There is nothing more exciting than starting your own business and building your own brand that stands as a mark of your idea and effort. But every startup comes with a great amount of learning that no entrepreneur can escape. Understanding the basics of business operations is crucial and it holds true especially for tax regulations. Most of us cringe when we hear the word TAX and want to stay away from it as much as possible. But as an entrepreneur you have to deal with it. You will discover that by having the basic concepts clarified you will feel empowered and this will only make you better as a business person. Here are few must know things about tax:
- Break the payments: If you know what kind of taxes that you have to pay, you can further split the expected expenses into convenient time intervals such as monthly, quarterly or half-yearly. This will reduce the burden and also let your startup keep up with the finances easily.
- Understanding VAT (value added tax) and CST (central sales tax): VAT is an indirect tax which is applicable to goods produced and sold in a same state while CST is applicable when the producer and buyer of the goods are in different states. Both hold good only for tangible goods. Having understood these, it is also important to mention TIN (tax-payer identification number) for all VAT transactions.
- Service Tax, TDS (tax deducted at source): This is applied to services offered and is intangible in nature. TDS is crucial for startups especially since they work a lot with contractors. All the taxes deducted at source must have appropriate certificates which have to be filed with the Government. The deadlines to submit quarterly TDS are:
April-May-June Quarter: July 15
July-August-September Quarter: October 15
October-November-December Quarter: January 15
January-February-March Quarter: May 15
- TAN (Tax deduction number): Since most of the startups have TDS, getting a TAN is a must for them. TAN is nothing but the 10 digit alphanumeric code that is used to identify startups filing TDS. Failing to get TAN can also lead to penalty.
- Professional Tax: It is a rate of tax that is paid to the State Government and varies from state to state. As an employer you must be aware of the professional tax that you need to calculate, deduct from their salaries and file them accordingly.
- Advance tax: A part of the income which needs to be paid before the end of the assessment year in advance for the tax liability through the financial year. Entrepreneurs (except entrepreneurs having private limited companies) must pay 30% of the liability before September 15th, December 15th and March 15th.
- Learning which registration is mandatory: Like CST becomes obligatory when the startup has inter-state transactions, VAT is compulsory when the turnover is Rs 5 lacs (or increased limit of Rs 10 lacs in some states). Service Tax is needed when the gross turnover is above 9lacs. So, knowing the needed registrations and getting them respectively is crucial for your startup.
- Filing: if you notice each of the above have varied deadlines and need to be filed before they end. Else, it will simply lead to penalty and related consequences. Keeping a tab of this, is important for your start-up’s financial health.
- 100% tax exemption for the first 3 years: With an aim to encourage budding businesses, GOI announced this golden mantra that will be extremely useful for your startup.
- No Angel Investment tax: All the angel investments who are not registered as VC funding institutions but have the objective of offering a helping hand to the budding entrepreneurs will not be taxed. Know more here.
When it comes decoding tax laws and knowing what your business fits into, seek expert help. Do not try to micromanage. Instead, get the right guidance and keep your startup taxes updated.