Basic Tax Laws Every Small Business Owner Should Know

As cliche as it may sound, the business owner is always brimming with responsibilities like no other. Be it spoon-feeding one’s business to taste success, managing finances, or even tougher—managing employees—this big-time operator never rests to think, nor thinks to rest.

Though not all entrepreneurs might be trendsetters, missing out on new industry trends and updates is never endorsed. Always on the move, both mind & limbs, an entrepreneur should latch on to a thorough learning process. Know what’s happening about all industry-related new revisions, updates to existing procedures, etc. without brushing them aside. More priority when taxes are in compliance.

Tax laws may sound concrete, but no denying revisions and tweaks—this happens as a surprise many times. Easy to miss, even easily forgotten. Stop worrying and breathe the air of compliance 24*7 when you know these basic tax laws :

Goods and Services Tax (GST)

• With loud voices against this unified tax system, GST has emerged as the winner and is here to stay. Thanks to GST, small businesses have a reason to rejoice. Looking to expand your business or start one more? Say bye to VAT registration as GST introduces a centralised registration for all states.
• Gone are the days when you were taxed individually for sales and services. GST does not distinguish between both and integrates them into one. Also, businesses with turnover between Rs10 and 50 lakh are taxed at lower interest rates. Some cheer?

TDS on Income tax for your Employees

• As much as paying your employees is obligatory, so is deducting TDS from it. For employees whose total income (gross salary + other income sources) exceeds the exempted limit, based on the income tax slab rate, the deduction is done
• Based on the investment declarations that your employee has made at the start of the financial year and considering the deductions applicable, estimate the taxable income on which monthly TDS has to be deducted.
• Verify the declarations with investment proof submissions made at the end of the financial year to make amends in TDS, if needed.
• It doesn’t stop here. Deposit and file all your employees’ TDS to the government. quarterly with your TAN number, stating the salary and TDS for each employee. The same should also be reflected in your employee’s Form 16.

TDS on Payments made to your service providers/contractors

• No business can make it through without leaning on the walls of service providers/contractors. For every service offering, be it contractors/professional services, rent, etc., there is a predefined tax rate allotted by the Income Tax Dept. (ITD).
• Deduct the corresponding TDS when your invoice amount exceeds the ITD-specified threshold limit. You are also liable to file ETDS and provide the TDS certificate to your service providers.

TDS on Payments you receive from your customers

• It’s a circle, where all good or bad things come right back, they say. Just like how you deduct tax on your service providers, ultimately you are also a service provider to someone out there. So, vice-versa—on all invoice payments that you receive, TDS is deducted.
• For the deducted TDS, as per norms, a TDS certificate is issued to you. Also, it is reflected in your Form 26AS.

Corporate Income Tax on Profits

• The income of a company includes business profits, income from property, capital gains, and income from other sources like dividends, etc. Just like how an employee is liable to pay tax on his income, businesses also have to set aside money from the profits they generate. Hurts, right?
• The corporate tax rate for domestic companies in India is a flat 25% + 3% educational CESS + surcharge of 5% if turnover > 1 crore for a financial year.

Advance Tax

• ‘Easy to pay as you earn’ is the underlying concept behind the advance tax. If your business tax liability for the financial year is Rs 10,000 or more, then you can pay a percent of tax as advance tax for business income earned in that year.
• The huge liability involved in businesses allows 4 instalments of advance tax (15%, 45%, 75%, 100%) payable on or before the 15th of June, Sept, Dec, and March respectively.

Income Tax for yourself ( as an Entrepreneur )

• As a business owner, paying taxes can be furthermore intimidating. The concept of advance tax also works with businessmen, as they are ones with high business income and even higher tax liability.
• There are 3 instalments of advance tax for businessmen (30%, 60%, 100%) payable on or before the 15th of September, Dec, and March, respectively. A 1% simple interest per month is penalised for defaulters.

The above-discussed tax laws provide you only with a blueprint of what not to miss when you do your tax compliance. Knowing them all doesn’t guarantee foolproof tax compliance. Doing it the best way, flawlessly, and on time depends solely on who you rely upon. In-house or outsourced, never bat an eye when it comes to compliance.

We bet you would want it this way: A Bright Business With The Right Compliance. That’s why we recommend you take it from the pros 🙂

At Relativity, we process your payroll, accounting, taxation and compliance needs with utmost accuracy and timely delivery. With tax compliance taken the best care of by us, save time & effort while simultaneously doing great on business.

Connect with us at sales@relativity.co.in or call us at 0-93611-41445 to learn about our customised range of services.