Simplifying Income Tax Returns (ITR) for Entrepreneurs and Startups

As an Entrepreneur or A Startup Founder, you might be constantly juggling various responsibilities! From product development to marketing strategies. Amidst this busy schedule, one crucial aspect often gets overlooked: Income Tax Returns (ITR). But fear not! We’ll break down the essentials of ITR, making it accessible and empowering you to stay tax-compliant.

Income Tax Return (ITR) is a form that an individual submits to the Income Tax Department of India to file information about his income and taxes payable during that year. Information filed in an ITR should be applicable for a particular financial year between 1st April to 31st March of the next year.

The income you earn can be from sources such as salary, profit in business, sale of house or property, dividend or capital gains, and interest received among others. If you have paid tax in excess during a year, you will get a refund by the Income Tax Department.

Is Filing ITR Compulsory?

Income Tax rules dictate that if you earn more than the limit that is exempted from being taxed by the Government, you are mandatorily required to file your tax return according to the tax slabs for each year. Filing your ITR post the due date may attract a penalty and also become a deterrent in getting a loan or visa approved in the future.

Who is Required to File ITR?

Now that you know what an income tax return is, let us take a look at the list of people as well as enterprises that are mandated by law to file income tax returns every financial year.

What is Income Tax Return (ITR)?

• Any individual who is less than 59 years and has an annual income of more than Rs. 2.5 Lakhs should file an IT. The exemption limit for senior citizens between 60 to 70 years of age is Rs. 3 Lakhs. For super senior citizens (80 years and above), the limit is Rs. 5 Lakhs. Income calculation should be done without allowing deductions specified under Section 10 of the Income Tax Act.
• A registered company with yearly income, even if it has not made any profit during the period
• An individual who wants to claim a refund on surplus income tax or tax that was deducted from the annual income.
• An individual having an asset or any other financial interest outside of the country.
• A company out of India with treaty benefits on transactions made within the country.
• NRIs who earn above the basic yearly exemption limit of Rs 2.5 lakh.

Why Should Entrepreneurs Care About ITR?

Filing ITR isn’t just a legal obligation; it’s a strategic move that can significantly impact your business. Here’s why:

1. Transparency and Trust: By filing ITR, you demonstrate transparency with tax authorities. It builds trust with stakeholders, investors, and potential partners. When your financial records are in order, it sends a positive signal about your business practices.
2. Financial Proof: ITR serves as proof of your income. Whether you’re seeking funding, negotiating partnerships, or applying for a business loan, having a clean ITR record is essential. It shows that your business is financially stable and reliable.
3. Avoid Penalties: Missing the ITR deadline can result in penalties. As an entrepreneur, you want to allocate those funds elsewhere – perhaps towards growth initiatives or R&D. Staying compliant ensures you avoid unnecessary financial setbacks.

Know Your ITR Forms

Let’s decode the ITR forms relevant to entrepreneurs:

1. ITR-1 (Sahaj): Ideal for sole proprietors with income from salary, house property, and interest sources. If you’re a freelancer or a small business owner, this form may be your starting point.
2. ITR-2: For entrepreneurs not involved in business or profession (e.g., freelancers). If you have income from investments or other sources, this form suits you.
3. ITR-3: If you’re running a business or profession, this form is your go-to. It covers income from business profits and professional services.
4. ITR-4 (Sugam): Designed for small businesses with presumptive income. If you’re a startup with straightforward financials, this form simplifies the process.
5. ITR-5: Partnerships, LLPs, and associations – this one’s for you. If your business structure falls into these categories, ITR-5 is your friend.
6. ITR-6: Companies (except those claiming exemption under section 11) file this form. If you’re scaling up and have a corporate structure, ITR-6 is essential.
7. ITR-7: Special cases, including charitable trusts and political parties. If your startup has unique circumstances, consult an expert to determine if ITR-7 applies.

What Documents do you Need to File ITR?

When you start the process of filing your income tax return, apart from your salary slips, bank savings account passbook, Aadhar card and PAN card, there are a few other documents that you will require to ease your tax filing process:

• Form 16: It is provided by your employer and contains details of the salary paid by them to you and the Tax deducted at source (TDS) on it.
• Form 16A: It contains details on TDS deducted on interest received from deposits such as fixed or recurring bank deposits.
• Form 16B: If you sell a property, TDS applies on the amount received from you by the buyer, the details of which are present in this form.
• Form 16C: TDS details of the rent paid by your tenant to you are recorded here.
• Form 26AS: This form represents your comprehensive statement of taxes against the PAN number. It includes TDS by your employer, bank or any other organization that has made a payment to you. Advance taxes or self-assessment taxes paid, proof of tax saving investments such as deductions as prescribed from Section 80C to 80U including life insurance policy or a term plan are also listed.

Step-by-Step Guide to Filing ITR

1. Register: Head to the Income Tax Department’s e-filing portal and register if you haven’t already.
2. Choose the Right Form: Based on your situation, select the appropriate ITR form. Don’t guess – pick the one that aligns with your business activities.
3. Fill Accurately: Input all details meticulously. Accuracy matters!
4. Verify: Electronically verify your return or send a signed physical copy if required.
5. E-File: Submit your return within the deadline. Don’t procrastinate – it’s a race against time!

Pitfalls to Avoid

Don’t stumble into these common traps:

• Wrong Form: Choosing the wrong form can impact your tax liability. Seek professional advice if needed.
• Underreporting Income: Declare all sources – even that side gig you think is insignificant.
• Missed Deductions: Claim all eligible deductions; they’re your secret weapon.
• Calculation Errors: Double-check your math. A small error can snowball into trouble.
• Deadline Drama: File on time – no last-minute panic!

Coinshell Has Your Back

At Coinshell, we understand the entrepreneurial journey. Our expert team ensures seamless ITR filing, tax optimization, and compliance. Focus on growing your business; we’ll handle the numbers. 

Remember, tax compliance isn’t a burden; it’s a strategic move. Stay informed, stay compliant, and let Coinshell be your financial friend! .

Got questions? Reach out to us – we’re here to help!