When you start a new company, business taxes for a startup are the last thing you think of as an entrepreneur. A startup needs a diverse operating team to identify and take actions that matter rapidly for customer solutions. The early days of entrepreneurship will have several organizational tasks, and stuff should be completed quickly. As a designer, you schedule deliverables, set up costs, and prepare implementation activities. In this initial period, it is very critical to think about tax, be it GST registration or to file ITR on time. As a company manager, it is also one of the persistent things you can’t easily forget.
Although profits reflect sustainability when you start your company, consider every penny saved as a penny gained. One of the best ways to do it, including strategist other company practices for a holistic approach, is to schedule your business taxes for a startup. It would provide an incentive to offset future losses and shield them from tax advantages.
Check out three crucial tips if you are a startup and looking to plan your taxation early on in the business.
1. Abolition of angel investment tax
Investments are significant assets for an entrepreneur. However, during the initial stage of a startup, they lose investor trust, and therefore, they can’t receive venture capitalist financing or bank loans. Yet, typically, business people choose angel investors. Cost and gain are usually negotiable. The government also abolished the angel investment tax, which does not charge an investment made by angel investors who are friends or family members not listed as Venture Capitalist funds.
Government policies concerning taxes were substantially changed under the 2017-18 budget. The government introduced a few policies that mostly benefit the country’s entrepreneurs, particularly under the Indian startup program.
2. Your business structure defines tax ability
It is better to consider your business structure when starting a new business because each fabric will have a different tax slab. Companies are bound to attract tax, and as a startup founder, you should aim to minimize the tax-ability. For example, the tax slab for sole proprietorships ranges from 5% to 30% over the basic exemption limit. The tax slab for partnership firms and LLPs is flat in that every penny earned is taxed at 30. The tax slab for companies is 22%, subject to certain conditions, which has also been brought down to 15% for new manufacturing companies.
Know businesses with partnership and LLP registration are treated in the same manner by tax authorities. Most of the promoters chose LLP over Private Company because of the Dividend Distribution Tax (DDT). This is because DDT is taxed on income distribution by a company, which is applicable at a gross rate of 15%.
3. Exemption from tax on long-term capital gains
To make things easier for startups, a brand new section known as Section 54 EE has been added to the Income Tax Act. Under this section, startups are exempt from long-term capital gains tax. However, this is only applicable if invested capital gains are a part of the fund notified by the Central Government within a total period of 6 months from the date of the actual transfer of the asset. Additionally, under this rule, the maximum amount of capital that a company can invest in long-term gains is Rs. 50 lakhs. The amount then has to be invested in the fund for at least three years. If the investor ends up withdrawing the amount before the three years are up, then the amount becomes taxable.
Companies, whether newly incorporated or having a remarkable existence, have their shares in the market, and they generally raise capital or funds from stock sharing and other things. It is usually a popular way of doing business with people. Profit earned by these ways is termed as capital gains and thus are under tax provisions. One another vital tax benefit that has been provided is the exemption of 20% of the capital gain tax to entrepreneurs, that is, tax exemption on getting profit from selling the capital assets like stock, bonds, shares, etc.
Indian regulators see how entrepreneurs can be helped in fiscal uncertainty. For startups, many of the above tax incentives and other funds are very useful. Yet, rooms in India are still vacant to support startups. Some long-term demands of the government have been met, while others remain unresolved.
- One of the critical issues is the working climate for entrepreneurship, which, in this startup program, India should have given more thought.
- The exemption from capital gain tax is also low, as the initial capital gain is usually low, which is not very successful. Most companies have been frustrated by the eligibility requirements that have been set because they cannot meet the eligibility criteria.
- The engagement of young entrepreneurs with foreign investors or business personalities or technical development in new technology startups is also something that the government should stress.
Conclusion
The best is to have a tax planner and consult a business service professional. They can help you stay compliant in tax matters and save unnecessary expenses and hassles that failing to pay tax attracts. Follow these tips mentioned above to stay assured of following the tax deadlines and plan your finances better in today’s time.