Tax Filing Tips for Start-Ups and Work From Home People

0
13 views

With the increasing growth of the internet and diverse opportunities in the economy, the number of self-employed people has increased over the past decade. Every business has the potential to become big but everyone begins small by working from home, by freelancing or by setting up a start-up.

Apart from the work, one aspect of being independent which scares or bothers people is the tax aspect. How does one deal with tax when running a start-up or working from home on a freelance basis? What tax filing tips should be kept in mind? And how does one make this process efficient?

Here are some pointers.

Understand the applicability of taxes

It is necessary to understand the different dynamics of taxes. At a personal level, an individual needs to pay income tax for the income earned. If one renders a service and the income earned is higher than Rs. 10 lakh a year, then service tax needs to be paid at a rate of 14 per cent. This is applicable to all tax assessees, including individuals. If the receipts are higher than Rs. 25 lakh a year, then the assessee should get a tax audit done. Advance tax needs to be paid by the assessee. In case the start-up is registered as a partnership, the firm needs to file returns separately and the partners need to then file their individual returns.

Tax deducted at source (TDS) needs to be considered and accounted for

A customer who pays a professional in excess of Rs. 30,000 in a year as professional fees or technical fees is required to deduct tax at source and remit the remaining amount to the professional. While drawing up the accounts, the professional needs to account for this TDS and file the returns accordingly.

If you are a work from home professional and your tax liability is lower than the minimum threshold, you can claim the deducted TDS as a tax refund. TDS is applicable for assessees other than individuals also, including sole proprietorships, partnership firms, and companies. Tax is applicable on any income on which tax has not been deducted at source.

Tax filing forms vary with different cases

The income tax returns forms are different for different assessees. Therefore, one has to use the correct form while filing the returns. For example, in the Assessment Year 2015-16, one must use ITR 3 for filing returns as a partner in a partnership firm, ITR 4S in case of income from presumptive business, and ITR 5 for partnership firms. This may change from one year to another. Refer the income tax notifications or take the help of a qualified chartered accountant before filing returns in order to avoid complications.

Business expenses can be used to reduce tax liability

One of the biggest advantages of being an independent professional is that expenses directly related to running the business are allowed as a deduction from income while computing the tax liability. Start-up expenses prior to commencement of the business can be claimed as preliminary expenses. On commencement of the business, one can claim all business expenses as a deduction from taxable income. These include rent, postage, vehicle expenses, and telephone and internet expenses. Depreciation on car can be claimed at standard rates. Partners can be paid salary, which can also be shown as a deduction, provided this is specifically provided for in the partnership agreement. It must be remembered that partner salary will be taxed as income in the individual returns of the partners, whereas partners’ share in the firm’s profits is exempt in their hands.

Keeping record of transactions is important

While running a start-up or working from home on an independent basis, one cannot hold a third party responsible for mistakes in tax calculations and returns filing. Therefore, it is the responsibility of the assessee to keep safely all documentation that need to be produced any time they are required by the authorities. As per the law, records need to be preserved for at least 6 years from the end of the relevant assessment year. This is all the more critical if you are claiming expenses as a deduction from the taxable income.

Handling taxes for a start-up or work-from-home professional may not be easy. However, with discipline and order, it is not as complicated as it sounds. Alternatively, one can seek the help of a qualified chartered accountant to make the process easy.

Source:http://profit.ndtv.com/

Related Posts Plugin for WordPress, Blogger...