Taxation in India – Dutch Uncles

10000 Start-Ups will Soon Get a Seal of Approval From the Government of India

Anju Nambiar — Thu, 10 Jun 2021 08:35:05 +0000

Start-Up India, the Indian Government’s biggest initiative to foster entrepreneurship in the country has achieved remarkable heights since its inception. It recently crossed the 50,000 mark in recognising Indian start-ups. Out of these, 10,000 have scored GoI’s (Government of India) seal of approval over the last 6 months. The last 10,000 were recognised in a record 180 days which is the fastest for any government initiative.

How will start-ups benefit?

The start-ups will enjoy a slew of benefits pertaining to laws and regulations, fiscal and infrastructural support, etc.

They can also avail relaxed compliance with respect to labour and environmental standards, public procurement rules for these start-ups will also be relaxed. They can also raise funds under the (Small Industries Development Bank of India) SIDBI’s ‘Fund of Funds’. They can also enjoy fast-tracked patent applications at a low fee.

Fiscal and Infrastructural Support

Recognised start-ups under Start-up India will get a 3-year tax holiday every 7 years with 100% tax rebate. They will also enjoy tax exemption on long-term capital gains, on investments above the fair market value including investments by resident angel investors and by incubators above fair market value. There is also tax exemption to be availed on investment of long-term capital gain.

In terms of infrastructural support, the eligible start-ups stand to gain enhanced infrastructure like incubation and innovation centres, start-up centres, and Research Parks.

Benefits for 50000 start-ups

The 50000 start-ups will be covered under the Start-up India programme wherein they can enjoy tax benefits and incentives. Armed with the Department for Promotion of Industry and Internal Trade (DPIIT’s) recognition, they will be eligible to apply for an income tax holiday. They will also be eligible to apply for exemption from the ‘angel tax’.

Prominent sectors and industries

The prominent sectors and industries that stood out among the 50000 start-ups include the food processing industry, product and app dev, IT consulting and business support services.

Among the top industries, IT harbours 6,682 start-ups, 4373 belong to the Healthcare & Lifesciences sector, Professional & Commercial service start-ups account for 2,337, the Agriculture, and F&B industries account for 2138 and 2137 start-ups respectively.

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The last 10,000 start-ups were recognised in a record 180 days which is the fastest for any government initiative.

What’s in it for me?

Registering with DPIIT is crucial if you want to be recognised by the Government. There are many benefits to be accrued by registering with DPIIT like simple compliance structure, 80% patent filing fee reduction, and tax exemptions. Start-ups recognised by DPIIT also have the privilege of closing shop within 90 days of their application.

The first step to obtaining recognition is of course, to register your business under ‘Start Up India’. The eligibility criteria for the same is that your business must have been incorporated in India not more than 10 years ago from the date of application. Your annual turnover must be less than INR 100 Cr to be eligible.

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What is a speculative business?

Pranjal Pravin — Sun, 30 May 2021 10:35:04 +0000

Before jumping on to what a speculative business means, let’s try and understand our income tax provision. If you’re a serviceman/servicewoman or a businessman/businesswoman doing that 9 to 5 or putting your all to grow that business and earning your bread and butter through that organisation then the income that you earn has a liability of undergoing the cycle of taxing which is processed by the government. As a taxpayer, any kind of income taxed falls under five major categories.

5 Heads of Income

Income from Salary– The salary that you earn at the end of every month is taxed at a certain tax bracket depending on the level of income you earn.
Income from house properties– If you have a single or few houses in your name then be ready to not only shell out the monthly EMI or instalment but also a certain level of money for the tax slab. After all, you’re going to reap the benefits of the house as an asset and every asset holds a major value in the eyes of the government.
Profits or gains of business– There’s an unprecedented amount of income that you earn from running a business and with certain guidelines from the government of the country you operate that business in, your business income is liable to be taxed at the end of every financial year
Income from capital gains– This defines the tax that is operated on all the income that you earn from the investment you have done at various places including mutual funds, share markets or even bitcoins.
Income from other sources– Finally there might be an income that you might be earning from running an Instagram page and getting good deals or consulting a business apart from your daily job. As with any other income, this side hustle of yours also falls under the bracket of getting taxed.

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India’s income tax provision does not define what speculative business is but rather it defines what a speculative transaction is.

Now when we are through with the five different kinds of tax categories, it’s time to recall tax filing of which of the categories has been the easiest and which has accounted for a major brain as well as paperwork. When it comes to the classification of income from your business or profession, it is much easier for you to get the required paperwork for this category as compared to defining the income from capital gains.

Some say that the income earned on the capital gains must rely on the amount of investment and frequency of transactions or gains per transaction. And if the transactions fall under the category of business, then it’s further categorised into 2 different classifications of being speculative and non-speculative.

Understanding a speculative transaction

India’s income tax provision does not define what speculative business is but rather it defines what a speculative transaction is. According to Section 43(5) of the Income-tax Act, the term speculative transaction implies a transaction in which the contract which includes the purchase or sale of any commodity like stocks and shares is settled periodically or eventually settled otherwise than the actual delivery or transfer of the commodities or scripts.

Simplifying the above words, let’s take an example of Intra-day trading. Intra-day trading refers to the trading of shares within the same day. So, considering this example, there is no delivery as the shares enter and exit from a given trading account on the same date without getting a chance to enter the DEMAT account.

As the delivery does not take place, the above transaction falls under the category of speculative transactions. To further simplify you could call a speculative income or transaction the one where the outcome does not depend on your hard work or skills or your experience and the practice that you have. It rather completely depends on your luck or chance factors.

Intra-day trading might be a sophisticated way to term the speculative transaction, but to further understand you could also deem the speculative transaction as the one which gives you an income from gambling or casinos or sometimes even a coin toss for that matter.

Just like any business, there are always exceptions to playing this game. So, for your ease, to deem any transaction as speculative, you need to have a clear understanding of what is and what is not included while considering a transaction speculative.

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The task of calculating a speculative income and understanding the whereabouts of the business is no doubt risky and complex to fathom.

What cannot be termed as speculative business?

Hedging contract concerning raw materials or merchandise

If you’re a businessman/ businesswoman in possession of raw materials for manufacturing and merchandise to be sold, it is highly likely that with time, the value of the raw materials will fluctuate. So, to save the price fluctuation between the period at which you bought your raw materials and sold them, you get into a contract. This particular contract is for saving your goods and not a speculative transaction.

Hedging contract in the aspect of stocks and shares

In a similar fashion to the above example, there are a lot of price speculations which are expected when you hold a certain number of stocks and shares and to seal the loss incurred because of that with your dealer or investor you get in a contract. Reiterating the same, that this contract is not a part of the speculative transaction.

Forward Contract

Forward contract here refers to a situation in which a member enters into a forward market or stock exchange in the course of any transaction like jobbing (all transactions are squared off during the same day) or arbitrage (purchase of commodity or security in one market for immediate sale in another market) to guard against loss which may arise in the ordinary course of his/her business as such member. To ease the definition of a forward market, this typical market refers to an over-the-counter marketplace that sets the price of a financial instrument or asset for future delivery. This again is not deemed as a speculative transaction.

