What Taxes Does an Entrepreneur Have to Pay?

This is a look into the tax payables and tax journey in the life of an entrepreneur in India.


Whenever the topic of taxation in entrepreneurship comes to light, some basic questions accompany the discussion. Why should an entrepreneur pay taxes? What are all tax obligations for a new business or start-up there? Do internet businesses pay taxes? 

Well, this article will answer all such questions and more.

As per the law, all companies and individuals operating in India must pay taxes. These tax practices differ in formats, ways and directions. All businesses, including online stores or businesses with an online presence, must pay income tax as required by an India-based company under the Income Tax Act of 1961. There are two varieties of taxes – direct and indirect taxes. The difference comes from the way these taxes are applied. Some of them are paid by an entrepreneur directly, while others are taxed indirectly.

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The goal of offering start-ups and future entrepreneurs benefits to grow their businesses is imperative in recent taxation policies.

Direct Taxes

Capital Gains Tax: This tax has to be paid whenever an entrepreneur earns a large amount, e.g. by returns on an investment or sale of an asset.

Corporate Tax: Corporate income tax is paid by businesses and entrepreneurs on their revenue generated. This tax is accompanied by a slab of its own that determines how much tax the business has to pay. 

Indirect Taxes

Sales Tax: Sales tax applies to sales of products manufactured or imported into India and may include services.

Services Tax: Just as sales tax is added to the price of products sold in India, services tax is also added to services provided and rendered within the country’s financial boundaries.

Goods and Services Tax (GST): The GST is a destination-based tax, as it applies to the place where consumption occurs. It applies to goods and services that add value at each stage of consumption in the supply chain.

Value Added Tax (VAT): The VAT, or commercial tax, does not apply to products with zero face value (such as essential foods and medicines) or exported products. The tax is used directly by manufacturers, retailers, and distributors to end-users at all supply chain stages.

Tax incentives for Indian Entrepreneurs

Three-year tax exemption

To promote business, the government has announced that it will grant 100% tax-exempt concessions to companies that market new products and services through innovation, growth, development or technological development in the first three years of operation.

20% exemption on Capital Gains

Capital gains are the taxes charged on profits gained from the sale of capital assets such as stocks and bonds. The government has recently made a provision for an exemption of 20% capital gains tax. 

How India’s Latest Tax Policies Affect Entrepreneurship?

Recently, fiscal and tax policies for start-ups and budding entrepreneurs have been influenced by the Modi government’s flagship Startup India campaign.  The goal of offering start-ups and future entrepreneurs benefits to grow their businesses is imperative in most policies. These policies are made to give a much-needed boost to nascent entrepreneurial ventures. 

To complement the aim of Make in India and create more jobs within the country, the current tax ecosystem is favourable for new entrepreneurial ventures, except for GST and its increasingly complicated guidelines.

Aakash Sharma
Aakash Sharma
Aakash writes on Startup Ecosystem, Policies, Legal and Regulatory aspects of business planning. An alum of Delhi University, he is assistant editor at Dutch Uncles.

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