Entrepreneur? Here's What You Should Know about Tax Saving

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Several youngsters in India are choosing to become entrepreneurs because of a large number of available opportunities. To promote such an ecosystem, the Prime Minister announced the Startup Policy offering benefits to the entrepreneurs.

If you are a dynamic and enterprising entrepreneur, here are five tax benefits available to you.

Entrepreneur? Here's What You Should Know about Tax Saving

  1. Contribute to the Employee Provident Fund (EPF)-You, as an employer, pay 12% of basic salary towards the EPF on behalf of your employees. The government will now contribute 8.33% to EPF for all new employees for the first three years. This will help reduce costs for your startup venture. Furthermore, you will be able to hire competent candidates.
  2. Exemption on capital gains tax-Capital gains tax is payable on the sale of capital assets such as bonds and stocks. The government has offered a 20% exemption on this tax. This will bring several benefits to entrepreneurs like you by making it easier to structure new companies.
  3. Elimination of angel investment tax-Historically, you paid angel investment tax on funds raised from friends and relatives. This tax was introduced in 2012 but now is abolished through an amendment to the Section 56(2) (vii) (b) of the Income Tax Act, 1961. If you have registered your venture with the Department of Industrial Policy Promotion (DIPP) and have procured a certificate from theInter-Ministerial Board of Certification, you will not have to pay the angel investment tax. This is expected to bring large savings for ambitious entrepreneurs like you.
  4. Turnover taxation-If you own a manufacturing companyhaving a turnover of less than INR 5 crore, you had paid 29% tax, while other enterprises paid 25%. Today,medium and small companies having a turnover below INR 50 crore pay a turnover tax of 25%, benefiting over 6.5 lakh companies in the country. Furthermore, you may now claimprofit-linked tax exemption for seven years instead of five years, as decided by the Ministry of Finance, Government of India.
  5. Presumptive tax-Your company must maintain aproper book of accounts. However, if you adopt the presumptive tax scheme, your company does not need to maintain books of accounts if the income is at an 8% rate. This scheme is applicable your company if the company has a turnover up to INR 2 crore and your gross income is below INR 50 lakh.
Section 80C tax benefits

The Income Tax Act, 1961 provides tax exemptions of up to INR 1.5 lakh per annum under section 80C. You may ask how to save tax under this section? You may invest in eligible financial instruments to avail of this benefit. Some eligible instruments includeEquity-Linked Saving Scheme (ELSS), Public Provident Fund (PPF), National Pension System (NPS), and tax-saving fixed deposits (FDs).

Among all the aforementioned products, investing in ELSS funds for tax savings is highly recommended. This is because such funds have several benefits. Here are four benefits of investing in ELSS.
  1. Shorter lock-in period-PPF has a lock-in period of 15 years, NPS must be held until retirement age, and tax-saving FDs have a five-year lock-in period. Compared to all these investment products, the three-year lock-in period makes investing in ELSS funds for tax savings the best option.
  2. Higher returns-The government declares the interest rate on PPF each year while tax-saving FDs have a fixed rate of interest. Most often, the interest rates are not high and may sometimes be less than the rate of inflation. In comparison, ELSS funds invest a majority of its corpus in equities and related products, which provides you with the opportunity to earn higher returns, especially in the long-term.
  3. Tax-free-How to save tax with ELSS funds may be answered in three parts. Firstly, an investment of up to INR 1.5 lakh is exempt from tax under section 80C. Secondly, the dividend earned on ELSS investments is also tax-free. Finally, the maturity benefits are also tax-free.
  4. Flexibility-Investment may either be alump sum or through a Systematic Investment Plan (SIP). Furthermore, you may increase or decrease the SIP amount as per your convenience. Additionally, you may start or stop an SIP whenever required. An SIP may be started for as low as INR 500 with no upper limit. Moreover, investing in ELSS funds every year is not compulsory, unlike PPF and NPS. Now that you know how to save tax with ELSS funds,the next step is to compare and analyze different ELSS funds that are available in the market. However, not everyone has such experience and expertise.
To combat this limitation, you may use the proprietary ARQ investment engine, a key highlight of Angel Wealth’s mobile application. This engine analyzes over a billion data points to match recommendations to your investment needs and risk profile. What distinguishes ARQ from other similar investment engines is that the former is free from all types of human interference.

Download the Angel Wealth mobile app and get customized investment recommendations.