Trading in derivatives

As the name suggests, when your transaction is carried out electronically by the recognized brokers as defined per relevant statutes, the given transaction is supported by a time stamped contract note. This note indicates a unique client identity number and PAN (Permanent Account Number). The given transaction in respect of trading in derivatives are referred to in Securities Contracts (Regulation) Act, 1956 and carried out in recognized stock exchanges and not deemed as a speculative transaction.

Trading in commodity derivatives

Finally, a type of transaction that follows the same rules like the one given above and is very much eligible is carried out in respect of trading commodity derivatives in a recognized association. This association is chargeable to commodities transaction tax mentioned under Chapter VII of the Finance Act, 2013.

What happens when a speculative transaction takes place?

Taking a scenario where a taxpayer is involved with a lot of businesses along with a speculative one, the speculative business of this taxpayer will be deemed as a separate entity from any other business carried out by the taxpayer.

This helps in calculating the loss incurred by the speculative business or transaction. Section 73 of the Income Tax Act states that the losses from speculation business can only be set off against the profits of the speculative business which is quite unlike the loss from any other business which can be set off against the profits of other businesses.

Noting further points, the losses from a speculative business can be carried forward to a subsequent year, can only be set-off against the profit and gains of any speculative business in the respective subsequent year. For this given condition, it becomes imperative for any taxpayer to distinguish between the gains or losses from a speculative business to that of other businesses.

Another important thing to note is that the loss from the speculative business cannot be carried forward for a period greater than four assessment years beyond the year in which the loss was incurred. Also, if there is any expenditure and depreciation involved in the process of scientific research, if the depreciation or capital expenditure is carried forward in the speculative business then it is required to be set off first.

Can a single transaction constitute speculative business?

Well according to explanation 2 of section 28, a single transaction is insufficient unless there is a systematic or organised course of activity or conduct on the part of the assessee, it is clear that a single transaction is not possible. A single transaction done instead of actual delivery is not sufficient to stand by the explanation 2 of section 28 of the Income Tax Act, 1961 and there should be a plural set of speculative transactions. So, given the rules again, a single transaction cannot be deemed as a speculative transaction.

The takeaways

If you have to calculate the turnover for a speculative transaction or business the simply add both the positives and the negative differences to get the final turnover
As the income earned from a speculation gain is majorly through intra-day trading, Income from your speculation gains is taxed at the given normal rates.
Speculative transaction or business no doubt involves very high risk, but if the luck is in your favour, it also gives an equal amount of great returns. All in all, the motive should be to gain the maximum advantage of the fluctuations that happen in the market.
Always take care of what is and what is not included in a speculative transaction or business. Examples like hedging contracts or trading derivatives could be tricky as sometimes they confuse you as a speculative transaction, but keeping a note of these points and further educating yourself about the same helps in the long run.

The task of calculating a speculative income and understanding the whereabouts of the business is no doubt risky and complex to fathom. The taxpayer involved with all these transactions has to take care of several things and rules and regulations to distinguish their income from a normal to a speculative one. Ultimately it depends that no matter what the business, the time and money invested in is bringing you a good return and profit given all the legalities.

There will be many times where mistakes will be made and given rules and regulations will be misunderstood or misinterpreted depending on the type of business and gains involved. To avoid this, one thing has to be kept in mind, that any taxpayer should always be well versed with the clauses and continuously educate themselves with the given rules or consult someone who deals with these transactions daily to not fix themselves in unwanted tax transactions.

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Please don’t get confused with accounting vs finance!

Joseph Varughese — Fri, 14 May 2021 08:50:04 +0000

The key difference between finance and accounting is that finance is the management of the money and the investment of individuals, organisations and other entities, whereas, accounting is the process of maintaining financial records as well as reporting the financial affairs of the organisation to provide a true and fair view of the financial performance and position of the organisation.

Accounting Vs Finance: an overview

In simple terms, accounting is about recording and maintaining monetary or financial transactions commonly known as books of accounts, reporting on financial results and position known as financial statements, auditing the accounts, complying with tax and other statutory obligations whereas finance is about analysing, planning, controlling and managing the assets and liabilities of an organisation for its future growth and sustenance. In other words, accounting is about today and finance is about tomorrow.

However, finance and accounting are terms often used interchangeably. This is not strictly correct or wrong. While both functions are related to the management and control of an organisation’s assets and liabilities, each discipline has a different scope and focus. When it comes to evaluating the financial health of an organisation and making strategic financial decisions, it’s important to have an in-depth understanding and working knowledge of both disciplines.

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Finance and Accounting both are dependent on each other, in such a way that accounting is a part of finance and finance is dependent on accounting.

Finance is often considered as a broader term under which accounting comes as a subset. This is also not exactly true though at the same time this is not without substance. For example, the finance or accounting function, though named differently in each organisation, is responsible for all financial and accounting functions in an organisation.

Finance and Accounting both are dependent on each other, in such a way that accounting is a part of finance and finance is dependent on accounting. The financial analysis is done with the help of the financial reports or statements, an accounting output, submitted by the auditor. In other words, they both are very closely interconnected and interdependent, or we can say, finance begins where accounting ends. While it is true that finance and accounting both have evolved from economics, it is finance that is more related to economics.

Finance professionals do analyse and advise their clients or management of the organisation they work for as to which securities or portfolios or financial products they should or should not invest in from short term or long term or retirement perspectives.

Both accountants and finance professionals work for financial services organisations, businesses, and government agencies. However, they provide different services for their clients and employers. While accountants can help with your tax advice, provide audit services, a financial advisor can help plan and save for retirement or advice on the best investment products.

Accounting can also be broken down into managerial accounting and financial accounting. The main difference between managerial and financial accounting lies in the presentation of information and its use. Managerial accounting, also known as management accounting or cost accounting, focuses on internal reporting that is used by management for planning and decision making, while financial accounting focuses on aggregating financial information into financial statements, which are used both internally and externally.

Major differences between Finance and Accounting

Accounting vs. Finance: The basics

The difference between finance and accounting is that accounting focuses on the day-to-day flow of money in and out of a company, whereas finance is a broader term for the management of assets and liabilities and the planning for future growth of the organisation.

If you want to take a detailed look at a company’s books of accounts and financial position you need to be skilled more in accounting. It’s often said that accounting looks back to a company’s past financial transactions and performance, whereas finance looks forward to planning future acquisition and management of its assets.

Accounting is more about accurate reporting of what has already happened, compliance with corporate and tax laws, and accounting standards relevant to the respective country; it is Ind-AS in India, US GAAP in the USA, IFRS in Europe. On the other hand, finance is about looking forward and reaping benefits from investments, growing the value of the organisation, and mitigating risks and losses. Finance looks at a longer time horizon whereas accounting is typical of a one-year time frame.

