Know The Taxation Rules for Startups in India
Summary
If you are looking to set up a company in India then you are eligible to take advantage of the new taxation policies and benefits that the Narendra Modi Government launched in the 2016-17 Indian Union budget. Here is everything you need to know about how startups are taxed in India. Today, the Startup India Scheme is what sets out most of the tax posture for startups in India. This article takes a cue from a leading tax consultancy firm in Kolkata, to enlighten startup owners from the beginning. So if you are someone whose idea of a startup is about a home-based bakery or providing any kind of contractual services to IT companies from your personal laptop, then you need to stir clear of the idea of what is considered the eligible startup in India.
The Eligibility of a Startup in India
Not every business or company is a startup. Not all newly formed businesses are startups. A startup, according to industrial language, is a transitory corporation created to find a scalable and repeatable business strategy. It must have the following features: A startup must be incorporated - either as a private limited company, partnership firm or a limited liability partnership. Sole proprietorship works on individual income tax rules. The company turnover must be less than 100 Crores. A startup must always be created from the ground up; it cannot be created by dividing or reconstructing an established enterprise. The startup should be focused on improving/innovating existing products, services, and processes, as well as having the potential to create jobs and income. New companies that match the above definition given in the G.S.R. regulation 127 (E), are eligible to apply for recognition under the Startup India initiative. At the time of application, startups must submit supporting documents.
Incentives For Indian Startups
The government has established a 100% tax deduction for qualifying start-ups under Section 80-IAC of the Internal Revenue Code. For eligible start-ups, a 100% tax exemption is allowed for up to 3years. This means all new companies get a breather of 3years to generate revenue, free from any tax burdens. With this policy in place from 2016, a new Amendment Act was introduced, that allows all Indian Startup Companies the option to choose the 3 years at its own discretion from any of the first 10 years. Many times, starting a business is easy, running it is hard. Relevantly, a tax exemption is not a necessity for initiatives. Most company owners come prepared. With the revenue being low, the taxes are often affordable for startups during the first 3 years. But many companies need this breather in later years, when either they are sustaining a business loss or taking on a new challenge. If you are not sure how to make the most of this breather, a tax accounting firm in India can give you a metric of your Key Performance Indicators or give you a premonition about when is the right time to leverage it.
Tax Liabilities of Startups in India
It is mandatory for all incorporated companies to do their tax registration. It is standard practice for startups to appoint a tax consultancy firm in Kolkata since it is the best place to organise the whole process. But it is not a legal obligation as such, you can easily do the whole thing on your own if you know what you are doing. For the uninitiated, there are fundamentally 3 types of taxes that startups are entitled to pay: Central Sales Tax - is an indirect, origin-based tax payable by startups, based on their respective state guidelines, for selling products. Value Added Tax (VAT) - payable by companies with a turnover of over Rs. 5Lacs Service Tax - payable by specific service transactions carried out by the service provider. And when the turnover of the company goes over Rs. 9 Lacs. Based on the company type, the percentages of the tax fluctuate. To add to the basic framework, there would be a 20% exemption on the Startup’s Capital Gains. Manufacturing companies would get a 25% tax plus cess and surcharge. An Employees' Provident Fund (EPF) is introduced by the Indian Government, with an 8.33% contribution for 3years. Finally, there would be Presumptive Tax, which gives startups the freedom from bookkeeping and hefty accounting costs. This scheme is open to anyone with an annual income of at least 8%. However, if a person's income is greater than 8%, a higher rate can be declared. Furthermore, this scheme is open to all small business owners with a turnover of up to Rs 2 crore and professionals with a gross income of up to Rs 50 lakh.
Start By Consulting A Tax Advisory Firm
There are different types of taxes payable by a startup, and sometimes it can get extremely confusing and intimidating for someone who does not come from a business background. A reputed Tax Advisory Firm or CA Firm in Kolkata would offer the service of guiding startups about their tax liabilities. So even if you can manage your own tax duties you should steer clear of any backdated knowledge and stay updated - so it is great to start your search with a tax consultant near me!
Author Bio
==================================== Every time you type, ``a tax consultant near me” on Google, it comes with a range of hopes for a solution that starts with your own conscience about how to keep your company free from any tax-related nuisance. The leading tax consultancy firm in Kolkata answers the core questions to get you prepared.
