Tax Tips For Small Businesses 

In this article, we have listed down some tax tips for small businesses that may help them overcome the complexities of taxation and, in this process, save their money. 

• Chalk Out The Expenses 
• Keeping Records 
• Limiting Cash Payments 
• Avoid Late Filing 
• Deduct Travel Expenses And Home Office 
• Depreciation 
• Deducting TDS At source 
• Hire An Accountant 

Chalk Out The Expenses 

For startups and small businesses, the initial kick-start expenditure can be significant, known as preliminary expenses. Preliminary expenses refer to the cost incurred while setting up the business, i.e., acquiring machinery, legal expenses, company incorporation expenses, etc. Initial expenses such as the construction costs and the market survey costs come under the capital expenditure. They can be written off as deductions, according to Section 35D of the Income Tax Act. The preliminary expenses are deducted from the total income in five equal installments over 5 years. 

Keeping Records  

One of the simplest ways to ensure positive tax returns is to keep thorough records throughout the year. Failing to do so may lead to several repercussions, including a possible inquiry or departmental investigation. The records should support the income, tax credit, and deductions shown in your tax return until the period of limitations runs out, i.e., the statutorily stipulated period for which taxpayers have to maintain the books of account. The copies of the filed tax returns must also be kept properly, as they help with future tax returns. A useful way of keeping records is using accounting software that can record all the income and expenses of the business. 

Limiting Cash Payments 

Cash payments seem to be very agreeable most of the time. However, small businesses must be cautious while doing so. Cash payments exceeding Rs. 20,000 in a day, for a single person, may lead to the prohibition of the tax deduction on such expenses. If a particular payment requires you to pay more than the amount, it is recommended to use banking channels but not in cash. Small businesses with unorganized labour require a proper recording of all the cash payments. Failing to do so may result in paying a higher tax payout. However, section 6DD of Income Tax allows some relaxations and lists out some exceptions where the payment exceeding INR 20,000 can be made in cash. 

Avoid Late Filing 

While filing tax returns, time is money. One of the primary benefits of timely filing of income tax returns is to set off present year losses against future income. These losses can be carried forward for a consecutive period of 8 years. This means you can deduct the business losses from the relevant income, which will help reduce the tax liability on the future income. However, this benefit cannot be availed without filing the tax return on or before the due date. Late filing of taxes may lead to a penalty. For small businesses whose income does not exceed Rs. 5 lakh during the financial year, late filing of the taxes would lead to a penalty of Rs. 1000. 

Deduct Travel Expenses And Home Office 

For expenses that help the business grow and sustain, certain deductions are allowed by the Income Tax Provision. For businesses wherein travel is essential, travel fare and accommodation may be shown as business expenses as it is concerned for business purposes only. To cut the costs, small businesses usually use their homes as offices. If that is the case, then the taxpayer can claim a deduction on expenses related to the home office, including rents, repairs, utility bills, depreciation, maintenance bill, and property tax. Section 32 allows the tax deduction for depreciation, and Section 37 allows for the other expenses. 

Depreciation 

Additional benefits are provided to manufacturing businesses. The Income Tax Act allows a tax deduction for the depreciation of machinery. For new machinery purchased in a year, the taxpayer can claim depreciation of 20%, in addition to the normal depreciation. So, for every new machine being put to use, you can claim the regular 15% deduction and an additional 20% for depreciation. This helps recover the cost of the asset over time. These benefits are to encourage capital investments. 

Deducting TDS At Source 

Several transactions mentioned in the Income Tax Act require the buyer to deduct tax at sources, such as payments made to freelance employees or commissions. If the taxpayer fails to deduct this TDS, the whole amount can no longer be added for reductions. This will eventually turn into a tax burden. For example, if the owner pays Rs. 1,00,000 as commissions and fails to deduct the 10% tax, then the whole amount of Rs. 1,00,000 will be inadmissible for tax profits.

Hire An Accountant 

Tax planning is the essential method of reducing the tax burdens. Reading up about the tax policies and rules may just not be enough. To avoid paying a higher amount of taxes, professional help is of utmost importance. Experts will help prepare the account books and help in the computation of the taxes as well. They will help the small business through the complex aspects and provide tactical recommendations that will help businesses reduce the tax liabilities and simultaneously enjoy the benefits of the tax-saving schemes. 