Finance refers to how a person or organisation generates and uses capital—in other words, how its funds are managed. This often encompasses activities such as investing, borrowing, lending, planning, budgeting, and forecasting. The field of finance can be broken down into three branches viz. personal finance (for individuals) corporate finance, and public finance (for the government) depending on whose finance is managed.

The typical activities involved in accounting include summarising financial position and publishing thorough financial statements—including income statements or profit and loss statements, balance sheets, and statements of cash flow—that are used to understand an organisation’s financial position at a given time.

Compliance

Accounting has to comply with many statutes like tax laws, company and other corporate laws, accounting standards, rules and regulations of central banks like RBI in India or Federal Reserve System in the USA, stock exchange regulators like Securities and Exchange Board of India (SEBI) in India or Securities and Exchange Commission (SEC) in the USA, and as well report to creditors, shareholders, investors and other stakeholders.

Finance has no such statutory obligations except maybe concerning central banks (RBI in India) or securities boards (SEBI in India) if compliances related to some of the finance activities like IPO, exchange listing, borrowing, forex matters, investments become finance mandates.

Scope and focus

Both finance and accounting operate on different levels of management of the assets and liabilities of an organisation. While accounting provides a snapshot of an organization’s financial situation using past and present transactional data, finance is inherently forward-looking assuming that all value comes from the future.

In accounting, insight into an organisation’s financial position is gained through what is known as the “accounting equation,” which is: Assets = Liabilities + Shareholders’ fund or equity as is seen in a Balance Sheet. One side of the balance sheet are Assets and another side are Liabilities and Shareholders’ funds or equity. Both sides will always be equal.

The above formula looks at what a company owns (its assets) by way of fixed assets (like plant and machinery, computers, furniture etc) and current assets (like accounts receivable, cash, inventory etc.), what it owes (its liabilities) by way of long term liabilities (loans and liabilities payable after one year) and current liabilities (accounts payable, overdraft etc.), and the residual, which is assets minus liabilities, belongs to shareholders (fund or equity) which constitutes paid-up capital, reserves and surplus and retained earnings.

Finance considers cash as king and looks at business through the lens of cash. While accounting relies on transactional data, finance looks at how effectively an organisation generates and uses cash through the use of several measurements.

Free cash flow is arguably the most important financial tool or technique, which examines how much money a company has to distribute to investors and shareholders or reinvest after all expenses have been met. It’s a strong indicator of profitability and can be used to make investment decisions today based on an expectation of future cash inflows.

There is always a difference between the profit as per profit and loss statement ( accounting) and cash generated as per cash flow (finance) because cash flow does not consider non-cash expenses like depreciation and uncollected receivable or unpaid payables. Only cash realised and cash disbursed are considered in the cash flow.

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An entrepreneur, particularly of start-ups, should understand finance more than accounting.

Measurement of financial performance

This is one major difference in scope that underscores the underlying principles of accounting and finance. Most of the accounting standards, tax authorities and corporate laws insist on maintaining accounts on an accrual basis. The accrual method of accounting mandates recording financial transactions as they are incurred or earned as opposed to when they are paid or received in cash.

For example, you have invoiced a customer on 30th March 2021 but payment is received on 28th April 2021, it will be accounted as revenue in the financial year ending 31st March 2021 under the accrual accounting method. In contrast, in cash flow, this revenue will be considered only in the next financial year starting on 1st April 2021.

The accrual accounting principle makes it possible to compare the year-on-year growth of a company’s revenues, costs, and profits without factoring in one-off events, as well as seasonal and cyclical changes. It also assumes matching principles that expenses incurred for earning an income should both be accounted for in the same period.

Finance does not follow the accrual method, instead believes that the best way to measure economic returns from a company is to calculate the cash it’s able to generate and leverage, which is dependent on when that cash is exchanged, paid or received.

Assessing Value

Another point of difference between the two disciplines is their value approach. In accounting, the assets and liabilities are captured at historical cost. This is handled much differently in finance, through a method known as valuation, to determine the worth of a company. Finance considers the time value of money in high esteem. The time value of money is a widely accepted notion that there is a greater benefit to receiving a sum of money now rather than an identical sum later.

The popular technique to service the present value of future benefits or cash flows is discounted cash flow analysis, which is applied to a series of cash flows over a period of time. To apply the method, all future cash flows are estimated and discounted by using the cost of capital to give their present values (PVs). The sum of all future cash flows, both incoming and outgoing, is the net present value (NPV), which is taken as the value of the cash flows in question. Here is the DCF formula:

where: CF = Cash Flow in the Period, r = the interest rate or discount rate. n = the period number.

For example, assuming a 5% annual interest rate, Re.1 in a savings account will be worth Rs. 1.05 in a year. Similarly, if Rs.1 payment is delayed for a year, its present value (pv) is Re.0. 95 because it cannot be put in your savings account to earn interest. We can calculate the PV using the above formula as: 1 (cf) /(1+05 (r))^1 (n) = .0.95
The valuation of the business is done pre and post-funding or acquisition using discounted cash flow (dcf) and with/or a combination of other methods. This is one finance tool the knowledge of that cannot be skipped by any entrepreneur.

Leveraging financial know-how

Both finance and accounting are highly valuable and important tools for assessing a company’s position and performance. By understanding the underlying principles of the two disciplines and how they contrast and complement, you can develop greater financial intuition and make better business decisions. That is why almost all accounting qualifications have curriculums that give equal importance to both accounting and finance. No finance leadership can do justice to their role without having a deep understanding and expertise in both disciplines.

For those who want to better understand their organisation’s financial performance in the context of the markets and external factors, and contribute to financial strategy, understanding the fundamentals of finance is crucial. Developing your financial acumen is key to making better business decisions.

Author’s views

A lot has already been written by academicians, educational institutions, career consultants, subject matter experts and researchers on Accounting Vs Finance from different standpoints.

An entrepreneur, particularly of start-ups, should understand finance more than accounting. This is because of two reasons; one is that accounting tasks especially in the early stages can be outsourced to accounting service providers but it is not that easy to do the same for finance though virtual CFO services are plenty these days.

In the early stages of a start-up, the entrepreneur should have a grip on working capital, funding, cash flows, risks and more importantly valuation which are all finance functions. That said, some basic understanding of accounting, even though outsourced, is a must to understand finance too. In nutshell, both accounting and finance vary in scope and substance but are interconnected, interrelated and complementary.

Expert Connect

Chinmay Ananda
Business Storyteller, Financial Educator at Finance Academy
Reach out to him for any financial advice for your business

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How Does an Entrepreneur Pay Taxes?

Bhuvana Rajaram — Fri, 30 Apr 2021 09:30:04 +0000

“The hardest thing in the world to understand is the income tax,” said the great Albert Einstein. If he could not understand the tax labyrinth, who could possibly master it? On that note we explore below what goes on in the Indian start-up scenario when it comes to paying taxes.

