Tip: Tax planning in case of start-ups

Tip : Day-1

(In respect of resident’s point of view)

‘HOW TO SAVE INCOME TAX IN CASE OF START-UPS?’

‘Zero tax to Govt’

NO TAX EVASION, IT’S TAX PLANNING 

Points to be covered in this article :

1. Framing of case study

2. Benefits in hands of Mr. B

3. Benefits and tax compliances in hands of Mr.A

4. Calculation of capital gain in hands of Mr. A:

5. Tax Planning in case of Mr. A

Just try to understand with the help of example :

Suppose,

• Mr A supposed to invest Rs 5 crores in start-up. He is holding 100% shareholding in his company(1% in the name of nominee to comply with the provision of Companies Act,2013).
• After some years, let’s say – 4 years, when he feels that he is stable now and after years of hardwork, now having good value of business, he starts approaching to people in market.
• Mr A finally decides to approach Mr B for making investment in his business upto 10%.
• Because Mr B can’t blindly make an investment in A’s business, he approach a business valuer for the valuation of A’s business and lets suppose valuation becomes 30 crores (i.e after four years of startup).
• Mr B ready to make an investment of 10% in A’s business i.e. today’s value is of Rs 3 crore (10% of rs 30 crores).

Benefits in hands of Mr. B

If value of Mr. cA’s business increases further, Mr. cB’s share valuation in A’s business also increases.

Now lets understand benefits and tax compliances in hands of Mr.A

After agreement with Mr B, Mr A sales 10% of his shares to Mr B (i.e. unlisted shares) and capital gain under income tax act,1961 arises in his hands.

Type of Capital Asset  : Shares of unlisted company

Section applied : Sec 112

Period of holding (POH) : 4 years

Type of Capital Gain  : Long term capital gain, because POH is more than 24 months.

Tax rate   : 20% with indexation benefits

Lets calculate capital gain now in hands of Mr. A:

Tax on capital gain on Rs 2.3 crore is suppose comes to Rs 55 lakhs or above (@ 20% tax rate + surcharge + 4% cess).

Tax Planning in case of Mr. A

> Invest amount of net consideration (after deduction of expenses in relation to transfer) in residential house property u/s 54F of income tax act, 1961 for taking exemption of capital gain tax. Exemption will allowed on satisfying conditions as mentioned in sec 54F.

> When Mr.A starts feeling like bored from above mentioned property, he can sale it and whatever capital gain arise in future on such sale, he can invest such capital gain amount again in another residential property to claim exemption u/s 54 of income tax act, 1961. Again, exemption will allowed on satisfying conditions as mentioned in sec 54F.

“ This way, you can play with your money and save taxes”. 

Note : Suggestions always welcomed.

If found any mistake or need improvement in this article, kindly correct me.