Final Words 

It is crucial to abide by the rules and regulations and pay the necessary taxes. All of these tips will guide small businesses to save this tricky situation. Taxes may scratch out some cash from the pockets of your business; however, with careful study of the Income Tax Act and maintaining proper records of the expenditure, one can easily manage to save maximum. The government also showers with several benefits on the timely submission of the taxes and the tax returns. At PayU, we help people facilitate seamless digital transactions along with facilities to conduct a smooth tax filing. To know more, visit PayU.  

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But to make a startup successful, you need to be aware of all the rules and regulations related to it. In other words, you need to understand the law on startups in India. In this article, you will understand the standard rules for startups in India.

Legal Basics For Startups

Some of the legal basics that every startup, as well as an entrepreneur in India, should be aware of before starting a business have been discussed below:

Deciding the Structure of Business and Prepare Founders and Co-Founder’s Agreement

As an entrepreneur, the first thing while planning a startup is to decide the type of business. You must be clear about your short and long-term goals and visions. Then decide about the company’s incorporation, i.e., sole proprietorship, public limited company, private limited company, LLP, etc. 

Once you are clear about what type of company you will incorporate, then understand the registration process for your company. You must research which kind of company will best suit your needs. A private limited company is the best option for a startup willing to raise funds as it can help you raise external funds. 

An entrepreneur should also prepare a Founders and Co-Founder’s Agreement. This agreement will help define the roles, responsibilities, exit clauses, operative clauses, and executive compensation of the company’s founders. The founder’s agreement reduces the chances of disputes in case of any disagreements between the founders.

Apply For All Important Licenses Related To The Business

The best method to start a business is to get appropriate business licenses. Different types of permits are applicable in India, depending on the size of the business. Failure to obtain requisite business licenses can lead to unwanted lawsuits. Registrations and agreements of a company also rely on business licenses. Government agencies can shut down businesses running without licenses. Some standard licenses include Shop and Establishment Act, FSSAI Registration, GST Registration, etc. Business licenses also vary from industry to industry, and you must understand how to register your business legally.

Get Clear Knowledge About Accounting And Tax Laws

Taxes are an integral part of any business. There are many types of taxes, such as state tax, central tax, etc. The Government of India has introduced many exemptions for startups, such as tax exemptions, for three years. Businesses can also get tax exemptions from investments and capital gains above the Fair Market Value. To avail of the given benefit, businesses need to qualify the conditions mentioned below:

• From its incorporation date, the startup should not be more than 7 years old, 10 years for biotech.
• It should be registered as a Partnership firm, LLP, or a Private Limited Company.
• The turnover of the company should not exceed 5 crores.
• The startup must not be a result of the splitting of an existing business.

Startup businesses must also ensure that proper books of accounts are maintained. This will help in the timely payment of taxes as well as will protect against accounting discrepancies.

Maintain The Labour Laws And Codes As Specified

Every startup business needs new employees. Labour laws cover every employee-employer relationship. Breaching these laws can harm the reputation of your business as well as cost you a hefty amount. 

Companies that have been incorporated under the startup India program have to make a self-declaration to be exempt from the labour inspection under nine statutes.

Protection of Trademark, Designs And Other Intellectual Property Rights

If you have discovered an algorithm in this high-tech world, you first need to apply for protection under the Patent Law. A startup can benefit from the ‘Scheme for Startups Intellectual Property Protection’ as per the Startup India program.

• This scheme will protect and commercialise all your intellectual property.
• The panel of facilitators empanelled by the Controller General of Patents, Trademarks and Design also provide advisory services to assist you in filing and disposal of the patent application. This will be done at a minimum charge in addition to other services.

Management Of Business Contracts

Contracts are crucial for any business. To ensure that the business functions smoothly, you need to check on the various aspects of contract management. According to the Indian Contract Act, 1872, all agreements will be considered contracts provided it is made with lawful consideration for a lawful object and is not declared as void.

While venturing into a business, you need to enter into a contract with your vendors, new employees to reduce risks in the future.

Businesses must also draft a non-disclosure agreement or NDA to protect the organization’s privacy while disclosing any information with outsiders. This will help protect your business ideas.

Clarity About Winding Down, Exit, And Other Rules Of The Startup Business

It is complicated for any entrepreneur to shut down a company. While shutting down a business, a startup must inform the vendors, stakeholders, employees, and investors in advance. You need to plan the whole winding-up process to make a smooth exit for everyone.

There are three ways to shut down a startup business:

• Quick exit mode
• Court as well as tribunal route
• Voluntarily closing the business

Conclusion

Compliance with the law is essential for any business. If you are an entrepreneur willing to start a small business in India, you must understand and adhere to all the applicable laws for its smooth operation and functioning. The best method to secure your company and avoid legal problems is to get professional advice and services. At PayU, we offer advice, monitor your organization’s needs, and keep legal documents safe as a partner to your firm.