As an employee your taxes are straight forward, you receive your paycheck after paying taxes. However, as an entrepreneur you receive full payment and then pay the taxes. And as an entrepreneur you have the advantage of making use of the several tax benefits schemes that reduce your tax outflow. To begin with, here is a roster of prominent tax saving features for entrepreneurs which you can use for an intelligent conversation with your auditor.

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As an entrepreneur you have the advantage of making use of the several tax benefits schemes that reduce your tax outflow.

Prominent tax saving features for entrepreneurs

Family First

Hiring family members in key positions is an advantageous proposition. And if these members do not have other sources of income, then they can be paid Rs 2,50,000 a year and they are not liable to pay tax. These salaries can be accounted as a cost to the company, thereby the taxable income is reduced and as a result the tax pay out as well.

More Marketing

It is given knowledge that marketing efforts propel the business forward and afford you expansion opportunities. Also, digital marketing has gained traction and businesses can leverage this to increase overall profitability and mark these marketing expenses as cost to the company, as these expenses qualify for tax deductions.

Travel Time

If you are travelling on business, then it would be worthwhile to expense it to your company account. This is considered a business expense and can be deducted from the taxable income of the company.

Utilize Utilities

Tax burden can be brought down significantly by some of the basic utilities that every business spends money on – Preliminary expenses which are incurred during the setup of the entity. Convenience expenses which are incurred because of phone bills, vehicles and salaries. If you are in a home office set up, then electricity and internet charges are also deductible from tax.

Health Hazards

The medical insurance premiums of up to Rs 25,000 is claimable for tax deductions under Section 80D of the Income Tax Act, 1961. It includes your spouse, children, and parents under this. The caveat here is that this is not applicable if you are a start-up owner in parallel to being a full-time employee where the employer provides medical insurance coverage.

Give Good

Tax exemptions are applicable to when you make donations to the registered charities and funds such as the PM’s relief fund. In fact, you can also donate to a recognised political party to claim tax breaks.

Happy Homes

If you have a housing loan, you can claim tax deductions of up to Rs. 1,50,000 a year under Section 80C of the Income Tax Act. Kindly link your PAN with the company.

Downward Depreciation

Companies (under Section 35AD) installing new equipment and machinery that have been installed for over a year can claim up to 20% additional depreciation, in addition to the regular depreciation in the year they were put in use.

Cash Crazy

If you are still stuck with cash disbursements to employees, please stop. As this increases your taxability and you are bound to pay more taxes. Adhere to digital transactions and adopt healthy tax saving practices.

Tax Compliance

Under the Income Tax Act, the payers (entrepreneurs) are liable to deduct a TDS at the rate of 10% for availing any service from an individual or a corporate if the payment exceeds Rs. 30,000 annually. In case you fail to deduct the same the entire amount paid will not be considered as an expense to the entity.

Are you an Eligible Entrepreneur? Here is a Checklist for Self-Assessment

Take this reality check to see if you are an entrepreneur in the real sense of the term according to the Income Tax department.

How old are you? You must be less than 10 years of age since formation.
How rich are you? Your turnover has not crossed 100 crores in any previous years.
What are your goals? You must be working to promote innovation, development of employment opportunities and wealth creation.
How were you formed? You must not be in existence due to a breakup of a company already in existence.
Which of the below best describes you?
Sole
Proprietorship
Partnership
LLPCompany
What is your identity?
Do you have a PAN? This is your unique number allotted by the Income Tax Department.
Do you have a TAN? This is required for TDS related compliances.
Do you require a GST
Required if income exceeds 40 lakhs and above for businesses engaged in goods.
If income exceeds 20 lakhs and above for businesses engaged in services.
Do you have a professional tax registration?
Do you have a shop and establishment license?
Do you have industry specific regulatory approvals?
Do you have an Import Export Code (IEC)? Necessary if your entity is involved in the import or export of goods and services.

If you have ticked all the above and have the necessary paperwork in place for qualifying to be as an eligible start-up, then you are entitled to enjoy the following tax benefits:

Initial Stage Waiver

If your entity has been incorporated between 1 April 2016 to 1 April 2021, then you can avail deduction of 100% of profits for a block of 3 years in the first 7 years of incorporation.

Angel Tax Waiver

When a domestic company wants to issue shares to public at Fair Market Value (FMV), the valuation is determined by the merchant banker based on the future cash flows of the company. In case the company decides to issue shares at a higher price than the determined FMV, such excess is treated as angel tax. With the requisite declaration with DPIIT and subject to certain conditions, eligible start-ups are exempted from Angel tax.

Set Off Waiver

The Income Tax laws provide for carry forward and set off of business loss. Meaning the same can be reduced from the profits of the future years. An eligible start-up is not taxed for the losses incurred in the first 7 years, provided the shareholders holding shares in the year of loss continue to hold shares in the year of set off.

Capital Gains Waiver

Long term capital gains from transfer of residential properties are exempted from capital gains tax if the consideration that it is invested in the equity shares of the eligible start-up.

ESOP Waiver

Eligible start-ups issuing ESOPs to its employees on or after the 1 April 2020 enjoy tax relaxation on deduction of tax on such ESOPs.

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Tax burden can be brought down significantly by some of the basic utilities that every business spends money on.

Types of Entrepreneurship and Respective Taxation

When it comes to entrepreneurship, which legal structure should your business take is a question you will have to think about. Not only is this important for your business to function, but it also has attendant tax benefits. In India, the three basic types of business structures that exist are:

Sole Proprietorship

Is a small and independent business owned by an individual, and they are unregistered and host hassle free operations. They are popular across the unorganized business sector and comprises merchants and traders with moderate incomes.

The taxation for sole proprietorship is conducted along with the business owner’s personal taxes. Therefore, the income generated from the business is added to the owner’s income after taking into consideration the deductions for tax, business expenses from the gross amount. They are entitled to enjoy the sole proprietorship tax deduction as per prevailing IT rules and upon the slab rates available to the taxable income.

Partnership firms and Company (Pvt. or Public)

Is a firm having more than one person conducting business under one entity and there are both registered and unregistered partnership firms. A registered partnership firm is one that is registered with the Registrar of Firms and has received a registration certificate for the same. And those that do not have a registration certificate from the Registrar of Firms is an unregistered partnership.
The taxation for partnership firm is required to pay the following tax percentages:

30% income tax – 12% surcharges where taxable income is above one crore rupees

Up to 12% on interest of capital is allowed

Health and Education Cess 4% of tax including surcharges

And unlike sole proprietorship the partnership firm has a different legal identity from that of its partners. Also, whether the partnership firm is registered or not they have to comply with tax norms. And they must also pay the alternate minimum tax which cannot be less than 18.5% of the adjusted total income.

Limited Liability Partnership (Hybrid of partnership and company)

With the rapid business growth across India, and the rise of the service sector there arose a need for a new form of organization that had the best of both Sole Proprietorship and Partnership. And this gave birth to the LLP which is a separate legal entity, and it stands separate from its founders. It has a minimum of two partners with no limit to the maximum number of partners. This type of hybrid organization is fairly easy to form and enjoys less restrictions and compliance as mandated by the Government.

