax depreciation). This creates a temporary difference of ₹40.

With a 25% tax rate, the company must recognize a deferred tax liability of ₹10 (₹40×25%) in financial statements, representing future taxes payable when recovering the asset's carrying amount.

Businesses must carefully evaluate which depreciation method to adopt, as it impacts:

• Reported profits in financial statements
  
• Timing of tax payments
  
• Cash flow planning
  
• Financial ratios used for performance evaluation
  

The differences in depreciation calculation extend beyond mere accounting technicalities—they have substantial financial implications requiring strategic consideration by business management.

Depreciation Rates under Companies & Income Tax Act

Amount of Depreciation Allowed

The Income Tax Act establishes specific parameters for calculating permissible depreciation amounts. The framework includes clearly defined methods and rates that businesses must follow when preparing tax returns. The Written Down Value (WDV) method serves as the mandated approach for most businesses, with precise rates outlined in Appendix 1 of the Act.

Special Provisions for Power Generation Businesses

Power generation businesses enjoy unique flexibility within the tax framework. These undertakings can select either the WDV method or the Straight-Line method when claiming depreciation. This choice offers valuable tax planning opportunities but must be exercised before the tax return's due date.

Corporate Restructuring Scenarios

When businesses undergo amalgamation or demerger, depreciation calculations require special attention. The total depreciation allowance is distributed between the participating companies based on a specific formula. This calculation follows an interesting approach - it assumes the restructuring never occurred, with the amount apportioned according to the number of days each entity utilized the assets.

Finance Lease Considerations

Finance lease arrangements present another notable exception to standard ownership requirements. When a lessee capitalizes assets in accordance with Accounting Standard-19 on Leases, they can claim depreciation despite not being the legal owner. This provision recognizes the economic reality that lessees effectively exercise ownership rights in such arrangements.

Impact of Acquisition Timing

The timing of asset purchases significantly affects allowable depreciation. Assets used for fewer than 180 days in a financial year qualify for only half the applicable rate, as shown below:

Dual Calculation Approaches

Companies typically maintain separate depreciation calculations for financial reporting versus tax purposes. This dual approach stems from the differing objectives between regulatory frameworks. The Companies Act focuses on representing the true economic consumption of asset value, providing an accurate financial picture. In contrast, the Income Tax Act aims to standardize tax deductions across businesses, creating a uniform system for taxation purposes.

Understanding these provisions helps businesses maximize legitimate tax benefits while maintaining compliance with regulatory requirements.

Depreciation Rates for FY 2025-26 for Most Commonly Used Assets

The Income Tax Act provides a structured framework of depreciation rates for FY 2025-26 that businesses must apply when calculating their tax liabilities. These rates serve as a critical reference point for financial planning and tax compliance.

The depreciation rate chart is organized into two main sections: Part A for Tangible Assets and Part B for Intangible Assets. Each asset category has been assigned specific rates based on their nature, expected useful life, and wear and tear patterns.

Buildings fall into several sub-categories with varying rates:

• Residential structures - 5% depreciation rate
  
• Commercial buildings and hotels - 10% depreciation rate
  
• Temporary wooden structures - 40% depreciation rate (reflecting their shorter lifespan)
  

Furniture and fittings including electrical fixtures attract a standard 10% depreciation rate across all types and usage patterns.

Plant and machinery encompasses a diverse range of assets with differentiated rates:

• Standard machinery - 15% depreciation rate
  
• Computers and software - 40% depreciation rate
• Motor vehicles for business use - 15% depreciation rate
  
• Commercial vehicles used in hiring businesses - 30% depreciation rate
  

Books owned by professionals receive specialized treatment under the tax code:

• Annual publications - 100% write-off
  
• Non-annual professional books - 60% depreciation rate
• Lending library books - 100% depreciation rate
  

Intangible assets such as franchises, trademarks, patents, licenses, and copyrights uniformly qualify for a 25% depreciation rate.

