Basically, income tax return refers to providing information to the income tax department regarding a person’s actual income and the tax that he proposes to pay to the government. Income tax is the tax that one is entitled to pay on the income earned. As per the legislation and income tax act of India tax exemptions are given on various parameters such as taking a home loan, education loan and much more. These tax exemptions not only save people from paying taxes but also encourage them to invest more; as a result investment of one becomes earnings of another. As we are living in the times when people with a good sense of business want to start on their own and keep looking for innovative ways to save tax. Here we give an account of things to be kept in mind while filing income tax returns.
Category of income
As per the Indian taxation system, the income tax payment is divided into three categories. People with an annual income of 2.5 to 5 lakh shall be liable to pay 5% income tax, from 5 to 10 lakh shall be liable to pay 20% income tax and people with more than 10 lakh will be liable to pay 30% income tax.
Mention all your income sources
Do not forget to mention any of your sources of income even if it may be additional. This may give a true picture of you as a citizen in the GDP. It should also include the interest incomes.
Remember to claim tax reliefs
This tax relief makes sure you don’t end up paying extra tax because you received your dues late and tax rates are higher. For more information about tax reliefs refer to section 89(1) of income tax act.
Common tax benefits for entrepreneurs
1. 100% Tax Exemption for First Three Years
As per the legislation, each business startup involving innovation, development, commercialization of new products, processes or services driven by technology or intellectual property is given a tax exemption of 100% till three years. In order to give budding entrepreneurial ventures a much-needed boost, the government has decided to do away with taxing them for the first three years of their operation. It was declared in the Budget Session of the Parliament that new business firms will not incur any taxes on profits incurred in their first three years except minimum alternate tax.
2. Setting up of a ‘Fund of Funds’ for Startups
In order to help startups in their initial stage by providing them with the necessary financial boost, the government has decided to set up a fund with an initial corpus of Rs. 2,500 crore and a total corpus of Rs. 10,000 crore over a four-year period.
3. Exemptions in Capital Gains Tax
Recently, the government has also made provisions for an exemption of 20% on the capital gains tax. Capital gains tax is the tax charged on profits from the sale of capital assets, such as stocks, bonds, etc. Most of the investments in Indian startups were made through Mauritius, as capital gains tax on investments from there was waived just before provisions in the Tax avoidance treaty.
4. Other Tax Adjustments and Fund Allocations to Boost Startups
Some other important adjustments and allocations made in the tax exemption area to boost the startups are as follows:
A. Setting up of provisions to support entrepreneurs belonging to Scheduled Caste and Scheduled Tribes.
B. Allocation of Rs. 500 crore for SC/ST and women entrepreneurs under Startup India program by India to promote startups by new arrivals.
C. Lowering long-term capital gains for unlisted firms from three to two years.
D. Amendment in the Motor Vehicles Act to enable entrepreneurship in the road transport sector.
E. Raising of the eligibility for the presumptive tax scheme for small businesses. This is done by allowing businesses with a turnover of up to Rs. 2 crores which earlier amounted to Rs. 1 crore to enjoy tax exemptions under it to boost the participation.
F. Provision for ‘Employee Provident Fund’ for the first three years.
G. Providing relief to entrepreneurs living in rented houses away from their native places, because of the effect of the area on the success of startups, by raising the 80GG deduction from Rs. 24,000 to Rs. 60,000.
5. Changes in Service Tax
Changes in service tax that will affect entrepreneurs include proposed exemption of taxes on services provided under Deen Dayal Upadhyay Grameen Kaushalya Yojana and services provided by Assessing Bodies by Ministry of Skill Development and Entrepreneurship. With the introduction of Krishi Kalyan Cess at the value of 0.5 percent, the rate of service tax will go up by 15 percent.
However, the lack of clarity on goods and services for online download has kept foreign entities out of the net of taxes and they continue to sell their products and services online without paying any taxes.
6. Payment of EPF by the government
EPF, employee provident fund contribution of 8.33 percent will be paid by the government for all new employees for a period of three years. Earlier, the employer paid minimum 12 percent of employees’ basic salary as employer’s contribution. This will relieve many employers, cutting costs of startups by 12 percent for three years. This will also provide them with opportunities to hire competent candidates for their company as candidates will have job security. To avail these benefits many startups are voluntarily registering with the EPFO. This will also help startups to sustain themselves.
7. Presumptive tax
While an entrepreneur is required to maintain books of account, a person adopting the presumptive taxation scheme is relieved from maintaining books of account if his income earned stands at a rate of 8%. If income earned is more than 8%, a higher rate can be declared. This scheme is applicable to small businesses with a turnover of up to 2 crore and professionals with gross income of up to rupees 50 lakh.