The taxation for LLP is at a flat rate of 30% on its total income. There is a surcharge of 10% where total income exceeds one crore rupees. The amount of income-tax and the applicable surcharge shall be further increased by education cess and secondary and higher education cess calculated at the rate of 4% of such income-tax and surcharge.

Understand how to file your company’s ITR with these simple steps

Engage a practicing Chartered Accountant to audit your Financial Statements. This is mandated by the Income Tax Act Under Section 44AD.

Computation of Income Tax is the next crucial step. Calculate the difference between the total amount of Income Tax payable and amount paid as Advance tax or Tax deducted at source.

If the amount paid is greater than total income tax – get the refund.

If the amount paid is lesser than total income tax – pay the difference.

Obtain the Tax Audit report from the auditor who will provide the same in Form 3CA along with other details in Form 3CD.

File ITR once the auditor submits the audit report.

E-Filing: The entire filing process can be done only through the e-filing portal of the Income Tax website. The authentication of your signature is carried out through Aadhar Card and Bank Account numbers. Once your return is processed you will receive an e-assessment order from the IT department which will be notified to you via email. The refunds if any, are processed and dispatched within a reasonable timeframe. Your grievances can be registered through the same portal and you can also verify the tax deducted from various entities in Form No. 26AS, which is automatically populated in your IT return.

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How Do Businesses Pay Taxes?

Aakash Sharma — Thu, 22 Apr 2021 07:35:04 +0000

Choosing what kind of business to start, how each company pays income tax, and the ups and downs of each play an essential role in an entrepreneurs’ journey. Each process is different, and the type of business tax can significantly impact your business’s tax return.

Here we explore how different company types in India pay income tax.

Flow-through (Mobile) Entity Taxation

Some companies transfer their profits and losses to the owners. The owners pay income taxes based on their share of the taxable income. These are known as flow-through (mobile) taxes. Small businesses and start-ups are often considered flow-through business units. Big companies do not fall in this category.

Sole Proprietor Business Income Tax

Sole Proprietor is the simplest form of doing business in India. If you are self-employed, you are the sole owner of your business unless you are registered under another business unit. In India, sole proprietorships are not taxed as separate legal entities. However, the business income of a sole proprietorship is deducted from the total income from personal expenses, tax deductions and other related income (if applicable).

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Higher taxes harm lowering tax returns, and over time, these taxes slow the accumulation of capital needed to grow the business.

Private Limited Company Tax Rate

In finance budget taxation of a Private Limited Company, tax is divided into two categories:

As Turnover above 400 Cr, and
As Turnover below 400 Cr

The income tax rate on private limited companies stands at 25% for midsize companies. The tax rates for this type are the lowest in India, at 15% for manufacturing companies and 22% for companies other than manufacturing.

Partnership Business Tax

A partnership is an outcome of two or more individual taxpayers coming together for business purposes and sharing the profits and losses of the business. In India, the registration of a Limited Liability Partnership (LLP) is the preferred form for entrepreneurs as the association brings together the interests of companies and partners in one organisation.

A profit tax of 30% is levied on associates and LLPs. If the subsidiary’s income is higher than one crore rupees in a financial year, a 10% extra tax also needs to be paid. Capital gains resulting from the disposition of assets by a company are taxed following Section 112 of the Income Tax Act.

Corporation Income Tax

Under the Income Tax Act, domestic and foreign companies must pay corporate tax in India. While a domestic business is taxed on its universal assets, a foreign corporation is only taxed on the income made within India, i.e. is being gathered or received in India.

A corporation is an independent taxpayer and pays income tax at the corporate tax rate. The owners of the company are shareholders and receive income in the form of profit. The shareholders pay tax on this income equal to the gain. Companies pay taxes on their most considerable income, while shareholders pay taxes on recurring profits.

Filing Tax Return – Forms and Requirements

Deadline for filing tax returns

Companies, including foreign companies, must file their tax returns before October 30 of each year. Even if the company is registered for the same tax year, it must file a tax return by October 31. For the 2019-2020 fiscal year (AY 2020-21), the deadline was extended to November 30, 2020, due to the COVID-19 pandemic.

Tax return forms to be registered by the company.

ITR 6: All the companies except organisations claiming reduction under section 11 need to file their return using Form ITR 6.

ITR 7: All the companies listed under section 8 of the companies act, 2013, must file their return using Form ITR 7.

Tax Audit Income tax

In tax audits under the Income Tax Act, businesses must verify their accounts and submit the auditor’s statement along with the tax return to the IT department. This check is called a Tax Audit. The certification company must submit this tax audit report before September 30 of each year.

In a nutshell, what should you go ahead with?

In India, entrepreneurs majorly prefer to go with either the Private Limited Company or LLP business format for their companies due to various associated benefits, including tax aids. These models are popular among start-ups because of their multiple features, like issuing shares to potential investors and sharing risk, to name a few.

But, the final decision lies with you, and you should take the call in direct consultation from industry experts for the best results.

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How are Entrepreneurs Charged Income Tax?

Joseph Varughese — Tue, 20 Apr 2021 09:35:03 +0000

One of the important elements that an entrepreneur needs to decide on during the business formation stage is the form or structure of the business. Entrepreneurs identify the relevant business organisation structure based on several factors such as ease of commencing operations, compliance requirements and the costs involved, connectivity and accessibility, availability of required skill set, agreement with other members and need to raise funds among others.

Tax implication is one important element that varies with the business structure. The tax rules differ depending on the business form and hence it is important that you evaluate the pros and cons before finalising the business structure.

Before we move further on this subject, it will be ideal if we glimpse through certain basic concepts of income tax for readers, if any, who don’t have sufficient exposure to the basics of the income tax. We will touch upon a few fundamentals like person, residential status, legal entity, heads of income, financial year, assessment year as defined in Income Tax laws.

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A legal entity is a concept that is about defining business as an entity different from its owners. For income tax purposes all business entities except proprietorship are considered as separate legal entities.

Some Income Tax basics

The word person in Income Tax has a meaning entirely different from the common parlance and is very wide and broad under Indian Income Tax Act and embraces in itself Individual / HUF, Company and Firm. Though the definition of person also includes Association of Persons or Body of Individuals, Artificial Judicial Person and Local Authority, we will confine our discussion to the common category of individual, company and firm here.

The concept of the residential status of a person is about defining a person as resident or resident not ordinarily resident or non-resident. We will not get into more details of its definitions and how status impacts tax liability in this discussion. We will consider only residents here. A taxpayer would qualify as a resident of India if she/he satisfies one of the following two conditions:

1. Stay in India for a year is 182 days or more or
2. Stay in India for the immediately 4 preceding years is 365 days or more and 60 days or more in the relevant financial year

It is also important to be aware of the various heads of income. There are five main heads of income according to the provisions of the Income Tax in India as follows:

Income from Salary
Income from House Property
Income from Profits and Gains of Business or Profession
Income from Capital Gains
Income from Other Sources

Various provisions and tax rates apply depending on the head of income under which a particular income falls along with factors like person, status.

