Businesses usually get so engrossed in carrying their operations that they miss out the essentials of filing tax returns.
At times, entrepreneurs are even not sure about the process that is required to be done and how much tax they owe to the government. But, you need to claim the responsibility of filling your tax returns on a regular basis.
Since everything is taxable today, being tax efficient will give credibility to your business and you will be able to keep a track of all the resources exhausted and the scope of expansion. For most of the young entrepreneurs, it is critical that they clear all their doubts regarding taxes as it will yield a lot of benefits in the long-run.
As a business writer, I have researched several business structures and found most of the successful ones were who fulfilled all their legal formalities so that they do not end up in an unnecessary mess.
What is a Tax Return?
Tax Return is a procedure to file for all the taxes you are liable to pay as a business owner. It also allows you to calculate tax-liability and tax payments. The legal system and its rules may vary according to different countries.
However; in this post, we will focus on the tax system in India and the benefits of filing returns as an entrepreneur.
Types of Tax Returns
Direct Tax – This type of tax is paid directly by an individual or organization to the entity. The tax is levied on property tax, taxes on assets, personal property, etc.
Property and Sales Tax – This type of Tax is levied on multiple possessions by the individual or organization. All the business entities dealing in multiple properties (offices) need to pay taxes for their properties as per the rate decided by the government.
Indirect Tax – This is entirely different from direct taxes. This type of tax is paid by a different entity and is levied on a product.
Business Income Tax – Under this tax, businesses need to pay a share from their income each financial year. The tax rate for them is pretty different from the ones imposed on others.
Filing Income Tax Return in India
Income Tax covers a major part of the taxation system in India and it is mandatory for every entrepreneur to file the returns. The returns can be defined as a statement which reveals your earning from multiple sources.
It contains details like tax refund and tax liability given by the government. Usually, the deadline by which you can file your tax return is four months from the end of each financial year.
Providing enough time to the businesses will ensure that they accumulate correct information and submit a valid report without any errors.
But yes, if you are unable to file your returns on time it is likely that you might have to pay extra charges (as penalty/fine). There are a lot of benefits for filing tax returns especially if you are a start-up or small/medium business.
Why is it Important?
Here’s a list of all the factors which prove that filing tax returns will yield great benefits for you and your business.
Win Government Tenders
In case you are into construction business or provide contractor services it is critical that filing your tax returns on time might reward you with a government tender that you had wished.
Most of the contractors miss out on filing their returns considering it a lengthy procedure. While filing your returns, make sure they are accurate and audited (if required).
At times, the government initiates different checks on the contractor before offering any tender. People from the scrutiny committee may check your backdated IT filings (up to 5-7 years) to determine that you are capable of taking the tender.
Apply for Loans
As a business owner, you will agree that raising capital is a critical aspect of every business. To grow your business you need to find different ways of bringing funds and using them to their maximum worth.
Usually start-ups with low-budget have to stick to loans for expanding their businesses. While initiating a business loan, you would require your recent Income Tax Returns to show them as proof and in case you stand as a defaulter then you may be rejected a loan.
In case, you are thinking to apply for a loan make sure you have your returns filed in place.
Carry Forward Loss
While calculating the yearly accounts if you see your business incurring losses under the ‘Profits and Gains’ you can carry forward the losses incurred for the next financial year.
But to do this, you need to file your income tax returns within the stipulated time. Since the tax is calculated on business profits, in a situation of loss you will require paying less tax.
Well, you can consider this as an added advantage. Without proper tax filing, you might be able to continue with your business operation but certainly, you will have to pay for the penalties sooner or later.
You can claim depreciation on the assets that are on your name or on your business name. This is allowed only to the business owner by the Income Tax Department and the assets in question must be used only for business-related purposes.
To make it easier, you can claim for depreciation on your assets at the time of filing your IT returns. Maximize your profits by calculating the deductions while claiming depreciation.
As per section 32 of the Income Tax Act, the total taxable amount can be calculated after the deduction of all the expenses and the depreciation amount.
Restrain from Penalties
According to the Income Tax Act, every business owner is liable to file for the taxes according to the amount of his profitable earning. Not paying taxes is illegal and thus can land you in legal troubles.
You can prevent this easily by filing your returns on time and taking every account and transaction into notice. Even the wrong filing of records may invite problems for you.