In India, Municipal corporations grant a trade license or Gumasta licence (i.e. State to state name vary) to carry on a legal business. This ensures that all the businesses in a particular locality are running by abiding the laws set.
Points covered in this article are
What is Trade Licence ?
Why is Trade Licence necessary?
Who has the authority to issue trade licenses?
Need for Trade License
Benefits of Trade Licence
Eligibility for Trade Licence registration
Registration process for Trade Licence
Renewal of Trade Licence
Trade License fees
Penalty for not obtaining trade license
How is Trade Licence different from Shop Establishment
1. What is Trade Licence ?
● It is a permission granted by the municipal corporation of a particular locality under the laws set by the State government.
● Different States have different rules for acquiring trade license
● It is to make sure that all the businesses are running according to the law and safety of consumers are ensured
● Business is to be carried on in the location given in the trade license granted by the municipal corporation
2. Why is Trade Licence necessary?
It is a document issued in favor of consumers and the public at large. It is to make sure the business follows all safety guidelines and no problems are created to the consumers
3. Who has the authority to issue trade licenses?
The authority to issue trade licenses is under the department of municipal corporation of the specified area. For a business located in bangalore, license is issued by Bruhat Bengaluru Mahanagara Palike (BBMP). Likewise, different Municipal Corporations have authority in their jurisdiction. However, the central authority of licensing is with the respective State governments.
4. Need for trade license
Every trader involved in any business requires a trade license should register themselves for trade licence within specified days as per state act of starting of their business. Even though many traders in India are unaware of trade licensing and how they can be benefited from it, larger businesses like restaurants, hotels, other eating establishments and businesses which use motive power like factories, mills etc. Because need for safety and maintenance in these establishments are high
5. Benefits of trade licensing
● Trade licensing acts as an identity to any firm. It increases goodwill of the entity
● Ensures safety of public in large
● Prevents any kind of health hazard or problems in operation of business
● It is a legal necessity and protects the business from any kind of illegal activities
6. Eligibility for Trade Licence registration
● The person registering for trade license should be a major i.e, above 18 years of age
● The business which is to be registered should be legal under the law and should be located in permissible locations only
● There should not be any criminal records of person registering his business
7. Registration process for Trade Licence
For registration of Trade License, a form is to be filled and submitted to the concerned municipal corporation along with necessary documents
The necessary documents are required for all the municipal corporation
● Address proof of the firm
● Identity proof of owner(s)
● PAN card of the owner(s)
● Proof of the premises
● Area of premises
● Other documents, depend upon state to state laws
After submission of the form in specified format along with necessary documents, it takes about 15-20 days for processing the application and approval. This process may also depend on different Municipal Corporations or States for that matter
8. Renewal of Trade Licence
Once registration is completed, the trade license is valid for a period of 1 year. After expiry of the license, renewal should be done. For renewal of the license documents needed are
● Original trade license
● Challan generated during the year
● Details of tax payment of the firm
9. Trade Licence fees
As mentioned before, the trade license laws or fees depend on the state in which business premises are located. The state governments have the authority to decide on different regulations.
● In Karnataka, Trade license is mandatory for all the businesses listed under Schedule X of Karnataka Municipal Corporation Act
● In Delhi, as per the regulations of Delhi Municipal Corporations (DMC) it is mandatory for all shops/establishments to obtain Trade Licence under Section 417 of the DMC Act, 1957
Likewise, it differs from state to state. Some states have mandatory monthly fees to be paid while some states charge annually on percentage basis
10. Penalty for not obtaining trade license
For all those who do not obtain a trade license, penalty may be charged for not abiding by the law. If any business gets caught in illegal business without a trade license the entire business shall be seized by government
11. How is Trade Licence different from Shop Establishment Licence
Many traders tend to confuse Shop Establishment Licence for Trade License. But these two registrations are independent of each other
Shop Establishment is a registration of business made with local government whereas Trade Licence is a permission granted for carrying on legal business
Shop Establishment Licence is granted for any location including residential area but Trade Licence is only for commercial premises
Trade licence is mainly for entities like restaurants, hotels, manufacturing industries. On the other hand Shop Establishment Licence is required by every shop or establishment running any business or providing services
There are establishments which do not have Trade Licence. Even many state governments have not made the requirement of Trade Licence mandatory. But the businesses which have Trade Licence enjoy greater goodwill than a business which doesn't.
Frequently asked questions
1. Who issues Trade Licence?
Municipal Corporation of the respective jurisdiction has the authority to issue Trade Licence
2. Is it mandatory to have a Trade license?
The requirement of Trade Licence depends on state to state. Some have made it mandatory to specified businesses whereas some haven't
3. What is the validity of a Trade Licence?
Trade Licence is valid for a period of 1 year. Before 30 days from expiry of the License, renewal is to be applied
4. Why does a business need a Trade Licence?
Trade licence is necessary to make sure that there are no unethical practices followed by a business. It also ensures safety of consumers and general public
5. Can any business have a Trade Licence?
Any business carrying on its activities in a legal manner and abiding by the rules and regulations specified by the government can acquire a Trade Licence