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If You Are A Start-up, Know Your Taxes

By Expert Author: Artham Vidya

If you are a start-up company (by which I mean if you have started a new venture), then you are likely to be so involved in getting it going and paying that you may well forget all the paperwork and taxes to be paid.

India is the land of bureaucratic procedures and red tape so there are various forms that have to be filled and tax payments to be made.

If your start-up company is providing services then you need to pay service tax. Any kind of service attracts service tax and the government keeps expanding the services on which tax has to be paid. Under current regulations, service tax is 12.36 percent per annum. The tax returns have to be filed electronically every six months. If you are a company then you have to pay the taxes every month while, if you are an individual or are running a proprietorship/partnership firm, you can pay quarterly.

Value-added tax (VAT) and Central Sales Tax (CST): VAT is applicable for all sales within a state while CST comes into effect when products from one state are sold in another state. There is no uniformity in the VAT levied in the country and each state follows its own rules and it varies with the kind of goods sold. It can vary from five to 15 percent; CST depends on the goods sold and there are varying rates for them. Clicking on this link may provide you with some relevant information. Remember to register your company for VAT, because start-ups get VAT credits in certain states.

You will ideally like to run a lean organisation initially and prefer to do most of the work yourself, but this not always possible, especially in certain lines of business where you will have to hire contractors and others to do the work. In such a case you will have to pay TDS, which is tax deducted at source. If you employ people and pay them a salary or fees and commissions then TDS comes into play. This is also applicable when you pay contractors or vendors.

All entities – partnerships, proprietorship firms and companies – that have to comply with TDS have to obtain TAN, which in its expanded is called Tax Deduction and Collection Account Number. This is a 10-digit alphanumeric number, issued by the Income Tax Department. If you want to know more about TAN and how to get it, click here.

Some states – Maharashtra is an example – which levy a tax called Professional Tax on all salaried individuals.

When your company starts generating revenues and earning profits then you have to pay income tax. If you are running a proprietorship firm, then you are taxed like an individual at the applicable rates. If you are running a partnership firm, the entity’s income is taxed at a flat rate of 30 percent and individual share of each partner is not taxed in their hands. The profits of a company are also taxed at a flat 30 percent.

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