Author: Anand Satyapanthi, Co-Founder, Quicko
There were 3100+ startups in India until the start of 2015 and this number will grow up to 11,500+ by the end of 2020 as per the recent stats published by NASSCOMM. With these numbers, India is ranked as 4th largest startup location globally. With these staggering numbers, Young aspirants would definitely be inclined to know more about do’s and don’t of a startup. If your ultimate goal is to own your business and if you are ready to take the first big step towards pursuing your dream of becoming an entrepreneur, here are some of the things you must understand before you go about it.
In the Initial stages of your Startup, you will have to rely on your savings to sustain. This is called bootstrapping. You need to build your ground first and put in all the resources you can muscle to survive until you find someone to back you up.
There are multiple startup specific academic/training programmes offered by Startup Leadership (http://www.startupleadership.com/) & IIM Bengaluru (http://www.nsrcel.org/) who provide mentorship to entrepreneurs. So if you want to learn the basics before you jump in, it might be a good idea to take a look at these programs.
First thing you will have to take care of is to get your business registered. You need to determine what kind of business model you wish to create while keeping in mind you future growth prospects. You can choose from different models such as proprietorship business, partnership firm, a registered company, Limited Liability Partnership (LLP) etc.
Once you determine the model, next step is to register the same with the appropriate authorities, apply for a PAN(Permanent Account Number) to NSDL (https://tin.tin.nsdl.com/pan) or UTI (www.utiitsl.com/UTIITSL_SITE/site/pan/). If you are required to deduct the taxes at source than you will have to apply for a TAN (Tax deduction & collection Account Number) to NSDL (https://tin.tin.nsdl.com/tan/).
Once you get your registration done and you obtain your PAN, the very next step is to open a Current Bank Account for your business. It is advisable to open the account with a bank who provides business ancillary services such as cash credits, overdraft, line of credit, term loan etc. Make sure to use the Net banking facilities for online payments so as to reduce the administrative burden.
Create an operational budget
To start a business might be easy, but what’s difficult is to sustain it. This can happen if you don’t put your thoughts into determining what will be the skill sets required to run the business and the cost of it. It doesn’t end there. Once you determine the essential skills and cost of hiring, you need to determine how much revenue you will have to generate in order to support and retain those skill sets. So it makes much more sense to crunch down some of this numbers and prepare a budget.
Taking control of your own accounts
While you are upto preparing the budgets, you can use online services like Intuit’s Quickbooks which offers easy integration with your bank accounts in order to maintain your books of accounts. In the initial stages, it makes much more sense to invest one time in such services which offers customised reports and projections. You can be in sync with your books without the aid of an accountant.
For every startup complex and stringent government policies are a major cause of concern. The demand for supportive government policies continues to exist. Meanwhile lets focus on different taxes and how to handle them in a startup scenario.
TDS (Taxes Deducted at Source): As per the Income Tax Act. when a person makes payment to another person subject to the conditions specified as per the Act, Tax is to be deducted from that payment and that tax has to be deposited to the government. It is called Tax Deducted at Source (TDS). For different kinds of payments, there are different threshold limits and different rates at which tax is to be deducted. These Taxes are to be deposited before the 7th of the next month and quarterly returns are to filed within 15 days from the end of the quarter.
Service Tax will be applicable if you are into a business of providing customer services. You can find out more about the taxable services and applicable rate of service tax at http://www.servicetax.gov.in/. As per the rules, there is a basic exemption limit of Rs. 10 Lakh on service tax, i.e you will not attract service tax until your turnover crosses Rs. 10 Lakh. This is a big advantage on the part of an entrepreneur. How ever you will have to intimate the service tax authorities upon reaching the turnover of Rs. 9 Lakhs and obtain a voluntary service tax registration. Unlike sales tax, Service tax is centralised and the rate of service tax is uniform across India for similar services.
Sales Tax will be applicable if you are into business of selling goods. When you are selling the goods within your state, you will have to get registered with the state’s commercial tax authorities. If you are selling the goods across states, you will have to obtain the Central sales tax registration from your state’s commercial tax authorities only. Sales tax rates can be different for same type of goods in different states. However for Interstate sales, there is a uniform rate for each type of goods.
Advance Tax is basically your income tax as you go. The Income Tax department wants you to pay taxes as you earn and not until the end of the year when you prepare your financials. In case of non corporates, the Tax liability is to be paid in 3 installments as follows:
Whereas in case of corporate assesses the installments will be as follows
Keep in mind that deferment or failure in payment of advance taxes will incur interest liabilities which is not the situation you’d want when you are trying to save every single penny and invest the same towards the growth of your business.
Which Income tax Return to be filed:
For a business concern, there are different Income tax return forms prescribed by the Income Tax Department.
In case of a Proprietorship business or a Partnership firm, You can file ITR 4 or ITR 4S (Sugam).
First of all you have to determine whether your business is liable for a TAX Audit or not. If your turnover exceeds Rs. 1 crore, you are liable for a TAX Audit and you will have to file ITR 4.
If you maintain proper books of accounts and have kept the track of all the expenses incurred for your business which you could claim, then you should be fine with filing ITR 4. You will have to enter your Balance sheet and Profit & Loss account data while preparing this ITR form.
In case of ITR 4S, if yours is a specified business (Not a profession) and you have not maintained proper books of account, this ITR form can be handy. All you have to do is determine your turnover and make sure that profits are 8% or higher of the turnover. However this option can be exercised only if your turnover is below Rs. 1 crore.
If yours is a company, then you will have to file ITR 6 with the details of Balance sheet and Profit & Loss.
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