A legal entity is a concept that is about defining business as an entity different from its owners. For income tax purposes all business entities except proprietorship are considered as separate legal entities. What does it mean to a taxpayer is that income tax is charged to the income of legal entities i.e. business except in the case of proprietorship in which case there is no differentiation between the business and its owner for tax.

In all the other cases, the owners of business will be charged tax for the income they have earned in their personal capacity. For example, the amount received from his / her company or any other company as salaries, sitting fees, consulting fees will be charged to tax in their personal capacities. With the scrapping of Dividend Distribution Tax, the dividend has now been made taxable in the hands of the dividend receiver. Needless to say that income from other sources will also be included as income in individual return.

A financial year, also called previous year, is the year in which the income is earned. Assessment year is the year in which Income Tax Return (ITR) is supposed to be filed and assessed. For example, if the income pertains to the year 2020-21, that is the financial year or previous year. The year 2021-22 is the assessment year relevant to the previous year 2020-21.

How Income Tax is charged to business and entrepreneurs?

Let us examine the tax implications of some major business forms and how income tax is charged to entrepreneurs in different situations.

Limited Liability Partnership or Partnership Firm: An LLC or registered partnership firm is taxed as a separate legal entity different from its partners. In computing the taxable income of a firm any salary, bonus, commission or remuneration that is due to or received by a partner is allowed as a deduction subject to certain restrictions. Where a firm pays interest to a partner, the firm can claim deduction of such interest from its total income subject to a maximum interest rate of 12% per annum.

Any of the above payments made to partners and deductible from the income of the firm to compute its taxable income are taxable in the hands of partners in their individual tax return as per the income tax provisions applicable to individuals at the tax slab rates stipulated in the respective Finance Act. However, the share of profit distributed to partners won’t be taxable in their hands as the profit is already taxed in the hands of the firm before sharing with partners.

Income Tax is charged at the rate applicable to firms (including LLP) for the relevant financial year.

Company: A company is a person having a separate legal entity distinct from the members who constitute it. A company is incorporated as per the provisions laid out in the Companies Act 2013.

The applicable taxes are charged to companies, domestic as well as foreign, as per the provisions of Income Tax. Taxable income is calculated taking various provisions related to recognition of revenue and allowability of expenses into consideration. Expenses are allowed to be deducted from gross revenue based on various provisions of Income Tax which has a very basic requirement that expenses that are deducted must have been incurred for generating the revenue being considered.

Any salary, commission, bonus, allowances paid to directors as per the provisions of Companies Act 2013 are taxable in the hands of members or directors in the capacity as individuals. Dividend, after the scrapping of Dividend Distribution Tax by Finance Act 2020, unlike share of profit of partners, is now taxable in the hands of individual investors or dividend receivers.

Income tax is charged at the rate of 25% in the case of domestic companies having Rs. 400 crore or less in turn over and 30% in other cases. However, there are other provisions like 115 BAA with a lower rate of 22% and Minimum Alternate Tax at the rate of 15%. All the above-mentioned tax rates are basic rates and surcharge and cess will apply as applicable.

One Person Company: One Person Company is a relatively new concept that was introduced in the Companies Act, 2013 to help the solo entrepreneur so that he/she can create a formal company structure without needing a director/partner as is the case with a private company/ partnership. Like a Private Limited Company. An OPC is a separate legal entity distinct from the member who constitutes it.

For taxation, an OPC is recognized as a private company under the Income Tax Act and is therefore subject to the same rate of tax as a domestic company. It is important to note that an OPC can only be incorporated by an Indian citizen resident in India.

Sole proprietorship: A sole proprietorship, as the name suggests, is owned by a single individual. It is not legally recognized as a separate legal entity and is, therefore, an informal structure usually adopted by small businesses. Income Tax does not distinguish between the proprietorship business and its owner and tax is charged and assessed accordingly.

A sole proprietorship is taxed according to the relevant income tax slab applicable to the individual taxpayer and therefore is a more suitable structure compared to an OPC.

Individuals: An entrepreneur is an individual as well as owner or partner or member of a business she/he owns. How business is charged to tax is briefly explained above. The entrepreneur will be charged to tax in his individual capacity for the income he/she receives by way of salary, interest, commission, bonus, dividend, consulting fee etc from the company he/she owns and runs or from other sources.

Individuals are taxed at the slab rates as stipulated in the respective Finance Act. Alternate Minimum Tax: Like Minimum Alternate Tax (MAT) is for companies, as per the Alternate Minimum Tax (AMT) provisions, income tax payable by a non-corporate assessee cannot be less than 18.5% (plus surcharge and cess as applicable) of adjusted total income as defined in section 115JC

In a nutshell, an entrepreneur is subjected to tax in two means, one by way of tax to the business and second by way of tax to the individual.

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In a nutshell, an entrepreneur is subjected to tax in two means, one by way of tax to the business and second by way of tax to the individual

House Property Income, Capital Gain

The income by way of rent from house property the entrepreneur owns will also be subjected to tax under Income from Property. However, if owning and renting properties is the business of an entrepreneur, such rental income will be considered as Income and Gain from Business or Profession. Likewise, what is to be noted is that share of profit to partners is not taxed again in the hands of partners but the dividend is taxed in the hands of shareholders.

Income Tax Reliefs and Incentives

We will take a look at certain reliefs and incentives allowed by the Government for small businesses and startups.

Presumptive Tax

For early-stage start-ups, it may be very difficult to keep a track of all the Sales, Expenses, Depreciation and also keep invoices and records of all these. Therefore, to simplify the manner of computation of Income, the Govt has also introduced the Presumptive Scheme of Taxation wherein a person can disclose his Income as below:-

Income = 50% of value of services provided (applicable for Professionals) if annual turn over does not exceed Rs.50 lakhs
Income = 8% of total value of goods sold (applicable for businesses) if the annual turn over does not exceed Rs. 2 crore, and where the income is credited digitally, the profits will be considered at 6 per cent. It is important to note that if a taxpayer opts for the presumptive taxation scheme, he won’t be allowed to avail of any deduction provided under Section 30 – Section 38.

Conditions you need to meet for opting for a presumptive taxation scheme under Section 44AD.

1. You must file a presumptive scheme for 5 years continuously.
2. In case you wish to file your income as per regular business before the expiry of the said 5 years, you would lose the benefits of the presumptive taxation scheme and will be disallowed this for the subsequent 5 years.

This Scheme of Presumptive Taxation is only applicable to Individual Proprietors, HUF and Partnership Firms but not applicable to Companies and LLPs.

