5 Things that every startup should know about taxation in India

Startups are typically frenzied during the initial days of operation, which leaves owners in. There is a false sense of ascension when it comes to implementing ideas, managing installation costs, and keeping their soul. On a financial basis, they are usually prepared for losses, some of which might be overlooked. Failure to pay early attention can position you at a tax hazard and lead to an ambiguous situation where tax benefits are leveraged. Let’s answer this enigma and see how you can set up a startup by understanding relevant fiscal regulations.

This article outlines five essential tax provisions that apply to every newly formed business.

1. Preliminary Expenses 

The preliminary costs are those for the creation of a business. This does not only include the costs of new construction but also the expansion of network and business post company registration in India.

The client will subtract 5% of the overall project cost. An organization can choose to measure 5% of the employed capital. The sum is also allowed for five consecutive years as a deduction.

Who can leverage the benefits?

The eligibility includes the Indian resident of an Indian company.

Included Expenses

It requires the costs for the preparation of a project study, a feasibility report or a consumer survey. Also, it includes legal costs charged for drafting an agreement. You may also demand deductions from planning and printing costs for MoA and AoA as a business.

2. Setting-off your losses and carrying forward some of them

There are equal chances of failure at the outset. Losses are severe for any businessman to handle. Here’s an opportunity to turn them into advantages.

Second, you can make losses on a company’s profits. The excess loss can be compensated against earnings from other heads under a few conditions. Any more damages can be expected for the next few years. Such losses can be maintained over the next eight years of assessment.

Your business can benefit from this if all ITRs are filed on your company’s due dates. Any delay would end the income for the losses of the year in question. Losses from other profit heads may also be passed under conditions.

3. Research-Related Expenses

Business-related scientific research costs are permitted as a deduction of a certain amount. Let’s find out what it’s all about.

Study expenditure is covered by section 35 of the Income Tax Act. The 100% deduction is possible for revenue and capital expenditure u / s 35(1) and (2). In the year in which the capital expenses are incurred, capital expenses shall be deductible. But this investment is not permitted to be depreciated.

This ensures that costs to acquire assets for the research team (except land) and income taxes are deductible for the first three years. Alternatively, a production company can claim a deduction of 200 percent of expenditures u / s 35(2AB).

You may contribute to a recognized association such as research laboratories, national laboratories, or universities if you do not have an in-house research team. Nevertheless, you need to be told of qualifications and other deduction requirements.

4. Carry forward unabsorbed depreciation

When you choose to avail of the accounting and bookkeeping services wherein the professionals write-off previous losses for tax purposes in the account books. The key explanation for this condition may be a huge amount of income depreciation. In such a scenario, the portion of depreciation that is unabsorbed can be carried forward to be absorbed against future taxable profits. 

It is an unpaid deterioration of the profit and loss balance. This is usually a case of high-priced properties, apart from inadequate income. It can be credited for any gain on the profits of the current year. If depreciation is not yet absorbed, you can continue for several years.

5. Presumptive Taxation Scheme

A business person must keep daily account books in a specified way. This boring work can be reduced by opting for this scheme. Presumptive taxation schemes for different taxpayers are framed. (Sections connected: 44AD, 44ADA, 44AE).

Section 44AD-Valid for business evaluation. Here, 8% of the gross sales and earnings are known as revenues and dividends paid to income tax.

Section 44ADA-A professional assessment. The tax here applies only to 50% of the gross receipts.

Section 44AE – This applies to an entity which carries, hires or leases products.

Key Benefits

A company adopting the presumptive taxation scheme can declare its income at a prescribed rate. Also, the organization is relieved of the tedious task of maintaining account books.

When reporting the profits in a specific way, many of the expenditures are deductions. It is therefore assumed to be the income after deduction. You have to carefully choose this scheme in each financial year, given the real net income percentage and other factors.


Understanding your flow of income is as critical as understanding your business. The taxes and deductions available for your company and operation should not be ignored. For every company, these five provisions must be understood. You can contact a professional for information and actions if any of these are useful for your company.

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