In the dynamic landscape of entrepreneurship, every rupee saved counts, especially when it comes to taxes and Navigating the complex world of taxation can be a daunting task for entrepreneurs in India. With numerous schemes and regulations, understanding the intricacies of tax obligations and benefits is crucial. This blog delves into the realm of taxation books, focusing on key tax benefits that can aid Indian entrepreneurs in optimizing their financial strategies and reducing tax liabilities. By exploring various taxation schemes, we aim to provide comprehensive benefits to help entrepreneurs make informed decisions and harness potential tax advantages.
1. Presumptive Taxation Schemes
Entrepreneurs have two options to pay tax on their business income. The first option involves computing taxable income based on books of account. The second option is the Presumptive Tax Scheme, wherein the income is estimated at a prescribed percentage or the amount based on total turnover or gross receipts.
The overview of presumptive tax schemes in India is as follows:
| Section | Eligible Assessee | Eligible Business | Turnover/Gross Receipt Threshold limit | Presumptive Income | Consequences on opting out |
| Section 44AD | Resident persons being: a) Individual b) HUF c) Partnership Firm (excluding LLP) |
Any business (other than commission and agency business) | § Rs. 2 crores
§ Rs. 3 crores if cash received doesn’t exceed 5% of total turnover or gross receipt |
§ 6% of turnover received through banking channels
§ 8% of turnover received through other payment modes |
§ Mandatory to maintain books of account and get them audited
§ Can’t opt again for next 5 years |
| Section 44ADA | Resident persons being:
a) Individual b) Partnership Firm (Other than LLP) |
Specified Professions | § Rs. 50 lakh
§ Rs. 75 lakh if cash received doesn’t exceed 5% of gross receipt |
50% of gross receipts | Mandatory to maintain books of account and get them audited |
| Section 44AE | Any assessee (resident or non-resident) | Plying, hiring or leasing of goods carriages | Assessee should not own more than 10 goods vehicles | § Heavy goods carriage vehicle: Rs. 1,000 per ton
§ Other goods carriage vehicle: Rs. 7,500 per month or part of the month |
Mandatory to maintain books of account and get them audited |
| Section 44B | Non-resident | Shipping Business | No Limit | 7.5% of receipts | – |
| Section 44BB | Non-resident | Providing facilities or services for exploration of mineral oil | No Limit | 10% of receipts | Mandatory to maintain books of account and get them audited |
| Section 44BBA | Non-resident | Operation of aircraft | No Limit | 5% of receipts | – |
| Section 44BBB | Foreign Company | Civil construction in connection with turnkey power project | No Limit | 10% of receipts | Mandatory to maintain books of account and get them audited |
2. Concessional Tax Regimes
Certain assessees are allowed to opt for a lower tax rate regime subject to the fulfilment of certain conditions. These alternate tax regimes offer a lower tax rate, but the assessee must forego certain deductions and exemptions. Here is an overview of different alternative tax regimes.
| Particulars | Section 115BA | Section 115BAA | Section 115BAB | Section 115BAC | Section 115BAD | Section 115BAE |
| Who can opt | Domestic Company | Domestic Company | Domestic Company | Individual, HUF, AOP (other than co-operative society), BOI and AJP | Resident co-operative society | Resident co-operative society |
| Basic tax rate | 25% | 22% | 15%
(income from manufacturing activities) |
· Reduced slab rate
· Higher rebate under Section 87A |
22% | 15%
(income from manufacturing activities) |
| Surcharge | § Nil, if income is up to Rs. 1 crore
§ 7%, if income is more than Rs. 1 crore but up to Rs. 10 crore § 12%, if income exceeds Rs. 10 crore |
10% | 10% | § Nil, if income is up to Rs. 50 lakhs
§ 10%, if income is more than Rs. 50 lakhs but up to Rs. 1 crore § 15%, if income is more than Rs. 1 crore but up to Rs. 2 crore § 25%, if income is more than Rs. 2 crore |
10% | 10% |
| Education Cess | 4% | 4% | 4% | 4% | 4% | 4% |
| Effective tax rate | § 26%, if income is up to Rs. 1 crore
§ 27.82%, if income is more than Rs. 1 crore but up to Rs. 10 crore § 29.12%, if income exceeds Rs. 10 crore |
25.17% | 17.16%
(income from manufacturing activities) |
Slab rate plus Applicable surcharge plus Education cess | 25.17% | 17.16%
(income from manufacturing activities) |
| Applicability of MAT/AMT | Applicable at the rate of 15% | Not Applicable | Not Applicable | Not Applicable | Not Applicable | Not Applicable |
| Condition as to date of incorporation | Should be incorporated on or after 01-03-2016 | – | Should be incorporated on or after 01-10-2019 | – | – | Should be incorporated on or after 01-04-2023 |
| Condition as to mandatory manufacturing activity | Yes | No | Yes | No | No | Yes |
| Condition as to date of manufacturing | – | – | Should commence manufacturing on or before 31-03-2024 | – | – | Should commence manufacturing on or before 31-03-2024 |
| Condition as to the use of assets | – | – | Value of old plant and machinery should not exceed 20% of the total value of the plant and machinery. | – | – | Value of old plant and machinery should not exceed 20% of the total value of the plant and machinery. |
| Mode of Incorporation | – | – | Must not be formed by splitting up or reconstruction of an existing business (Except in case of Section 33B) | – | – | Must not be formed by splitting up or reconstruction of an existing business |
| Nature of Business | Manufacture or production of any article or thing | – | Manufacture or production of any article or thing | – | – | Manufacture or production of any article or thing |
| Restriction on exemption and deduction | Certain deductions and exemptions shall not be allowed | Certain deductions and exemptions shall not be allowed | Certain deductions and exemptions shall not be allowed | Certain deductions and exemptions shall not be allowed | Certain deductions and exemptions shall not be allowed | Certain deductions and exemptions shall not be allowed |
