How startups in India can save income taxCA. Ankit Gupta
Before launching a Startup in India, every person must be aware of tax structure of their business so that he can plan the cost of their product or services he is going to offer.
There are multiple ways by which a Startup can be launched, some of those are:
1. Proprietorship Business (Owned by Single person)
2. Partnership business (Owned by maximum 20 persons)
3. Private Limited Company (Owned by maximum 200 members)
4. Limited Liability Partnerships (LLP's) (Owned by maximum 20 persons)
5. One Person Company (Owned by 1 person)
Tax liability of each of above is slightly different from one other.
A. TAXABILITY OF PROPRIETORSHIP BUSINESS
If you are running your startup as a Proprietor then you are required to get your business registered with local VAT Department or get Service Tax registration if you are a service Provider.
Starting business as a proprietor is a cheapest and simplest manner to commence operations as one can get registration under Delhi VAT at just Rs.2200 or get Service Tax Registration at just Rs.1200 .
Proprietor has multiple ways to save his Income Tax which would be charged upon him on the basis of Slab Rate prescribed below (For Assessment year 2017-18).
To Save Income Tax, Proprietor can make Investment in any of the following mode upto the amount of Rs.1,50,000.
- LIP premium for himself, Spouse & Children
- Five year fixed deposit with Nationalised Bank
- Investment in Public Provident Fund
- Investment in Recognized Provident Fund or Super Annuation Fund
- Investment in National Saving Certificates (NSC)
- Investment in Bonds of NABARD
- Subscription of such shares and debentures as Notified by CBDT.
B. TAXABILITY OF PARTNERSHIP BUSINESS & LLP's
A group of persons (partners) can make a partnership firm in India merely by Drafting a deed with the help of expert and applying PAN card on the name of firm on the basis such notarized deed.
All Partnership firms are taxed at flat rate of 30% on its Income which can only be saved by enhancing the amount of remuneration paid/payable to partners subject to the provisions of Section 40(b) of Income Tax Act .
As per the provisions of Income Tax Act
- On first Rs.3 Lakh book profit : Rs.1,50,000 or 90% whichever is higher
- On balance book profit : 60%
C. TAXABILITY OF PRIVATE LIMITED COMPANY & ONE PERSON COMPANY
All Private Limited Companies and One Person Companies are taxed @ 30% on its net Income.
A company can reduce its net income by claiming expenses while computing net profit of the company.
It is not advisable to claim false expenses or overvalued the stock so as to reduce Profit of the company as It may result in payment of heavy penalties.
A company can claim deduction under section 80GGB of Income Tax Act in respect of donation made to Political Parties or Electoral Trust.
Instead, It is advisable for Companies to fulfill the statutory compliances on time so as to avoid penalties under Companies Act'2013.
TIPS FOR STARTUP's
If you want to start a business with low working capital then it is advisable to start a business as proprietorship concern which later on be converted into Partnership Firm or Company as required.
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