The timing of asset acquisition plays a significant role in depreciation calculations. Assets used for less than 180 days in a financial year qualify for only half the applicable rate. For example, a car worth ₹3,00,000 purchased in the latter half of the fiscal year would receive depreciation of ₹22,500 (calculated as ₹3,00,000 × 15% × ½).

Businesses must carefully apply these prescribed rates based on accurate asset classification and usage period. Proper implementation ensures both tax compliance and optimization of legitimate deductions, ultimately affecting the company's financial position and tax liability.

Depreciation Rates as Per the Income Tax Act

The Income Tax Act establishes a structured classification system for depreciable assets with specific rates assigned to each category. These prescribed rates serve as the foundation for tax calculations across businesses in India and fall into two distinct sections.

Part A: Tangible Assets This section covers physical assets used in business operations:

Part B: Intangible Assets For intellectual property and similar business rights, the Income Tax Act maintains a consistent approach:

Intangible assets including franchises, trademarks, patents, licenses, and copyrights all qualify for a uniform 25% depreciation rate.

Businesses must classify their assets according to this framework when calculating taxable income. The structure creates standardization across industries while acknowledging the varying lifespans of different asset types.

Timing plays a crucial role in depreciation calculations under the Income Tax Act. Assets used for less than 180 days in a financial year receive only half the applicable rate. This provision ensures tax treatment reflects actual asset utilization periods.

While the Companies Act 2013 focuses on the useful life approach for depreciation, the Income Tax Act provides these fixed rates to create uniformity in tax treatment. This fundamental difference often results in separate depreciation amounts between financial reporting and tax calculations, requiring businesses to maintain dual record systems.

The block-of-assets concept further simplifies tax depreciation by grouping similar assets together and treating them as a single entity. This approach streamlines compliance while providing standardized treatment across industries.

Rate of Depreciation under the Companies Act 2013

The Companies Act 2013 represents a significant paradigm shift in how businesses approach depreciation for financial reporting. Unlike its predecessor, this Act adopts a useful life approach rather than relying on fixed percentage rates. This fundamental change focuses on reflecting the true economic consumption of asset value over time, creating a more accurate financial representation.

How does Schedule II impact depreciation calculations?

Schedule II of the Companies Act 2013 provides a comprehensive reference chart detailing useful lives for various asset categories. This schedule serves as a guideline for determining appropriate depreciation periods, representing a significant departure from the percentage-based approach of the 1956 Act.

The formula for calculating depreciation typically follows: Rate of Depreciation = [(Original Cost – Residual Value) / Useful Life] × 100

What are the financial reporting implications?

The useful life approach often yields different depreciation amounts compared to tax calculations under the Income Tax Act. These variations create temporary differences that require deferred tax accounting treatments. Consequently, most businesses maintain separate depreciation records, one for financial reporting compliance and another for tax purposes.

Companies must disclose their chosen depreciation methods, useful life assumptions, and reconciliation of differences between tax and accounting depreciation in the notes to financial statements. This transparency helps stakeholders assess the true economic value of company assets and understand management's capital allocation decisions.

Business leaders should carefully evaluate their asset portfolios to determine appropriate useful lives and select depreciation methods that best represent economic reality while complying with statutory requirements. This thoughtful approach ensures financial statements accurately reflect the company's financial position and performance.

Frequently Asked Questions

Private Limited Company Examples

Here are some examples of private limited companies in India

• Google India Pvt. Ltd. A subsidiary of Google LLC
• Amazon Retail India Private Limited: An online shopping platform
• Microsoft Corporation (India) Private Limited: An information technology company with its registered office in Delhi.

Types of Private Limited Company

There are three types of Pvt. Ltd. Company registration, and entrepreneurs can choose the one that best suits the needs of their business.

1. Company Limited by Shares

• Ownership: The ownership of the company is divided into shares.
• Liability: The liability of the shareholders is limited to the amount of shares they have subscribed to.
• Capital Structure: The company raises capital by issuing shares to shareholders.
• Common Use: This is the most common type of company, suitable for businesses of all sizes.

