The first year of any business will have its fair share of ups and downs. But we all know the one thing we can count on within any business cycle is taxes. Here are some tips to help you gear up to file your business’ very first tax return.
Preparing to file your ITR Know your entitlements: As an SMB owner, it’s important to educate yourself about your tax breaks and entitlements, as you’re guaranteed certain deductions under Indian law. Here’s a list of some of these deductions:
- Start-up or preliminary costs: These are expenses associated with setting up the business. You can deduct the total amount in increments of 1/5 each year, for a period of 5 years from your taxable revenue.
- Health insurance: Money spent on health insurance premiums is deductible under section 80D of the Income Tax Act
- Home-office setup: If you chose to convert a part of your home into your office—and large homes can accommodate 5 employees at least—then you can subtract any domestic property taxes or utility bills from your revenue.
- Hiring friends and family: If you’ve brought friends and family on-board, then the payments that you make to them, as long as they fall into a certain bracket, are tax exempt.
Keep track of important ‘evidence’: Hold onto necessary documents like receipts, cancelled checks, invoices, and deposit slips. Creating a paper trail can help you justify and claim tax deductions and exemptions, and also gives the government ample reassurance that you conduct your business in a manner that is above-board and transparent.
Meet with your CPA: It is good business practice to have a CPA help you file your returns. Not only can they ensure that you haven’t left any important documentation out, they will also assist you in exploiting legal tax loopholes that will see your money rerouted or reinvested elsewhere.
Choose how you plan to pay your taxes: You can now pay your taxes online courtesy of affordable accounting software that allows you to choose self-service options, where you can opt to operate the software yourself.
Forms to fill: Some forms you will have to fill regardless of how you choose to file—digitally or on paper—are ITR 4 and ITR 4S. You will have to fill out ITR 4 if your business is registered as a Sole Proprietorship, and ITR 4S if you’re registered as a business and enjoy an income from said business. All individuals—business owners or not—who file their taxes online but don’t have an EVC (e-verification code), have to also fill out form ITR 5 to verify their returns.
Registering for the EVC: You are issued an EVC if you log onto the government’s website via internet banking. Should you do so, your bank will offer to issue you an EVC either via SMS (if you have an Aadhar card) or via e-mail. Filing your taxes might seem like a daunting proposition, but it doesn’t have to be. There is plenty of help available, as well as multiple benefits.