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                                              LEARNING OBJECTIVE



After reading this module, you will learn:

1. Rate of tax on different business structures- partnership, LLP & Company.

2. Tax registrations for business - PAN and TAN

3. Tax on different types of capital issuances by a company

4. Minimum Alternate Tax

5. Deductions in respect of business expenses, depriciation
6. Tax filing requirements of a business (including advance tax)

7. Compliance requirements for tax deducted at source (TDS)

8. Tax rates on international transactions - Using double taxation avoidance agreements

9. Understanding compliance requirements under VAT, Central Sales Tax and Service Tax

10. Taxation of Software


Tax law is very complex and niche - in real life most expert tax advisers usually specialize in a branch of taxation – e.g. indirect taxes, or income tax. Further, tax laws are subject to frequent modifications introduced through the Finance Act, or by concerned regulatory bodies such as Central Board of Direct Taxes (CBDT) for income tax, Central Board of Excise & Customs (CBEC) (for excise, service tax and customs) and state governments (in case of VAT). While entrepreneurs and consultants can rely on tax experts for the nuances, they should still have a basic sense of the different tax laws that apply to their business, as even unintended violations can turn out to be very expensive later.

This chapter will provide an introduction to the basics of taxation and various registration and compliance related requirements under tax laws that an entrepreneur should bear in mind while starting out and in the course of running his business.


Compliance with tax laws is an essential requirement for a business. For an entrepreneur, it is important to know the following aspects about taxation:

i) Income tax rates and deductions applicable to his business structure,

ii) Indirect taxes applicable to his business;

iii) Necessary tax registrations, compliance requirements under different tax legislations that apply to his business, etc.;

iv) Basics of tax deduction at source (TDS). When certain payments are made to a recipient (who could be an employee, contractor, consultant, a professional, etc.), a certain amount of the payment is required to be deducted by the payer as tax (on behalf of the recipient) and paid to the Government.

Note: In certain cases, ascertaining the cost of acquisition is not easily possible. For such situations, the Income Tax Act lays down detailed provisions as to how such cost can be measured.


Income tax is governed by the Income Tax Act, 1961. Before going into how income of a business is taxed, one must know that income is classified under the Income Tax Act into the following categories:

1. Income from salaries – e.g. salaries and perquisites earned by employees of an organization.

2. Income from house property – e.g. income from renting a flat.

3. Income from business or profession – e.g. income of an organization which runs a retail store, or a lawyer who provides legal services.

4. Capital gains – income generated through appreciation in the value of any kind of property. e.g. gains from sale of shares or sale of a house.

5. Income from other sources – e.g. income from lotteries, dividend on shares.

Income of any entity, including a business, can be from all of the above sources. For example, income of a company which is in the business of creating custom-made softwares will be considered business income. However, if this company also happens to hold shares in a subsidiary, and sells its stake in that company, then its gains from the sale could be taxed as capital gains. If it leases out a portion of office space it owns to a startup pursuant to a ‘Space Sharing Agreement’ (startups frequently enter into Space Sharing Agreements to share resources and bring down costs), its lease income will be considered as income from house property.

In this write-up we shall discuss tax on the income from carrying out a ‘business or profession’ in greater detail, as this is most relevant for businesses. Income from other heads will be covered only where necessary. For example, income from capital gains is discussed in case of taxation in the event a company issues capital.

The mindmap can be accessed from here.

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