Tax Incentives for Start-ups

The existing provisions of section 80-IAC of the Act, inter alia, provides for a deduction of an amount equal to 100% of the profits and gains derived from an eligible business by an eligible start-up for three consecutive assessment years out of ten years at the option of the assessee. The eligible start-up is required to be incorporated on or after the 1st day of April 2016 but before the 1st day of April 2022 (This was up to the 1st day of April 2021, extended to 2022 by Finance Act 2021). These 3 consecutive years for which 100% tax exemption is allowed can be chosen by the start-up at its discretion from any of the first 10 years. (Amendment introduced vide Finance Act 2020).

This deduction would be available to the eligible start-up if the total turnover of its business does not exceed Rs. 100 Crores in any of the years beginning from the year of its incorporation.

All eligible start-ups who intent to claim the benefits of such tax incentives would be required to:-

1. Maintain Separate Books of Accounts for Eligible Business
2. Get their Accounts audited by a Chartered Accountant
3. Furnish Audit Report in Form 10CCB along with ITR

Meaning of eligible Start-ups

The benefits of 100% Tax Deduction are not allowed to all start-ups but are only allowed to eligible start-ups. Only the start-ups which satisfy all the following mentioned criteria are considered as an eligible start-up.

1. Incorporated as a Company or LLP
2. Incorporated between 1st April 2016 and 1st April 2022 (Increased from 2021 to 2022 in Finance Act 2021)
3. The Total turnover of the business does not exceed Rs. 100 Crores
4. Certified by the Inter-Ministerial Board of Certification in respect of Eligible Business i.e. it is a business that involves innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property.
5. Should not be formed by splitting up or reconstruction of a business already in existence.

The scope and purpose of this write-up is to give a broad view as to how income tax gets charged to entrepreneurs. We have not discussed various tax rates, the computation methods, filing, assessments and related procedures. Entrepreneurs need to keep updated on the changes and amendments in various tax laws and rules or will end up in unenviable positions by way of penalties, punishments and legal actions. They should also keep ears and eyes open to know about various reliefs, rebates, exemptions given out to businesses particularly startups through Central and State Finance Bills (Budgets), government notifications, amendments etc. so that they won’t miss out on them.

The post How are Entrepreneurs Charged Income Tax? appeared first on Dutch Uncles.

Do Internet Businesses Pay Taxes?

Aakash Sharma — Mon, 19 Apr 2021 00:35:05 +0000

If you want to sell handmade products online, or if you are a brick-and-mortar seller and want to add digital channels, there are some things you need to know regarding taxation and tax responsibilities before taking the digital step.

A simple answer to the question of whether or not internet businesses pay taxes is – yes. In India, internet-based companies and all types of online companies are required to pay taxes. Every business owner must understand the various taxes applicable to online sales and ensure that they have practical knowledge of the tax system.

Let’s take a denser look at the taxes applicable to internet-based businesses.

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If you already have an offline enterprise, you will be familiar with the tax system. However, if you are new to the online model of business, you must get the necessary help of tax specialists and consultants.

Direct Taxation through Income tax

Under the Income Tax Act 1961 and subsequent amendments to it, companies run via the internet, regardless of the marketplace, are obligated to pay income tax as per the nature of business.

Income tax is levied usually up to 30% of the profits of a company. Companies doing entirely online business in India may have to pay up to 25% of their earnings. International companies with a permanent holding in India also have to pay ~40% of their income in taxes.

Goods and Services Tax (GST)

Any dealers/traders selling goods or services online get the payment from customers after deduction of 1% tax. All the traders/dealers selling goods or services need to get registered under GST even if their turnover is less than Rs 20 lakh for claiming the tax deducted by aggregators like Amazon, Flipkart and others.

Indirect Taxation

Service Tax – If your internet business uses a host aggregator or a marketplace such as an e-commerce platform, you have to pay the service tax to the online platform.

Sales Tax – The sales tax payable amount varies across India from state to state. If you’re selling goods directly through your store, either online or offline, you’ll have to pay Value Added Tax (VAT) on same state delivery or Central Sales Tax (CST) when shipping out of state.

Custom Duty – This tax is levied only if you sell a product outside India’s legal boundaries. It depends on many variables, like the country in which you are offering the product, the product/ merchandise you are selling, its weight, etc.

Excise Duty – This applies to both online retailers and traditional stores. Consumer goods are subject to special taxes, which vary depending on the goods. Whether you sell offline or online, excise duty has to be paid by businesses.

Tax rules for state-wise online businesses

While the central government defines the federal tax structure, state governments also pass their own tax laws. The current regulations require internet companies to pay sales tax when selling products to consumers in their native states. This simply extends the general federal tax law for individual businesses, including internet marketers and other online companies.

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What Are my Tax Duties as a Non-Resident LLC Owner?

Anju Nambiar — Sun, 18 Apr 2021 06:35:04 +0000

If you are a foreign owner of an LLC in India and you are residing out of India, your business is mostly delegated to a business manager.

In India, an LLC is also known as a Limited Liability Partnership (LLP). Opening an LLP in India is very attractive for a foreign investor, especially an NRI.

An LLP company in India must be registered for Income Tax, although there is a distinction between the company and its owner. The LLP owes 30% income tax to the government. There are also additional surcharges and alternate taxes to be paid. The company is also required to go through certain audits.

Corporate Tax (CIT) is a tax to be paid to the Government by companies, be it domestic or foreign. Irrespective of the nature of the business, if income is being generated within India, Corporate Tax must be paid. It doesn’t matter if the company is registered, controlled, or managed outside India.

The key point to note here is that the corporate tax is applicable only for the income accrued within India.

As an LLC owner, if you are not residing in your home country, there are two scenarios to consider. If the LLC is in the US, you have to pay US taxes. So, the key issue here is double taxation.

In the case of an LLC present in the US but the owners are NRIs, the income is taxed in India, but the company is treated as a foreign company. If the company has setup base within India, then you are eligible to avail certain deductions. But US taxes still apply.

The bottom line is that every LLP or LLC operating within the country has to file income tax returns every year. Active partners of the LLP or LLC must sign for IT returns.

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The bottom line is that every LLP or LLC operating within the country has to file income tax returns every year.

GST and the Non-Resident Taxable Person

Under the GST Act, an LLP incorporated in a foreign country with turnover exceeding 20-40 lakhs in a financial year must be registered for GST.

A ‘non-resident taxable person’ is defined under GST as someone who exchanges goods and services within a place in India, where GST is applicable even though his business is not established in India and he doesn’t reside within the country. Every non resident taxable person must apply for GST registration.

Such a person occasionally does transactions within India but doesn’t have a base setup here. He must be compliant with GST.

If you are such a start-up owner, you must delegate a person within India who will represent your company for GST compliance.

During registration, you will need to furnish appropriate documents about the business including physical presence of the business, identity proof documents, and bank account proofs. The person representing you within the country must possess authorisation documents.

You also have to make a deposit for GST and must keep checking the validity period of your GST registration. There are a lot of guidelines to be followed and your registration must be completed.

The non-resident taxable person comes under Section 24 of the GST law. He/She must make an advanced deposit of the GST tax amounting to the equivalent of the estimated tax liability for the registration duration.