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The millennial generation prefers to work in a field of their interest, where they feel challenged and satisfied. They are more inclined to work in startups and unicorns, hoping to change the world for the better. 

The startup culture has helped various young entrepreneurs start their businesses with small and unique ideas. The cultural transformation has accelerated the technological revolution, making a significant impact on the socio-economic situation in the country. Understanding the potential of startups, the Government of India launched the “Startup India” initiative. 

Now, let’s understand what exactly is a startup?

What Is A Startup?

Startups are new businesses set up by one or a group of individuals. There could be two reasons to create a startup: 

• To offer a new idea or product and no one else has the copyright/patent on it previously
• To redevelop existing products or facilities in innovative ways 

If you are planning to start your venture, these questions might bog you down: 

• Do you have to register the startup if it is in the nascent stage? 

• Is registration required for startups that offer legal, agricultural, or technological services? 

The answer to these questions is yes. As per India startup basic guidelines, you should register your venture under the “Startup India” scheme to avail various government benefits. These advantages include tax exemptions, easier compliance, and other types of assistance. 

Who can register for startup India? 

Under the “Startup India” initiative, an organization needs to meet certain prerequisites to be called a startup. To make your company considered as a startup by The Department for Promotion of Industry and Internal Trade (DPIIT), your organization: 

• Has got registration as a private limited company or a partnership firm. 
• Its total turnover is less than INR 100 crore for any of the financial year. 
• The entity is working towards innovation in products/services and has the potential to generate employment. 
• It will be considered a startup for only up to 10 years from the date of registration. 

If your venture meets the above criteria, register it with the DPIIT. 

How to get your startup registered? 

The Indian Government has simplified the process of startup registration. Below are the processes and steps involved in registering a startup with DPIIT: 

Integrate the business:  

Determine if the business will be integrated as a private limited company or a partnership firm. Once confirmed, gather relevant documents like certificate/partnership registration, PAN, etc. 

List with startup India:  

The registration process is entirely online on the Startup India website. Provide the relevant business details over there like operator, title, startup stage, etc., and start applying under the incubator and mentorship programs. That’s not enough post-approval, the startups will be entitled to various central government schemes, favorable state policies, and pro bono services. 

Acknowledgment from the Department for the Promotion of Industry and Internal Trade (DPIIT):  

On successful creation of profile, startups receive recognition from DPIIT. The recognition received is quite important as it allows startups to avail benefits like: 

• Access to quality intellectual property services and resources 
• Influence on procurement rules 
• Self-certification under labor and environmental law 
• Easy business closure 
• Tax exemption for three consecutive years 
• Tax exemption on investments above market value 
• Access to funds of funds 

These benefits help startups in charting a path towards success and value creation. 

Application for recognition:

For this, business owners can visit the “Startup India” website and toggle to the “recognition application detail” page. Here, they can fill in the required details in the “startup recognition form” and submit it. 

Documents Required:

If you want an organization acknowledged as a startup, then you need the following documents: 

• Startup registration certificate 
• Executive details 
• Concept evidence which can include internet site link/video  
• Details of patent and trademark, if any 
• PAN number of the registered organization 

Recognition number:  

The organization receives an acknowledgment number immediately on successfully registering online. Verification of all the official documents is complete within two days, and the organization receives a certificate of recognition if everything is in order. 

Note: It is vital to upload all the documents correctly and cautiously. Uploading false documents or forgetting to add documents may lead to a penalty of up to Rs 25,000. 

Self-certification: 

For organizations to self-certify, the conditions are as follows: 

• The organization holds the title of a private limited company, LLP or a partnership firm. 
• The business has got registration in India for a minimum of five years in operations.
• The business is innovative and improving the existing system.  
• At last, the annual turnover of the business is not more than INR 100 crores.

Conclusion 

The Government of India has pushed for the growth of startups in the past decade. Various business-friendly policies created by the government have led to the rise of startups in varied fields.  

These startups have helped to bridge the gap between people from different financial backgrounds through their innovative ideas. They have provided employment opportunities to thousands of people, making a big impact on society in the process. 

The registered startup can grow its business by collaborating with PayU India. We are a one-stop shop for your payment gateway solutions for websites and apps. We offer the best success rate for all payment options, along with 24*7 support and a custom checkout experience. Contact us today to write the next growth chapter of your journey. 

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