Are You a Startup?

Q1.  What are important TAX compliances for startups?

· Few Important Compliance for Indian Startups:
  1. Compliance under Companies Act, 2013
  2. GST Compliance
  3. Compliance under Income Tax Act, 1961
  4. Compliance under Labour Law
  • Compliance under Companies Act, 2013

Companies incorporated in India must ensure compliance with the Companies Act,2013. It regulates the appointment of directors, their qualifications, remuneration and retirement, the appointment of auditors, other basic requirements like having PAN and TAN, bank account, etc., after the incorporation.
So, businesses are expected to comply with the Companies Act,2013 to avoid the penalty that may be incurred in case of non-compliance.

  • GST Compliance

It is a turnover based compliance under the CGST Act, 2017. As per the act, any business entity having a turnover exceeding Rs 40 lakh in goods and Rs 20 lakh in services in the previous financial year needs to get registered in the GST regime.

Registered dealers need to be compliant with certain rules. Taxpayers failing to fulfil these GST compliance requirements will be considered an offender under the act and liable for a penalty.

  • Compliance under Income Tax Act, 1961

Under this act, every business is liable for filing income tax returns and other procedural liabilities. Penalties are levied for various defaults committed by the taxpayer, some of them being mandatory, and a few are at the discretion of the tax authorities.

  • Compliance under Labour Laws

Labour Laws compliance is primarily focused on safeguarding the protection of the rights of employees and regulating companies, workers as well as trade unions.

Many acts are included in Compliance with labour laws.

A few of them are:
• Trade Unions Act, 1926
• Industrial Employment Standing Order Act, 1946
• Factories Act, 1948
• Minimum Wages Act, 1948
• Equal Remuneration Act, 1976

Annual Compliance For Private Limited Company In India

Companies registered as Private limited firms have to comply with several compliances on an annual basis. Being non-compliant with these rules leads to penalties and may also bring closure to business in extreme cases.
Here is the list of a few mandatory annual compliances For Private Limited Company

• Appointment of Auditor (E-form ADT-1)
• Board Meeting
• Annual General Meeting (AGM)
• E- Forms Filing Requirements
• Directors’ Report
• Statutory registers and books of accounts

Q2.  Do startups need to file ITR?

Every Person in India who does any business activity or earns money and the limit as per the Income tax Act is reached then such entity has to file ITR as per specified Forms available on Income Tax Site.

Q3.  Do startups have to pay GST?

GST registration for startups is applicable in varied cases, which include:

  1. GST for startups in India is mandatory for all companies with pre-GST tax registrations.
  2. GST on startups applies to companies with an annual turnover of Rs. 40 lakhs and more and Rs. 20 lakhs in the North-Eastern states of Uttarakhand, Jammu & Kashmir and Himachal Pradesh.
  3. Startup GST registration is required for startups paying taxes under RCM or Reverse Change Mechanism.
  4. GST registration is important for startups supplying services or products on e-Commerce portals or to e-Commerce aggregators.
  5. Casual taxable individuals.
  6. TCS/TDS deductors
  7. Non-resident taxable individuals looking to start a business in India should go for GST registration.
  8. Data recovery or access service providers
  9. GST registration also applies to startups that sell goods and services at exhibitions and events that do not require any fixed business location. Such dealers should pay GST based on a 90-day sales estimate.
  10. GST registration is also necessary for input service providers and supplier agents looking to carry forward the advantage of ITC or input tax credit.

Q4.  What are the Income Tax based Compliances?

There are 2 kind of taxes Direct (Income Tax) and indirect taxes (GST, Excise duty, Customs duty), etc.

Depending upon nature and business operations the taxes are levied in India. Here are some tax privileges are given to start up for their effective growth while it’s an infant.

  • THREE YEARS TAX HOLIDAY IN A BLOCK OF SEVEN YEARS

Under section 80IAC of the Income Tax Act, Any start up that is incorporated after 1 April 2016 can avail 100% tax rebate on its profits for 3 years within a block of 10 years. However, if the Company’s annual turnover exceeds Rs 100 crore, then the tax rebate is not available. This tax exemption is provided so that businesses meet their capital requirements while setting up. Only private limited companies or LLPs are eligible for tax exemption under this section. The company should be a DPIIT recognised start up.

  • EXEMPTION FROM TAX ON LONG-TERM CAPITAL GAINS (LTCG)

To provide ease in doing business for start-ups, a provision under Section 54EE has been added to the Income Tax Act. Under this provision, Start-ups are exempt from LTCG tax. However, this is only applicable if the capital gains that have been invested in are a part of the fund notified by the Government within a total period of 6 months from the date of the actual transfer of the asset. The maximum amount of capital that a company can invest in the long-term specified asset has a cap limit of Rs 50 lakhs. The amount then has to be invested in the fund for continuously for at least 3 years.

  • TAX EXEMPTIONS ON INVESTMENTS ABOVE THE FAIR MARKET VALUE

If an eligible start-up makes any investment, the government will exempt the tax on the investment above the fair market value. This includes a range of different investments such as funding secured by resident angel investors and funds that are not registered as venture capital ones. D) TAX EXEMPTIONS TO INDIVIDUAL/HUF ON LTCG FROM EQUITY SHAREHOLDING If an individual or a HUF decides to sell their property and then invests the money they get from the sale to subscribe to a minimum of 50% or more of an existing start-up, then they are exempted from tax on these LTCG.

The enterprises must be small or medium ones, as defined under MSME’s Act of 2006.

However, this is only applicable as long as the shares are not sold again within 5 years or even transferred to someone else. The start-ups have to use the amount that has been invested to purchase assets. No transfer is allowed during the lock-in period of 5 years. These tax incentives and exemptions are that they will promote general investments made in start-ups, which will then encourage their growth.

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