The agent representing your LLC within India must furnish their own PAN number to pay the advance tax for your LLC.

What’s in it for me?

As we are well aware, Indian businessmen evade tax within India by living outside India. The gulf countries are especially popular destinations to do this. Gulf countries like the UAE have no tax laws.

An interesting development which recently occurred is ‘liable to tax’ which just came with the recent union budget and the finance bill. Liable to tax is a term within the Indian tax laws. With the recent finance bill, Nirmala Seetharaman redefined the meaning of the term. As per the redefinition, if an NRI owns a company in India from the UAE, whatever he is earning is taxable in India. India has an agreement with the UAE regarding double tax avoidance. With the redefinition of this term, NRIs living in the UAE will no longer be able to avoid taxation on their earnings back in India.

If you are a foreign owner of an LLC, your tax duties are mainly GST registration, compliance, and Corporate Taxes. Ensure that you complete your tax duties and that you stay within the purview of ‘liable to tax’ to enjoy smooth business operations within India.

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Can my Start Up get Tax Exemption?

Anju Nambiar — Sat, 17 Apr 2021 10:30:09 +0000

The Start-Up India initiative launched by the Indian government on January 16, 2016 provides eligibility for Indian start-ups to get tax exemptions. The recent Union Budget 2021 also had good news about exemption for start-ups.

To enroll for eligibility, your start-up must meet all the criteria under the Start-up India action plan.

Getting exemption is a two-step process. First, you need to qualify as a ‘start-up’ under the Start-up India program.

Is my start-up qualified to get tax exemption?

If your start-up was incorporated as a private limited company, registered partnership firm, or LLP company within the last 7 years and has an annual turnover of less than 25 crores, you are eligible for exemption.

What are the benefits under tax exemption for my recognised start-up?

As an eligible start-up under the Start-Up India Act, if your company was established between April 1, 2016 and March 31, 2022, you can meet your working capital requirements during the formative years with a 3-year tax holiday. You can avail this holiday once every seven years if your annual turnover is still below INR 25 Cr.

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As an eligible start-up under the Start-Up India Act, if your company was established between April 1 2016 and 31st March 2022, you can meet your working capital requirements during the formative years with a 3-year tax holiday.

Validation for Start-ups

Your start-up needs to be validated by the Inter-ministerial board under the Department of Industrial Policy and Promotion.

Start-ups seeking validation from the Inter-Ministerial Board must be a DIPP recognized start-up.

What is DPIIT Recognition?

The Department of Industrial Policy & Promotion (DIPP) was renamed as the Department for Promotion of Industry and Internal Trade (DPIIT) in 2019. DPIIT Recognition opens the door to tax benefits for start-ups under Section 80IAC of the Income Tax Act.

To obtain DPIIT Recognition, you need to first register on Start-Up India’s website. After registering, you need to apply for DPIIT Recognition, followed by application for the Section 80 IAC exemption.

You will need to submit necessary documents pertaining to your start-up during the registration and application process.

How your start-up can enjoy tax exemptions

Both the Government of India and the Union Budget 2021 announced by the Finance Minister recently have been clear on ensuring that start-ups can enjoy specific tax exemptions.

In a bid to strengthen entrepreneurship in India, several tax benefit grants were rolled out. If your start-up is working towards technological innovations, you are a worthy contender for tax exemptions.

What’s in it for me?

Apart from the 3-year tax holiday for start-ups, your start-up can also enjoy a number of other benefits like Exemption on Long-term gains, Exemption above fair market value, exemption on investments of long-term gains in equity shares and carry forward of losses and capital gains.

When the Budget was announced, the tax holiday was a year less than what it is now. But the Finance Minister extended the exemptions for start-ups by another year until March 31, 2022 during the Union Budget announcement.

One Person Companies (OPC) will also receive their fair share of incentives. It is clear that innovative start-ups are being given support by the Government to grow unhindered without tax liabilities.

If you are a start-up seeking tax exemption, you can visit the government websites, especially Start-Up India, and carefully follow the eligibility criteria, registration procedures to enroll for tax exemption benefits.

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Is Belgium a Good Place to Start a Business?

Anju Nambiar — Fri, 16 Apr 2021 06:30:08 +0000

Belgium is popular for its tourism opportunities, food, drink, and diamonds. It’s one of the most well-known countries in the European Union. Belgium’s strategic location on the map is always attracting foreign interest.

As a start-up wanting to open a foreign business, you would have already considered Belgium as a potential location.

If not, read on to know if Belgium is a good place to start a business.

What’s the Business environment like?

As with any country where people belonging to multiple nationalities and ethnicities live, work, and do business, the business culture in Belgium also runs on the fundamentals of entrepreneurship like negotiation, trust, and informed decision making.

Business relationships in Belgium are fostered on trust. First contacts with potential business partners usually takes place at restaurants, cafes, or pubs. Punctuality is expected during meetings which are often conducted in the working hours of a typical business day.

July and August are vacation months in Belgium during which time generally no business meetings are scheduled.

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Are you qualified to start a business in Belgium?

European Nationals, Expats, citizens of Norway, Iceland, Liechenstein, spouses of EU Nationzals, legal residents, and most importantly foreigners are free to start a business in Belgium with proper documentation. It is an open country with a market that’s welcoming to foreign investors. The country supports foreign investors by providing dedicated opportunities to do business in the country.

Legal speak:

As a start-up founder in the Kingdom of Belgium, you need to register yourself as well as your company first. There are two ways to go about it:

Self-employment:
Registering as a self-employed individual comes under the purview of single ownership. This kind of business set-up does not recognize you as a legal entity but simply as a personally liable individual with sole proprietorship. Freelancing and freelance businesses come under self-employment.

Company:
If you want to setup a company, your organisation is recognised as a legal entity. There are different types of companies your start-up can register as in Belgium; NV – public limited company, BV – private limited company, CV – cooperative society, VOF – general partnership, CommV – limited partnership company, VZW – non-profit association, and IVZW – international non-profit association.

Financial support for MSME’s in Belgium:

As a start-up founder, you can avail financing depending on the nature of your enterprise. MSME’s, social enterprises can avail loans and micro-loans from financial intermediaries.

If you have a solid business plan to show, Belgian banks offer business credit to start-ups when funds are most needed.

What’s in it for me?

Belgium is the right foreign location to start your business or to open a subsidiary as a foreign company. Being the unofficial capital of Europe, Belgium’s environment is very conducive for business establishment and growth.

The task of finding office space is simplified in Belgium since there are tons of co-working spaces that support small businesses and start-up entrepreneurs. The typical cost of a co-working space in Belgium is anywhere between Euro 15-20.

MSME’s and start-ups in Belgium at the grassroot levels of their business can avail Tax Shelter. Through Tax Shelter, you can invite Belgium taxpayers to invest in your start-up.

In all the ways, Belgium is a good choice to start your foreign business or to take your homegrown start-up to the international level. There is ample support for foreign entrepreneurs by the Government and the business environment is very amicable.

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