In the recent years, the world has undergone tremendous upheaval and changes. Financial markets and taxation sure weren’t spared the drastic changes either. The business atmosphere today is tremendously different from how it was and tax planning is an imperative for every startup needs to be adaptive as well. But, first, we need to understand what is meant by tax planning for new businesses in India?
In the nascent stages of the establishment of every business and startup, funding is scarce and not easy to come by. Financial management hence becomes imperative in that case as income tax planning is an essential component of cost savings. Due to oversight business owners often end up missing out on wonderful schemes and policies that would have helped them save money and other resources like anything.
It is of utmost importance to invest more time and resources into tax planning for another reason. In the long run, if the company does not have a strong income tax and other tax planning for new business or structures in place, it becomes even more difficult to get them aligned as per the organization’s requirements upon getting established.Â
The long-term importance of income tax planning can be understood very well by an example. Suppose your organization becomes established with a firm footing in the industry and has reached the growth levels to venture into IPOs or mergers. In those events, the already complicated changes that are to be introduced would get webbed up if you don’t have a firm tax planning system in place.
Learning deep well about the specifics of tax planning and specifically tax planning in your income is important to keep your business running profitably and attain long-term goals with the greatest ease. Through the years of experience, it has been witnessed that attainment of financial is another major motivation for businesses to explore and understand tax planning.
What is the importance of tax planning for new business?
As important as it is to plan and invest your resources into tax planning, one should always bear in mind that this has to be a sustained and continued effort. This in turn reaps benefits apart from tax planning in the long run, some of which are mentioned below as
- Track the expenses: For running a business profitably, the first rule of thumb which always has to be kept in mind is to keep a tab on all our savings as well as expenses which helps our business run not just smoothly but profitably as well. This bodes extremely well when we have to look for new areas to invest our funds into, in terms of ventures as well as ideas.
Tax planning and properly keeping a tab on your income tax planning can go a long way in terms of better managing and monitoring your funds better. Keeping a firm hand on your cash flows by judicious spending of your funds also comes in handy in your income tax planning as well. - Conduct inclusive research: Saving your funds from getting excessive taxation more than you have to requires immaculate tax planning in income tax. Tax planning in itself is a very deep domain that requires deep information of all the ins and outs of the same or it can become very challenging in terms of execution.
The foremost thing to do while beginning your tax planning is to do thorough research on tax savings and learn about all the laws along with the rules and guidelines to implement them successfully. For tax planning since the economy is always changing, so are the ways of income management and hence, it is imperative to keep up with all the amendments pertaining to your income tax planning. You can always hire or reach out to outside counsel for your tax planning in income tax as well. - Classify the business: Under the Income Tax Act of 1961, the Government of India has levied different rates of taxes on different kinds of business. This is very handy because smaller businesses through taxation are at an advantage which if they avail properly can successfully give a major boost to efficacy as well as the profitability of the business. You can select the name of your organisation to fit into relative categories and hence, save the effective taxation at the end of the day.
How it would be crucial for startups to be aware of tax rates for startups in 2022. This is how effectively going through tax planning can save you crucial funds and resources for your organisation. Various domains available in the Private Limited Company, One Person Company and SOle proprietorship that pay effectively different prices and hence, effectively save the taxes. - Tax filing deadlines: Meeting deadlines is yet another very crucial aspect of tax planning for your business. It is because hefty sums are levied in form of fines when the deadlines for income tax filing are not met. This is a sheer wastage of resources that can be completely avoided. Tax planning for income tax is very easy to manage and balance if done well beforehand and effectively.
- Home Office: Most entrepreneurs start their businesses from their homes. Under the Income Tax regulations of India, sections 32 and 37 of the Act state the expenditures of office expenses from home offices get a rebate on their expenses. This can be very crucial in terms of cost-saving through meticulous tax planning for income tax.
The same business owners can invest the funds saved here into other areas that need their attention on an urgent basis. The deductions in taxes can be acclaimed for bill utilisation, property laws, mortgages or property laws, depending upon the requirements of the income tax planning is done well beforehand.
Why Tax Planning Is Important For New Age Startups?
The way an entity is structured influences tax planning: Today the age is a global one. With innovations coming in every day, numerous new-age businesses have taken shape. However, which domicile these businesses belong to is an imperative detail that needs to be categorised. In this age of globalisation, rapid growth has been the norm and hence, not just corporations but even startups have more than just one centre, be it in different cities or even different countries. In this case, it becomes even more important for businesses to prioritise their tax planning.
Keeping in mind the rules mandated by the central bank per state, the region as well as country is essential as far as income tax planning for businesses is concerned. This is not only important to prevent hefty penalties but even beneficial as the awareness of RBI laws can help companies from double taxation while availing benefits of different tax rates in different brackets.Â
The effective effective management of element of positive cash flows: For every businesses, being the most handy and liquid asset, cash is the go-to tool. A businesses that For every business to run smoothly and efficiently, being the handiest and most liquid asset is an essential go-to. However, with cash comes a responsibility to use it effectively and efficiently.
