Taxation Basics for Start-Ups

Start-ups have to know the different tax return forms as well as dates for filing income tax returns and annual financial statements. Start-ups should also maintain detailed records for auditing, ROC compliance, etc.

Start-up business owners must remember the two important date, 30th October for filing the annual financial statement with RoC and 30th September for filing the ITR for their company. Every company has to file an ITR even if they have had no business transaction or if they have incurred a loss.

Every start-up must keep the following records:

  • Accounting and Bookkeeping:

    Every business owner must record every transaction and preserve bills to back the financial statements. All the records of expenses made for business must be kept as they are deductible against the revenue of the business. Even if the business is incurring a loss, you must maintain the record to set it off against future profits.

    If the records are not maintained, the business owner will be held responsible and will be punished with imprisonment for up to 1 year or a fine of Rs.50,000 is to be paid.

  • ITR Filing:

    Filing an ITR is an authentic proof of income received. If you are running a startup, hire a tax consultant to help you with the filing and to avail benefits. The benefits of filing ITR are:

    • It will save you from assessments of income by the IT officials.
    • Business losses can be carried forward to set-off against future profits.
    • Filing ITR on time is essential for making an investment.
    • You can claim tax refunds only when you have filed the ITR.

    The last date for ITR filing is 30th September but it can change to 30th November if transfer pricing provisions are applicable for your business. If the assessee fails to file the ITR on time, then he will be liable to pay 1% interest per month from the due date to the actual date of filing. A penalty of up to Rs.5,000 will be levied. The profit and loss account and balance sheet is to be submitted while filing the ITR.

  • Audits:

    If your company is having annual turnover of more than Rs.40 lakh or Rs.25 lakh contribution in a financial year, the accounts will have to be audited annually as per the LLP Act.

  • ROC Compliance:

    Every company has to file the financial reports with the Ministry of Corporate Affairs every year. It is a component of Annual RoC filing that is mandated by the Companies Act, 2013. The following e-forms have to be filed with the ROC:

    • Form 20B: Filing Annual Return by companies that have share capital.
    • Form 23AC: Filing Balance Sheet
    • Form 23ACA: Filing Profit and Loss Account

    If the companies fail to file the annual RoC, they will be forced to shut down. Additional fees that is 12 times the normal fee will be charged. Huge penalties are laid on officers and companies on a daily basis.

    For Annual Filing, LLPs must file the Form 8 for statement of account and solvency and Form 11 for annual return of LLP with the RoC.

    If the LLPs have failed to file on time, then a late filing fee of Rs.100 is charged per day. The number of days is calculated from the due date to the actual filing date.

Different Tax Return Forms Available for Startups:

There are 7 tax return form available for different categories of assessees. They are as follows:

  • ITR 1 – Sahaj:

    Individuals driving salary, pension or income from house property or income from other sources can use this form.

  • ITR 2:

    This form is to be used by individuals and HUF whose income comprises of income from salary or pension, income from house property, income from capital gains, income from other sources, income from winning a lottery and income from race horses. This form can also be used if income from spouse and minor child is to be clubbed with the assessee’s income.

  • ITR 3:

    This form can be used by individual or HUF who is a partner in a firm and the income is chargeable under profits and gains of business or profession and does not include any income except income earned as interest, salary, commission, bonus or remuneration that is due or received from the firm.

  • ITR 4:

    This form is to be used by individual or HUF who is has a proprietary business or profession and who don’t file a return under Presumptive Taxation Scheme. Partnership firm, individual and HUF that are getting their tax audited under Section 44AB is required to file ITR 4 using digital signature.

  • ITR 4S – Sugam:

    This form is to be used for presumptive business income.

  • ITR 5:

    Partnership firm, individual or a HUF who cannot apply ITR 7 and have all sources of income must file ITR 5.

  • ITR 6:

    Companies other than those claiming exemption under Section 11 must use this form.

  • ITR 7:

    This form is to be used by persons or companies who must furnish the return under Section 139(4A) or Section 139(4B) or Section 139(4C) or Section 139(4D) of the IT Act.

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