If you have an entrepreneurial outlook when it comes to making money and taking advantage of every opportunity available it is clear that you should also have a keen eye on what tax benefits you can use to gain a competitive edge.
The introduction of the Goods and Services Tax has changed the taxation landscape and you can make your calculations easily when you use a handy tool such as an online GST calculator by razorpay.
In addition, there are a number of key tax benefits that every Indian entrepreneur should know about so that they can use them to their advantage.
Help when you really need it
The Indian government introduced a tax holiday for new business startups to encourage more entrepreneurs and that incentive was recently extended for another year.
This means that you will be able to claim exemption from capital gains for a further year and you can also claim a tax holiday.
There are some eligibility conditions to meet, such as not exceeding a total turnover Rs 100 crore, but you could get to keep up to 100% of your profits during the qualifying period, allowing you to invest more cash into growing the business.
The chance to create employment opportunities
As your new business venture grows you will want to start hiring staff and there is a valuable tax benefit you could take advantage of in this respect.
The Employees Provident Fund (EPF) works by contributing to the cost of hiring an employee and the reduced tax burden aimed at startups will run for three years.
That means you can create a workforce for less at the early stages of your business.
Making tax less taxing
Another useful scheme to know about if you are an entrepreneur is the presumptive taxation scheme.
The scheme allows you to operate basic accounts when you first start trading so that you can spend more time growing the business rather than carrying out administrative tasks associated with keeping accounts.
The chance to take advantage of angel investors
Many startups rely on developing a relationship with angel investors who are willing to put in seed capital to help the company get off the ground.
Domestic companies need to comply with rules that dictate any shares are issued at a fair market valuation and any sum above that figure is usually subject to the so-called angel tax.
However, you can file a declaration that allows you to claim exemption from the tax if you are deemed to be an eligible startup.
The chance to carry forward losses
It can take a while to see your business get into the black and although there is a general provision for set-off when it comes to accounting for your losses this is usually subject to shareholders remaining the same for the year in question.
Your startup can avoid this scenario for up to seven years as long as shareholders retain their holding for the year of set-off.
From the introduction of the simplified GST to a host of other potentially favourable tax relief conditions, you should make sure that your entrepreneurial flair is allowed to shine by learning about which tax-relief options you can claim as a startup.
Tax Exemption – during the initial phase
India supports a business-friendly approach. Therefore, the government has provided a tax exemption for the first 3 years of startups. So if you are planning to start your business and you are worried about the taxes, no need to think about it. You are getting a 100 percent tax exemption on your profits. In short, you are going to enjoy the profits of the first 3 years. Or you can use it as an investment and grow your business.
The only thing that you have to pay is the minimum alternate tax, which is 18.5 percent of your book profit. So if you want to avail of this exemption, you need to register your business under DIPP (Department of Industrial Policy and Promotion). Furthermore, your startup should have some intellectual value and it should introduce a new product or service. These things will increase your value.
Tax Exemption – On long-term capital gains
As mentioned above, you will get a lot of profits if you have the idea of providing a unique service. One such benefit is getting exemption from paying taxes on your long-term profits. And if you have a startup, you don’t have to worry about anything but growing your business. However, there is a limit to this exemption.
If you want to make use of this option, you can only make an investment of 50 lac. Furthermore, this amount should also remain invested in that particular project for a period of 3 years. This ensures that you are not making use of policy but are actually improving the business sector.
Such investments are a healthy option for startups as they get investment. Likewise, the government does not have to provide a loan. So in simple words, a business provides investment for another business and helps it grow. This increases employment opportunities and the government does not have to play a significant role.
Tax Exemption – on investments
If you have any fund that is not registered as a venture capital fund, you can use it for investment. It can be your family fund or any other or you can act as a resident angel investor. Thus, the investment that you will make above the market value will be exempted from tax. In short, you will make an investment in a startup and can gain profits from it without paying the tax.
Some other benefits;
Apart from these tax exemptions, you will also receive other benefits that include;
- You get an employee provident fund for the first 3 years.
- Businesses can use the presumptive tax schemes if their turnover is 2 crore INR.
- If you belong to special categories (i.e. women, schedule caste or schedule tribe), you can get investment from the government. As they have a fund of 500 crores INR for the support of these special entrepreneur groups.