When starting a business, there are a lot of things to take care of. One of the most important is the business tax. Taxes in India have been simplified significantly in recent years, but there are still a lot of them that you need to be aware of. In this blog, we will look at a few things that a business owner needs to know about taxes in India.
In India, there are mainly two types of taxes that are applicable for a business, Direct Tax and Indirect Tax the difference between these two taxes comes in the way these taxes are implemented.
Some are paid directly by you such as Income tax, corporate tax, etc. and Indirect taxes such as GST, VAT, Sales tax are paid by others.
Besides direct and indirect taxes, there are also other taxes that have been brought into effect by the central government to serve a particular agenda. Let’s understand in detail each type of tax.
- Direct Tax
- Indirect Tax
- Other Taxes
- Direct Tax:
- Income Tax:
- Corporate Tax:
- Minimum Alternative Tax:
- Dividend Distribution Tax:
- Indirect Tax:
- Goods and Service Tax (GST):
- Custom Duty:
- Excise Duty:
- Other Taxes:
- Professional Tax:
- Stamp Duty:
- Entry Tax:
As previously stated, direct taxes are taxes that you pay directly. These taxes are imposed directly on a company or an individual, and they cannot be passed on to others.
The Central Board of Direct Taxes is one of the entities in charge of these direct taxes (CBDT)
Here is a list of direct taxes applicable for start-ups or businesses.
One of the most well-known and least-understood taxes is income tax. It is the tax charged on your earnings over the duration of a financial year, which means a business tax on profit.
Income tax has various features, including tax slabs, taxable income, tax deducted at source (TDS), taxable income reduction, and so on. Income tax is applicable for individuals as well as companies.
The individuals must pay income tax as per their tax bracket or slabs, these slabs will be fixed based on their annual income.
For companies and businesses, the tax bracket is different based on the type of entity. The below table will help you understand the approximate Business tax slab for various entities in India.
|Type of business entity
|The applicable income tax
|Proprietorship or individual
|Taxes apply as per the income tax slab rates it starts from 5% to 30% + Surcharges + Cess
|Partnership/ LLP firm
|30% of the Income + Surcharges + Cess
|25% of the Income + Surcharges Cess
|40% of the Income + Surcharges + Cess
|22% of the Income + Surcharges + Cess
To know more on the income tax for individuals read – Income TAX Return Filings for Individuals
To know more on the income tax for entities read – Tax Return Filings Corporate
This tax is a type of income tax that needs to be paid by companies or businesses from the revenue they earn. This tax likewise has its own slab that determines how much tax the corporation must pay.
For example, a domestic company with annual revenue of less than Rs. 1 crore will not be required to pay this tax, but a company with annual revenue of more than Rs. 1 crore will be required to pay this tax.
It’s also known as a surcharge, and it varies depending on the income bracket. The business tax rate in India for multinational corporations, the situation is equally unique.
There are two different types of corporate tax
Minimum Alternative Tax, or MAT, is basically a way for the Income Tax Department to get companies to pay a minimum tax, which is presently set at 18.5 percent.
Companies involved in infrastructure and power sectors are exempted from paying MAT.
After paying the MAT, a corporation can carry the payment forward and set it off (adjust) against regular tax due over the next five years, subject to certain conditions.
After the Union Budget 2007, the Dividend Distribution Tax was introduced. It is a tax imposed on companies depending on the dividends they pay to their shareholders.
This tax is imposed on the gross or net income received by an investor as a result of their investment. DDT is now being used at a rate of 15%.
Indirect taxes, by definition, are those that are levied on goods or services. They differ from direct taxes in that they are placed on items and collected by an intermediary, the person selling the goods, rather than on individuals who pay them directly to the government.
These are some of the common indirect taxes you must be aware of as a business owner
The GST is a consumption-based tax, as it is levied where goods are purchased. The GST is charged on value-added goods and services at every point in the supply chain where they are consumed.
The GST paid on the purchase of goods and services can be offset against the GST paid on the supply of those goods and services; the merchant will pay the corresponding GST rate but be able to claim it back through the tax credit system.
If a business wishes to claim the GST, it must get it registered under GST.
If your business is involved in importing goods from another country, a charge is applied to it that is called custom duty.
It applies to all the products that are imported via land, sea or air. Customs duty is imposed to guarantee that all items entering the nation are taxed and paid for.
In India, any business that wants to import or export goods or services require to take Import Export Registration.
This is a tax imposed on all items produced or made in India. It differs from customs duty in that it only applies to goods manufactured in India, and it is also known as CENVAT (Central Value Added Tax).
The government collects this tax from the product’s manufacturer. It can also be obtained through companies who acquire manufactured items and hire workers to deliver them from the factory to their location.
According to the central government’s Central Excise Rule, anybody who produces or manufactures any ‘excisable products,’ or who maintains such goods in a warehouse, must pay the duty payable to such items in.
No excisable goods that are subject to duty shall be permitted to transfer without paying duty from any location where they are produced or manufactured under this regulation.
While direct and indirect taxes are the two most common forms of taxes, the government also has a few minor cess taxes.
Despite the fact that they aren’t large income sources and aren’t viewed as such, these taxes assist the government support a number of projects aimed at upgrading basic infrastructure and maintaining the country’s overall well-being.
For businesses, there are very few taxes other taxes applicable
Professional tax, sometimes known as employment tax, is a type of tax that is solely collected by state governments in India. Individuals making money or practising a profession such as a doctor, lawyer, chartered accountant, or company secretary are obligated to pay this tax, according to professional tax regulations. However, not all states impose a professional tax, and the rate varies depending on the state.
As a business owner, you must be aware of this tax, it is the company’s responsibility to deduct the professional tax from employees’ salaries and pay it to the government.
As a business owner, you will come across various transactions which require the transfer of ownership, on such transactions you will be required to pay stamp duty charges. For example: transfer of shares of a company from one owner to another.
In several parts of the nation, such as Uttarakhand, Madhya Pradesh, Gujarat, Assam, and Delhi, an entry tax is imposed. All products entering the state via e-commerce firms are taxed under this law. This tax is levied at a rate ranging from 5.5% to 10%.
India is a great place for starting a business and we hope that you can find success and prosperity in your business. We know that taxes can be complicated, and we hope this article helps you stay on top of what you need to do to tell your taxes in a better, more organized way.
In the end, starting a business is a wonderful thing. It allows you to make a living doing something you’re passionate about and it can bring a lot of joy and fulfilment into your life.
If you like this article share it with your friends and family and if you need any help with starting your business and taking care of the taxes feel free to reach out to us at email@example.com.