2. Company Limited by Guarantee

• Ownership: Ownership is not based on shares but on membership.
• Liability: The liability of the members is limited to the amount they guarantee to contribute to the company in the event of winding up.
• Capital Structure: The company doesn’t raise capital through shares but relies on donations, grants, or membership fees.
• Common Use: Often used for non-profit organizations, clubs, or societies.

3. Unlimited Company

• Ownership: The ownership structure can vary.
• Liability: The liability of the members is unlimited, meaning their personal assets can be used to settle the company’s debts.
• Capital Structure: The company can raise capital through various means, including issuing shares.
• Common Use: This type of company is less common and is usually used for specific purposes, such as family businesses or holding companies.

Characteristics of a Private Limited Company

Following are some of the main advantages of a private limited company:

1. Members

The act mandates that a minimum of two shareholders are required to start such a company, while the limit for maximum number of members is fixed at 200.

2. Directors

The Act specifies the number of directors in a private limited company, requiring a minimum of two directors, while allowing a maximum of up to 15 directors.

3. Limited Liability Structure

In a private limited company, the liability of each member or shareholder is limited. Therefore, even in the case of loss under any circumstances, the shareholders are liable to sell their assets for repayment. However, the personal and individual assets of the shareholders are not at risk.

4. Separate Legal Entity

This is a separate legal entity and continues in perpetual succession. This means that even if all the members die, or the company becomes insolvent or bankrupt, the company still exists in the eyes of the law. The life of the company will be perpetual, not affected by the lives of its shareholders or members unless dissolved by way of resolution.

5. Minimum Paid-Up Capital

A private limited company is required to have and maintain a minimum paid-up capital of ₹1 lakh. It could go higher, as prescribed by MCA from time to time.

Requirements to Start a Private Limited Company

Every business type has its own set of requirements before it is incorporated.

The requirements for registering this are as stated below:

1. Members and Directors

As mentioned above, to get itself legally registered, a private limited company means it must show a minimum number of two and a maximum number of 200 members. This is a statutory requirement as mandated by the Companies Act 2013.

The directors should meet the following conditions:

• Each of the directors should have a DIN i.e. director identification number, which is given by the Ministry of Corporate Affairs
• One of the directors must be a resident of India, which means he/she should have stayed in India for not less than 182 days in the previous calendar year.

2. Name of the Company

Choosing the name of the company is often a technical task. A private limited company is required to cover three aspects while deciding a name for itself:

1. Main name
2. Activity to be carried out
3. Mention of ‘Private Limited Company’ at the end.

Pro tip: It is not always necessary that the name the business owner is looking for will be available, as no two companies can have the same name. Therefore, it is a requirement that at the time of registration, every company has to send 5-6 names for approval to the Registrar of Company (ROC). Moreover, the submitted names should not have a close resemblance with any other company’s name.

3. Registered Office Address

After the company has been registered, the permanent address of its registered office must be filed with the registrar of the company. The registered office of the company is where the company’s main affairs are being conducted and where all the documents are placed.

4. Obtaining Other Documents

For electronic submission of documents, every company must obtain a digital signature certificate that is used to verify the authenticity of the documents. Moreover, in a company employing professionals (secretaries, chartered accountants, cost accountants, etc.) for varied activities, certifications by these professionals are necessary.

List of Documents Required for Private Limited Company

The documents required to incorporate a Pvt Ltd company include:

1. Identity Proof

Document verifying the identity of individuals such as PAN card and passport of Indian and foreign directors, respectively.

2. Address Proof

Document confirming the residential address of individuals such as utility bills or rental agreements.

3. Director Identification Number (DIN)

Unique identification number allotted to directors by the Ministry of Corporate Affairs.

4. Digital Signature Certificate (DSC)

Electronic signature ensuring the authenticity of documents filed electronically.

5. Memorandum of Association (MoA)

Legal document defining the company’s objectives and scope of operations.