This requires cash to be very well accounted for and is even an important component of tax planning in income tax. With tax planning, you can well manage your transactions and have more synchronised cash flow structures in place. If your tax planning is not up to the mark it can actually result in net outflows for your business, and hence, big losses just as tax bills start flowing in. For your business, strategise well and go to preempt future tax provisions.Â
Avoiding litigation and penalties: Tax planning is ever important right now given the way taxes are layered globally. While going about your tax planning for income tax, bearing multiple facets in mind is a tedious task indeed. If done well, income tax planning helps us stay aligned with the laws and regulations which ultimately saves us from a lot of penalties as well as litigations.
Helping Fundraising: If your business is very particular, chances are you’ll prefer raising funds with global investors. The structure of these investments is of utmost importance here for which Indian laws have been infamously often referred to as draconian. Efficient tax planning becomes imperative in this case for startups and MSMEs to be able to avail the benefits.
The way an entity is structured influences tax planning: Today the age is a global one. With innovations coming in every day, numerous new-age businesses have taken shape. However, which domicile these businesses belong to is an imperative detail that needs to be categorised. In this age of globalisation, rapid growth has been the norm and hence, not just corporations but even startups have more than just one centre, be it in different cities or even different countries.
In this case, it becomes even more important for businesses to prioritise their tax planning. Keeping in mind the rules mandated by the central bank per state, the region as well as country is essential as far as income tax planning for businesses is concerned. This is not only important to prevent hefty penalties but even beneficial as the awareness of RBI laws can help companies from double taxation while availing benefits of different tax rates in different brackets.Â
The effective effectivemanagement of ement of positive cash flows: For every businesses, being the most handy and liquid asset, cash is the go-to tool. A businesses that For every business to run smoothly and efficiently, cbeing the handiest and most liquid asset is an essential go-to. However, with cash comes a responsibility to use it effectively and efficiently.
This requires cash to be very well accounted for and is even an important component of tax planning in income tax. With tax planning, you can well manage your transactions and have more synchronised cash flow structures in place. If your tax planning is not up to the mark it can actually result in net outflows for your business, and hence, big losses just as tax bills start flowing in. For your business, strategise well and go to preempt future tax provisions.Â
Avoiding litigation and penalties: Tax planning is ever important right now given the way taxes are layered globally. While going about your tax planning for income tax, bearing multiple facets in mind is a tedious task indeed. If done well, income tax planning helps us stay aligned with the laws and regulations which ultimately saves us from a lot of penalties as well as litigations.
Helping Fundraising: If your business is very particular, chances are you’ll prefer raising funds with global investors. The structure of these investments is of utmost importance here for which Indian laws have been infamously often referred to as draconian. Efficient tax planning becomes imperative in this case for startups and MSMEs to be able to avail the benefits.
Here are some Tax Benefits for entrepreneurs in India
Tax holiday for three years: During the first three years of operation of a new company, govt of India in the budget 2016-17 exempted completely from tax payments. This does not just give them much needed boost in terms of saving costs but also helps save resources which would have otherwise been dedicated to tax planning.
However, to be able to avail of these benefits, the companies have to be registered as startups under the Department of Industrial Policy and Promotion (DIPP). Apart from this, they are also exempted from the tax payment on any profits they have reaped apart from the Minimum Alternate Tax (MAT)..
20% exemption on capital Gains: Taxes are charged on capital gains of businesses like from the sale of bonds or stocks. The Indian government grants a 20% tax exemption to startups on these capital gains, a provision that saves them a lot of crucial resources.
Taxes on Turnover: Under the taxation norms of the Indian government, a 25% tax and surcharge are levied on new manufacturing firms. However, when the turnover of a company is less than 50 crore pa, a 29% tax on the same is levied and for MSMEs, the charge is 25%. With considerations like this in your tax planning, your business can benefit.
Payment of EPF by the Government: An employees’ provident fund of 8.33% for three years is paid by the government for startups. This will be a major financial relief for employers and this is seen as a major cost-saving initiative by the government.
Presumptive tax: While it is mandatory for the entrepreneurs to maintain books of account, the presumptive taxation scheme does away with it. It drastically reduces the costs and burden on entrepreneurs. A business with a turnover of up to 2 crores INR can avail of this scheme whereas the amount is 50 lakhs INR for an individual. With efficient tax planning, this benefit can do wonders for your business.
Given the vast range of benefits that can be availed from efficient tax planning, it has to be a priority for every startup to save and manage funds efficiently. With these insights, get to benefit from the consistent efforts for better efficiency and profitability.