| Restriction on unabsorbed losses | Losses linked with certain exemptions and deductions cannot be set off and carried forward | Losses linked with certain exemptions and deductions cannot be set off and carried forward | – | Losses linked with certain exemptions and deductions cannot be set off and carried forward | Losses linked with certain exemptions and deductions cannot be set off and carried forward | Losses linked with certain exemptions and deductions cannot be set off and carried forward |
| Whether optional? | Yes | Yes | Yes | Yes, assessee can switch to normal tax regime | Yes | Yes |
| When can the option be exercised? | In the first return of income which the assessee is required to furnish. Further, such return should be filed on or before the due date specified under Section 139(1). | In any year | The assessee is required to furnish the first return of income, which should be filed on or before the due date specified under Section 139(1). | In any year | In any year | In the first return of income which the assessee is required to furnish. Further, such return should be filed on or before the due date specified under Section 139(1). |
| Option to opt out of regime | Can switch to Section 115BAA regime | Not Allowed | Can switch to Section 115BAA in case conditions of this regimes are violated | Allowed only once if assessee has business or professional income, but after withdrawing, not eligible to opt again | Not Allowed | Not Allowed |
| Form to file for opting for regime | Form 10-IB | Form 10-IC | Form 10-ID | Form 10-IE (if assessee having income from business or profession) | Form 10-IF | Form 10-IFA |
| Whether covered under Specified Domestic Transactions prescribed under section 92BA | No | No | If profits are increased artificially | – | – | If profits are increased artificially |
3. Investment Linked Incentives to Specified Business
Assessees engaged in the following specified businesses are allowed an investment-linked deduction under section 35AD subject to the fulfilment of certain conditions:
(a) Cold chain facility
(b) Warehousing facility for storage of agriculture produce
(c) Pipeline network for distribution of natural gas or crude or petroleum oil
(d) Hotel of two star or above category
(e) Hospital with at least 100 beds
(f) Building and developing housing project for slum redevelopment
(g) Building and developing affordable housing project
(h) Production of fertilizer
(i) Setting up and operating an inland container depot/container freight station
(j) Bee-keeping and production of honey/beeswax
(k) Warehousing facility for storage of sugar
(l) Laying and operating a slurry pipeline for the transportation of iron ore
(m) Setting up and operating a semi-conductor wafer fabrication manufacturing unit
(n) Developing or maintaining or operating or developing, maintaining and operating a new infrastructure facility
As per Section 35AD, 100% of capital expenditure incurred by an assessee, wholly and exclusively for the purpose of specified business, shall be deductible in the previous year in which the expenditure is incurred. If expenditure is incurred prior to the commencement of operation, the deduction shall be allowed in the previous year in which assessee commences the operation, provided the amount is capitalized in the books of account of the assessee.
If losses of specified business could not be set-off in the assessment year, it shall be carried forward for set-off against profits from specified business in subsequent assessment years. The loss from specified business can be carried forward indefinitely till it set-off. However, return of loss has to be filed on or before the due date to carry forward the loss from specified business.
4. Deduction in relation to Employment Generation
Section 80JJAA provides a deduction to businesses liable for tax audit and contributing to employment generation. If you hire new employees during the previous year and meet the specified conditions, you can claim a deduction of 30% of the additional employee cost for three consecutive assessment years. Thus, the total deduction will be 90% of the additional wages, spread over a period of three assessment years.
The amount available as a deduction under this provision is in addition to the expenditure on wages or salary which is otherwise allowable as business expenditure under Section 37(1).
5. Deduction available to an eligible start-up
Start-ups are allowed deduction under Section 80-IAC if they fulfils the specified conditions. Deduction can be claimed for 100% of profits and gains for 3 consecutive assessment years out of the 10 years beginning from the year of incorporation.
Section 80-IAC defines an ‘eligible start-up’ as a Company or a Limited Liability Partnership which fulfils the following conditions:
(a) It is incorporated on or after 01-04-2016 but before 01-04-2025;
(b) Its turnover does not exceed Rs. 100 crores in the previous year for which deduction under section is claimed;
(c) It holds a certificate of eligible business from the Inter-Ministerial Board of Certification notified by the Central government;
(d) It is engaged in business of innovation, development or improvement of products or processes or services or a scalable business model with a high potential of employment generation or wealth creation;
(e) It is registered with Department of Industrial Policy and Promotion (DPIIT).
Conclusion
In the ever-evolving domain of taxation, staying updated with the latest information and guidelines is imperative for entrepreneurs. Taxmann is a reputable source for many taxation books, offering in-depth insights and practical advice to navigate the taxation landscape effectively. Whether it’s understanding the Presumptive Tax Scheme or delving into investment-linked incentives, Taxmann’s resources can equip entrepreneurs with the knowledge to leverage tax benefits optimally. Staying abreast of the latest tax implementations is crucial for entrepreneurs, as it not only ensures compliance with legal requirements but also offers opportunities to capitalize on tax benefits and incentives.
