Every entrepreneur, whether experienced or inexperienced, must know about tax returns. Besides, there are numerous provisions laid out for startups by the ‘Startup India’ scheme.
Tax benefits help startups save a large amount of money that they can later use for the expansion of their business. A tax refers to a mandatory amount imposed on an individual by the government of the country.
In India, government taxation policies for startups, as mentioned in the Indian Union budget 2016-17, has undergone several drastic changes. These changes were made to encourage entrepreneurship in the country under the ‘Startup India’ policy. Thanks to these changes, entrepreneurs can now make use of a plethora of exemptions and concessions.
Here are 5 tax benefits every entrepreneur must know about for the betterment of his/her business-
#1 Presumptive Tax-
Usually, an entrepreneur is expected to maintain the books of account. However, under the Presumptive Taxation Scheme, an entrepreneur doesn’t need to maintain one. This greatly reduces the worries of the entrepreneur.
An individual whose income earned stands at 8% can avail of this scheme. In the case of an individual whose income earned is more than 8%, he/she can declare a higher rate.
Two types of individuals are eligible for this scheme-
- Small businessmen with a turnover up to Rs.2 crores
- Professionals with a gross income of up to Rs. 50 lacs
#2 A 20% Exemption on Capital Gains-
In recent times, the government has made a provision for a 20% exemption on capital gain tax. This provision was highly demanded by startups for a very long time. Capital gains refer to the taxes charged on profits earned from the sale of capital assets. These assets could be stocks, bonds, or even collectibles.
Before this provision was made, a majority of investments in Indian Startups routed their investment through Mauritius. The primary reason for this was that the capital tax on investment in Mauritius did not follow the provisions in the Double Tax Avoidance Treaty.
#3 Taxes on Turnover-
The Indian government imposes a 25% tax plus cess and surcharge on every new manufacturing company. But companies with a turnover of >50 crores p.a. are expected to pay 29 percent tax. However, medium and small-scale businesses with a turnover of >50 crores are charged 25 percent.
In addition to this, the period of claiming profit linked tax exemption has also been extended from 5 years to 7 years. This initiative by the government will help benefit over 6.67 lakh companies in India.
#4 Tax Holidays-
As per the union budget 2016-17, a deduction of 100% tax exemptions is offered during the first three years of a company’s operations. This provision was made with the intent of encouraging entrepreneurs. Only the companies registered as startups under the DIPP (Department of Industrial Policy and Promotion) are eligible to avail of the three-year tax benefits
Additionally, during the first three years, eligible startups are also not required to pay any tax for-profits, except MAT ( Minimum Alternate Tax).
#5 EPF Payment-
The government now offers an Employees’ Provident Fund (EPF) contribution of about 8.33% for three years. Previously, the contribution percentage was 12% of the employees’ monthly salary.
This provision is sure to reduce the burden of many employers as it cuts the cost of startups by 12% for three whole years. It will also help entrepreneurs hire competent candidates for their company, now that the candidates have job security. To avail the benefits of this provision, companies must register themselves with EFPO (Employees’ Provident Fund Organisation).
All these provisions fall under the ‘Startup India’ campaign, laid out by the government. These provisions were carefully planned to encourage entrepreneurial ventures in the country, and thereby generate employment.