6. Articles of Association (AoA)

Document outlining the rules and regulations governing the internal management of the company.

7. Declaration by Directors and Subscribers

Formal statement by directors and subscribers confirming compliance with legal requirements for company incorporation.

8. No Objection Certificate (NOC) from the landlord

Consent from the landlord permitting the use of premises as the company’s registered office.

9. Shareholding Pattern of the Proposed Company

Overview of the distribution of shares among shareholders in the company.

10. Proof of Registered Office Address

Documentation confirming the address where the company is registered and operates from.

How to Register Pvt Ltd Company? A Step-by-Step Guide

To register a private limited company in India the following steps are mandatory:

STEP 1: Choose a Unique Name for Your Business

• Choose a unique name that reflects your business’s identity and vision and is not in use by another company or trademarked by someone else.
• You can check for name availability on the Ministry of Corporate Affairs (MCA) official company registration website or the relevant regulatory authority in your state or union territory.

STEP 2: Obtain Digital Signatures from Authorised Agency

• Obtain Digital Signature Certificates (DSC) for your company’s proposed directors and shareholders from any authorised agency or vendor registered with the MCA or the Certifying Authority (CA) under the Information Technology Act, 2000.
• Digital signatures are essential for filing online documents with government authorities and verifying your identity and authenticity.

STEP 3: Obtain Director Identification Number (DIN) from MCA Portal

• Apply for a Director Identification Number (DIN) online through the MCA portal by filling out the form DIR-3 and uploading the required documents, such as identity proof, address proof, and photographs for each of the directors of your company.
• The MCA assigns a unique identification number to every individual who intends to be a company director.

STEP 4: Prepare Memorandum and Articles of Association

• The MOA is a document that defines your company’s main objectives, scope, and activities whereas AOA lays down the rules and regulations for the management and administration of your company.
• You can prepare the MOA and AOA online through the MCA portal by using the SPICe+ form and the templates provided by the MCA.

STEP 5: Get Consent and Declarations

• The directors must consent to act as directors by filling out the form DIR-2 and attaching their DSC.
• The shareholders must provide their declarations of compliance with the Companies Act, 2013 and the rules made thereunder by filling out the form INC-9 and attaching their DSC.

STEP 6: Apply for Company Name Approval

• Submit the name approval application with the required documents to the Registrar of Companies (RoC) of the state or union territory where your company will be registered.
• You can apply for name approval online through the MCA portal using the SPICe+ form and paying the prescribed fees.

STEP 7: File Incorporation Documents

• You can file the incorporation documents for LLC online through the MCA portal using the SPICe+ form and pay the prescribed fees.
• You need to attach documents, including the MOA, AOA and a few more, like AGILE-PRO, INC-14, 1NC-15, etc., along with the SPICe+ form.

STEP 8: Pay Registration Fees

• The registration fees vary depending on the amount of authorised share capital and the state or union territory where your company is registered.
• You can pay the fees online through the MCA portal using the SPICe+ form and the payment gateway.

STEP 9: Verification and Approval

• The RoC will carefully assess the documents, and if they meet all requirements, they will issue the Certificate of Incorporation which can be downloaded from the MCA portal.
• It is a legal document that confirms the existence and registration of your company.

STEP 10: Obtain PAN and TAN

• Apply for Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) online through the MCA portal using the AGILE-PRO form and the payment gateway.
• PAN is a 10-digit alphanumeric code used to identify your company for tax purposes.
• TAN is a 10-digit code used to deduct and collect tax at source from payments made by your company.

STEP 11: Open a Bank Account in a Company’s Name

• Open a bank account in your company’s name and deposit the minimum capital required. The minimum capital for a pvt. ltd. company is ₹1 lakh.

STEP 12: Obtain Business Licenses

Licencing and permit requirements can differ depending on the nature of your business.

