In the initial days of the startups, you will face many challenges; if tackled not correctly, it could negatively affect the business. As a founder of the business, it becomes your job to look after the deliverables and planning, setting up the planned tasks’ cost and execution.
Pondering over the taxing system could be exhausting, such as filling GST registration in India or ITR filing on time. It is the founder’s fundamental duty that they cannot disregard.
Generating revenue and earning profits stands as sustainability for any business; initially, every penny saved is a penny earned. The best way to do this is to organize your taxation just as you would organize other activities for a holistic and inclusive approach. By doing this, you will have the elbow room to compensate for the losses while having the possibility to earn tax benefits.
Now, let us investigate six-pointers that would help your startup to plan its taxation early in the business.
Comprehending Advantages and Prerogatives as A Taxpaying Business
Every business seems vulnerable to tax regulations when the central government brings up any new changes. Hence, you should be well informed about your rights as a business taxpayer and the advantages it provides. For example, you should know about the various tax exemption and benefits. Such as you will get a 100% exemption for the first three years of your business. There is an 18.5% alternative minimal tax (which is an exception). If you come under the Start-up India scheme, then it is your sole right to claim the exemption. For your business’s advantage, you should be aware of such an exemption as a founder.
Acquaint Yourself with Tax Knowledge
Awareness is the first key for any tax planning. It becomes pertinent to be aware of the legalities surrounding it and how it could impact your business. The first step in this direction is to acquire knowledge by yourself about tax norms and acquaint yourself with the laws and provisions that apply to your business before moving towards compliance. Not to forget that there will be watching eyes from the legal authorities on your business, those who are entitled to govern income tax. Examine tax norms that apply to your business.
For instance, household products such as edible oil, sugar, tea, and spices come under 5% and those with processed food fall under 12% GST so on and so forth.
Documenting the Potential Deduction
Your startup will be entitled to get a deduction for its ‘run-of-the-mill and necessary’ expenses that comes under its operation. Such expenses could be.
– Travelling expenses for work.
– Home offices’ rent and utilities (for an allocated portion).
– Books and magazines.
– Industrial training program and its paraphernalia.
You should have the receipt of documents for the expenses that you made to back it up. To avoid any intricacies, save all the expense receipts and send them to the company, they would automatically scan and arrange them.
Selecting the Business Structure
Each business structure has its tax slabs that is why it is crucial to select your business structure wisely. Every startup will attract taxes, but it is your job as a founder to find how you can minimize the taxability. For example, sole proprietorship’s tax slab attracts 5% to 30% tax beyond the exemption threshold. For businesses having private limited company registration in India and LLP, both are charged a flat 30% for net revenue of up to 1 crore.
Partnership firm and LLP would be treated on the same par by the tax authority. Both are predominant because of its dividend distribution tax (DDT). It is taxed on the company’s income distribution, which applies to 15% at a gross rate.
On-Time Filing Of ITR
To get the tax benefit, you must file your income tax return on time as per the IT department’s guidelines. For example, being eligible to carry forward your losses for eight years successively of your business. You will have a chance to set it off with earned income for the following years if not rearranged in the current financial year. This could be possible only if you manage to file your ITR before due dates.
For staying compliant, keep yourself updated on the changes that come in tax norms. It means to keep vigilant eyes on tax regime and tax write-offs that enable more saving for the short and long-term.
Consulting and Hiring Tax Experts
The best way to cope up with business taxation is to hire business service experts. For instance, you will not have to deal with filling GST returns or keeping your accounting books updated, so on and so forth. Experts are pro in their field and can take good care of your business’s compliance and legal intricacies related to it. Their advice could also be beneficial to your business decisions because your business needs are advice from professionals on tax planning and compliance. This could be a way forward to avoid any unforeseeable contingency.
Many of the startups seem reluctant and unaware of their taxation and compliance. Because taxation involves many sub-branches and legal intricacies that normal people do not want to get involved in. It is best to hire tax professionals for better management of tax planning and compliance, which could save your time and money, and as a founder, it could reduce your operational responsibilities as well. You can divert your attention to the other work of the business.