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#6 Taxation Laws That An Entrepreneur Should Know An Entrepreneur should never incur any expenditure of more than INR 10,000, whether in revenue or capital, in cash.

By Amit Bhargava

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It's important for every entrepreneur to know the rules and regulations of taxation. Here are the top 6 laws that an entrepreneur should know for a smooth running of his/her business.

Say No To Cash Payments

An Entrepreneur should never incur any expenditure of more than INR 10,000, whether revenue or capital, in cash. If payment is made for revenue expenditure, it will not be treated as expenditure and in case it is made for capital expenditure, the same shall not form a part of the cost, hence ineligible for depreciation or deductions.

Carry Forward Of Loan In Case Of Change In Shareholding

Earlier, a closely held company was not allowed to carry forward losses of earlier years if its shareholding changes by more than 50 per cent. In order to facilitate ease of doing business and to promote start-up India, the government allowed eligible start-ups to carry forward their losses and set off against the income of the previous year, provided all shareholders of such a company (as existed in the year of loss) continue to hold the shares on the last day of the previous year.

Presumptive Taxation

An entrepreneur doing business as individuals, HUFs or firms, now can obtain benefit of presumptive taxation. However, the benefit of presumptive taxation is limited to a firm having a turnover of up to INR 2crore. Further, presumptive income under Section 44AD will be accepted to be only six per cent (instead of eight per cent), irrespective of the amount received through banking channel.

100% Tax Exemption For First Three Years

Now income generated by eligible start-ups can be claimed as 100% deduction for three consecutive assessment years out of seven years from the time such eligible start-up is incorporated.

Professionals Allowed To Pay Advance Tax In Single Installment

Presently, claimants to benefits of presumptive taxation scheme, under Section 44AD, are allowed to deposit advance tax in single installment. Similar benefits were not given to professionals opting for new presumptive taxation scheme under Section 44ADA. To bring parity among the provisions, the option to pay advance tax in single installment is also extended to professional opting for presumptive taxation under section 44ADA.

Abolition of "Angel Investment Tax'

Under this, angel investors i.e. family and friends and domestic funds not registered as VC funds, which one raises from venture capital firms set up for the very purpose of backing such ventures, will not be taxed on these investments. They have the liberty to issue shares to investors at rates higher than fair value without any taxation hassles. This was brought into being by amending Section 56(2)(vii)(b) of the Income-Tax Act.

However, there are some restrictive terms here. Only start-ups which fulfill the conditions specified by the Department of Industrial Policy and Promotion (DIPP) are eligible for this start-up tax exemption. In order to avail this concession, a start-up must attain a certificate stating its eligibility from the "inter-ministerial board of certification.'

Amit Bhargava

Director, Taxmann

Amit Bhargav is the director of Taxmann.
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