You may need to obtain them from various authorities, such as:

• Trade licence from Municipal Corporation or Panchayat
• Environmental clearance from the Pollution Control Board
• Industrial licence from the Department of Industrial Policy and Promotion (DIPP)
• Quality certification from the Bureau of Indian Standards (BIS)
• Trademark, patent, or design registration from the Intellectual Property Office (IPO)

STEP 13: Register Your Business Under GST

• Register for GST and comply with other tax obligations. You must register for GST if your annual turnover exceeds ₹40 lakh (₹20 lakh for special category states).

STEP 14: Commence Business Operations

• After diligently completing the above procedure, your Private Limited Company is ready to commence its operations.

Read More About: How to register a Private Limited Company online in India?

What Are the Registration Costs for a Private Limited (Pvt Ltd) Company?

The registration charges for a Private Ltd. Company depend on share capital, number of directors, stamp duty of the state where you want to register the company and other fees.

What Is the Registration Timeline for a Private Limited Company?

The answer is not very simple, as it depends on various factors such as the availability of the company name, the documents required, and the workload of the government authorities. Therefore, the overall timeline for registering a private limited company in India can take around 12-18 days, depending on the time taken to complete each step and the workload of the government office processing the application.

Advantages of Private Limited Companies

1. Limited liability

In a private limited company, there is a limited liability, which means the company’s members are not at risk of losing their private assets. If a company fails, the shareholders are liable to sell their assets for payment.

2. Less number of shareholders

Unlike a public company that requires seven shareholders, a private limited company can be started with just two shareholders.

3. Ownership

As the company’s shares are owned by investors, founders, and management, the owners are at the liberty of transferring and selling their shares to others

4. Uninterrupted existence

As mentioned earlier, the company stays a legal entity until it is legally shut down, the company runs even after the death or departure of any member.

Disadvantages of Private Limited Companies

Now that you know what is Pvt Ltd company, its benefits, and how to register a company in India, let’s understand the disadvantages.

One of the disadvantages it gets with Pvt limited company is the compliance formalities for shutting it down. It often ends up getting too complicated and time-consuming.

FAQs

FSSAI Registration

FSSAI Registration is the basic license issued to small-scale food businesses by the state food safety authorities. It applies primarily to small food business operators (FBOs) whose turnover falls below a certain threshold and who operate within a single state.

This registration is essential to legally operate a food business and ensures compliance with food safety norms. However, for larger businesses or those operating across multiple states, an upgraded license (State or Central License) is required.

Food Business Operators Who Need FSSAI Registration?

The following food businesses typically require FSSAI Registration:

• Small Manufacturers: Small-scale producers of food items with limited turnover.
  
• Transporters: Entities involved in the transportation of food within the state.
  Retailers: Small shops, grocery stores, or vendors selling food products directly to consumers.
  
• Small Food Businesses: Street food vendors, hawkers, or home-based food businesses.
  
• Medium Food Businesses: Hotels, Restaurants & Bars
  

Types of FSSAI Registration

Beyond legal compliance, filing ITR offers several advantages:

Benefits of Obtaining an FSSAI Food License

Obtaining an FSSAI license offers multiple advantages:

• Consumer Trust: Shows commitment to food safety, increasing customer confidence.
  
• Legal Compliance: Avoids penalties and legal issues by following regulations.
  
• Business Expansion: Facilitates scaling operations across states and international markets.
  
• Brand Credibility: Enhances brand image by adhering to recognised safety standards.
  
• Access to New Markets: Many retailers and e-commerce platforms require FSSAI certification.
  

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FSSAI Registration Eligibility

Below is the eligibility criteria for FSSAI registration:

• Annual turnover up to ₹12 lakhs.
  
• Operates only within a single state.
  
• Includes small-scale manufacturers, traders, retailers, hawkers, and temporary stall owners.
  

FSSAI License Eligibility

Businesses requiring State or Central Licenses typically fulfil these conditions:

• Annual turnover between ₹12 lakhs and ₹20 Crores (State License).
  
• Annual turnover exceeding ₹20 crores (Central License).
  
