Freelancersand Startups are the people who decide to take charge of their life and turn their passion into profession. So, they don’t have any authority or readily organised structure of company to be a part of. The freelancers and startups make their own decisions; not to mention that it’s a lot of hard work.
Now, in the middle of number of things and agendas, researching on the matters of taxation seem like a lot of work. But still, as independent professionals, they need to be well updated with everything concerned to their source of Income, taxation being one of it.
So, here is the compilation of all the aspects related to taxation that the freelancers and startups should know.
Tax Deducted at Source
Commonly known as TDS, Tax Deducted at Source is the ‘pay as you earn’ method of taxation.
Basically, when an employer/payer gives his employee/payee their salary/payment, certain amount, as prescribed by government rules, is deducted as means of taxation.
This deducted amount has to be deposited to the government.
There are different threshold limits and different rates on the basis of different kind of payments.
Here are the due dates of the TDS:
| Quarter | Salary payments | Other payments |
| April to February | 7th of next month | 7th of next month |
| March | 30th April | 30th April |
| Due Dates for submitting Quarterly Statements of Tax Deducted at Source | ||
| Quarter Ending | Due date,if deductor is an office of the Government | Due Date for others |
| 30th June | 31st July of the financial year | 15th July of the financial year |
| 30th September | 31st October of the financial year | 15th October of the financial year |
| 31st December | 31st January of the financial year | 15th January of the financial year |
| 31st March | 15th May of the financial year immediately following the financial year in which deduction is made | 15th May of the financial year immediately following the financial year in which deduction is made. |
However, failure or delay in filing the TDS may cause penalty and interest.
Now, let’s look up the most common payments undertaken by Freelancers and Startups and how TDS works there…
Salary Income
If you’re in the league of startups, you’ll have to pay salary to your employees. For which you’ll have to deduct TDS under Section 192 and deposit it to the government. Here’s a brief on the same:
| Section 192: Payment of Salary | |
| Decisive Factors of Deduction | When the estimated income of the employee is taxable, TDS is deducted. Employer is not allowed to deduct tax on non-taxable allowances (for eg. conveyance allowance, rental allowance, medical allowance or deductible investments under sections 80C, 80CC, 80D, 80DD, 80DDB, 80E, 80GG and 80U etc.). If the estimated total income of the employee is less than the minimum taxable income, no TDS is deducted. (Which is Rs. 2,50,000/- in case of Individual, HUF, AOP, BOD and AJP. Nil for others.) |
| TDS Rate | As per Income Tax, Surcharge and Education Cess rates applicable on the estimated income of employee for the year. |
Payments like Professional Fees, Technical Services, Royalty :
As an independent worker or belonging to the group of startups, you may need help of several professionals like lawyers, CAs, Interior Designers. You need to deduct TDS even from the payments made to them.
Under Section 194J, TDS has to be deducted at the Rate of 10% in these cases.
For eg., you got your office designed, and need to pay 1 Lac to the Interior Designer for their services.
So here, 10% of 1 Lac, i.e. Rs. 10,000 will be deducted and you’ll pay 90,000 to the Designer. Also, you’re also responsible to deposit Rs. 10,000 to the government account.
Payment to Contractor/ Subcontractor :
In case of payment that is subsequent to a contract or subcontract, and the payee is individual or HUF, you need to deduct the TDS on the rate of 1%. In the other cases, the rate increases to 2%.
For eg., you sign a contract with a company that’ll provide you its services throughout the year. The annual fees for the same is 3,00,000.
Now, as the company is other than Individual or HUF, Rs. 6,000 will be deducted. Thus, you’ll have to pay Rs. 2,94,000 to them and the remaining 6,000 will be deposited to Government account.
Service tax
- You’ll be liable to pay Service Tax if you run a business that provides Customer Services.
- You can discover the taxable Services and Rate of the same on http://www.servicetax.gov.in/ .
- You will not attract any taxes till your turnover crosses 10 Lacs. So, if you’re an entrepreneur, this is in your favour.
- However, once your turnover reaches 9 Lacs, you need to contact Service Tax authorities and obtain a voluntary Service Tax registration.
- The notable thing is that unlike Sales Tax, the rates of Service Tax is uniform in India and across India for similar services.
- Once you register your company for Service Tax, you need to collect the same from your customers and deposit the amount to Government Account.
- The non-corporate assessees need to deposit it quarterly while the corporate assessees need to do it monthly.
- Now, if you paid any service tax to other service providers, you can utilise the same as Service Tax credit while depositing it to government’s account.
Let’s understand it with an example…
Let’s say your company provided the Services worth Rs. 12,00,000 (excluding Service Tax). At the same time, you paid Rs. 2,00,000 (excluding Service Tax) to a company for providing their services. So here, you can claim the relief of 28,000, which is the Service Tax you paid.
| Service Tax collected (14% of 12,00,000) | 1,68,000 |
| Minus Service Tax credit (14% of 12,00,000) | -28,000 |
| Service Tax to be deposited | 1,40,000 |
Excise duty
Excise Duty is the Indirect Tax that’s collected on manufacture of goods in India.
There are different rates prescribed for Excise Duty for different kinds of goods and products.
For the SSIs (Small Scale Industries), exemptions are available. The exemption can be claimed if following conditions are fulfilled:
- The aggregate turnover of the Unit for any FY should not exceed Rupees One Hundred and Fifty Lakhs.
- Turnover must not exceed Rupees 400 lakhs in the preceding FY.
Discover more about the Excise duty at http://www.servicetax.gov.in/index
Sales Tax
Startups need to be acquainted with the idea of Sales Tax as it is applicable for the business of Selling goods.
If you sell goods in your state, you need to register your company with the State’s commercial Tax Authorities.
If you sell goods across states, you’ll have to obtain Central Sales Tax registration from your state’s commercial Tax authorities.
In different states, Sales Tax rates may differ even for the same goods, but for interstate states, government has come up with uniform rates.
Advance Tax
Startups need to know the concept of Advance Tax as well. Advance Tax is a ‘pay as you earn’ method of taxation. For constant progress, the government needs funds throughout the year and not only at the end of it. That’s why, you can pay Advance Tax on the go.
There are three installments for non-corporates, which are to be paid by given due dates.
| 15th September | At least 30% tax on total Income of the Year |
| 15th December | At least 60% tax on total Income of the Year less Advance Tax already paid |
| 15th March | 100% tax on total Income of the Year less Advance Tax already paid |
However, in case of Corporates, the installments and due dates differ:
| 15th June | At least 15% tax on total Income of the Year |
| 15th September | At least 45% tax on total Income of the Year less Advance Tax already paid |
| 15th December | At least 75% tax on total Income of the Year less Advance Tax already paid |
| 15th March | 100% tax on total Income of the Year less Advance Tax already paid |
If you’re liable to pay Advance Tax and you failed to pay the same, you’ll incur Interest.
You can reduce the administrative labour of paying taxes by filing your ITR online. Nowadays, government has come up with number of facilities to make the process of ITR filing easier. You can make online payments of all these taxes mentioned above with the help of Net-Banking services. You also get instant counterfoils for these tax payments. All these utilities can help you save lot of time and efforts so that you can focus more on your business.
However, it’s advisable to take advice of a professional in the initial years of your business. It’ll help you understand the taxes you need to pay and save you extra bucks wherever possible.
The article is provided by Quicko.com, engaged in online assisting in online ITR preparation and eFiling. You can sign up with Quicko.com and eFile your Tax Returns absolutely free. The author can be contacted at anand@quicko.com.
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