English
  • English
  • हिन्दी
  • বাংলা
  • తెలుగు
  • தமிழ்
  • ಕನ್ನಡ
  • मराठी
  • മലയാളം
  • ଓଡିଆ
  • ગુજરાતી
  • ਪੰਜਾਬੀ
  • অসমীয়া
  • اردو

How startups in India can save income tax 

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 R
ate 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.

- ULIP
- 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.

For more updates, kindly visit eMunshe.com or mail us: ankit@emunshe.com.

This is a YourStory community post, written by one of our readers.The images and content in this post belong to their respective owners. If you feel that any content posted here is a violation of your copyright, please write to us at mystory@yourstory.com and we will take it down. There has been no commercial exchange by YourStory for the publication of this article.
Ankit Gupta is a Chartered Accountant by Profession & founder member of eMunshe.com, a leading portal to register your startups at lowest cost in India. He is an expert in handling taxation issues, has great insights on the business startup issues such as choosing right business entity and also has vast experience in the field of business maintenance services such as accounting, auditing, company law compliances, service tax and other related fields. He has made several contributions on Income Tax and Union Budget analysis to Dainik Jagran, India TV & many other web portals. He can be reached at caankitgupta27@gmail.com

Related Stories