• Operations across multiple states or involved in import/export.
  
• Large-scale food processors and manufacturers.
  

Food Capacity Limit Required for Obtaining FSSAI Registration

Note: These limits may vary based on specific food categories and local regulations.

Documents Required for Obtaining the FSSAI Registration/License

Common documents needed include:

• Identity Proof (Aadhar, PAN Card)
  
• Address Proof of Business Premises (Rent Agreement/Utility Bill)
  
• Passport-sized Photographs of the Applicant
  
• Certificate of Incorporation (for companies)
  
• Food Safety Management Plan or Statement of Food Products
  
• NOC from the local municipality or health department
  
• Proof of possession of premises (ownership or lease)
  

How to Apply for FSSAI Registration Online?

Applying for an FSSAI Registration or License online is a straightforward process — and the best part is, you can do it all from the comfort of your home or office.

Step 1: Visit the Official FSSAI Website

Head over to the official Food Safety Compliance System (FoSCoS) portal: https://foodlicensing.fssai.gov.in

Step 2: Create an Account

Click on “Sign Up” and fill in your details like name, mobile number, email ID, and state of operation. Once registered, you’ll receive login credentials via email or phone.

Step 3: Fill in the Application Form

After logging in, choose the appropriate license type based on your business size and turnover (Basic, State, or Central). Then, fill in the required details such as:

• Business name and address
  
• Type of food business (manufacturer, distributor, caterer, etc.)
  
• Contact information
  
• Business turnover and food handling capacity
  

Step 4: Upload Required Documents

Upload scanned copies of all the necessary documents.

Step 5: Pay the Application Fee

Once the form is complete and documents are uploaded, proceed to pay the applicable fee online. The amount depends on the license type and duration selected (1–5 years).

Step 6: Submit the Application

Double-check all details before clicking “Submit”. Once submitted, you’ll receive an application reference number which you can use to track your status.

Step 7: Track Your Application Status

Use the “Track Application” feature on the dashboard to monitor progress. You’ll receive notifications if additional info or documents are required.

Once submitted, your application will be reviewed by the local food safety officer. They may conduct a physical inspection (for licenses) or approve the application directly (for Basic Registrations). Upon approval, you’ll receive your FSSAI certificate online.

FSSAI License Cost & Validity

Costs may vary based on license duration and type.

FSSAI Registration Status

How to Check Status:

1. Visit the FSSAI portal.
   
2. Log in using registered credentials.
   
3. Navigate to the “Application Status” section.
   
4. Enter your Application/Registration number.
   
5. View the current status (Pending, Approved, Rejected).
   

FSSAI Penalty and Offences

The Food Safety and Standards Authority of India (FSSAI) takes food safety very seriously — and rightly so. Non-compliance can lead to hefty penalties, legal action, or even imprisonment, depending on the nature and severity of the offense.

Here’s a breakdown of common offences under the Food Safety and Standards Act, 2006, and their corresponding penalties:

Renewal of FSSAI License

Renew your license at least 30 days before it expires. The process is similar to applying for a fresh — just log in, fill out renewal forms, upload updated documents, and pay the fees. Missing renewal deadlines can lead to fines or even suspension of your license.

FSSAI License for Cloud Kitchen

Cloud kitchens, operating without a physical dine-in space, are also required to obtain FSSAI licenses. Typically, they fall under:

• Basic Registration: If turnover and scale are small.
  State License: For larger cloud kitchens with higher turnover.
  

The application process is the same, focusing on food safety management specific to cloud kitchens.

Conclusion

FSSAI registration and licensing are essential for any food business in India. They help keep your customers safe, build your brand, and keep you on the right side of the law.

So, if you're running any kind of food business, be it a small catering outfit, a packaged snack brand, or an export-oriented manufacturing unit, FSSAI must be part of your growth strategy. It’s a small step toward compliance, ensuring that you’re meeting the highest standards of food safety and hygiene.

Frequently Asked Questions