Tax woes

While, we've never really had any major issues with the tax department, we're now beginning to hit their radars. Also, given our current size, the outflow of tax this year was a pretty significant number. I sat down to list out all the different sorts of tax we pay:

1. Income tax: the most straightforward of them all, calculated at 33% of our profit. However, this needs to be paid as advance tax every quarter, not just at the end of the year. The advance tax is estimated at 30% of 30% of revenues for that quarter. So approximately 10% of quarterly revenues. If at the end of the year, calculations reveal that we ended up paying less advance tax than was actually due, we pay the remaining with interest! Or else, the IT department refunds the excess, also with interest.

2. Tax deducted at source (TDS): for all payments made by us to others, including employees, we need to deduct tax at source. The rates of deduction differs based on the service provided to us. It is also our responsibility to pay the tax liability of our employees. This is pretty important, as the fines for not paying this are pretty severe. TDS is to be paid monthly.

3. Service tax: This was the real killer. Till last year it was 10%, plus a 5% cess for education - some government scheme for providing education to underprivileged kids. This year, it became 12% plus the cess. So every service, we provide we pay 12.24% service tax. This is also paid monthly. But you get a rebate for the service tax you pay out to entities that provide services to you.

4. Fringe benefit tax: One of the greatest benefits of running a company is that a wide range of expenses can be booked to the company, thus reducing the profit and saving on tax. I am sure, I'll have a tough time explaining to the IT department how exactly a new Tag Heur watch could be a business expense. But the government got smart and decided to impose a tax on all these antics - so food, travel, beverages, and a whole host of other perks and privileges given to employees and us poor founders are now taxed at 6%. Also payable monthly.

5. Sales tax and Octroi: We not only sell services, but every now and then manage to sell one of our products (software) as well. This entails a sales tax payout, and if being sold outside state boundaries, Octroi as well. I still haven't gotten a handle on the whole VAT system, but I think that will now replace the Sales tax.

6. Professional tax: How could I forget this one! Depending on the salary slabs, there is a monthly payout of professional tax per employee. Its just about Rs. 200 per employee per month. I had no idea this existed, and last year we had to end up paying all the professional tax we owed for the previous 4 years, and then the interest on it as well. Sheesh!

It's a wonder, we manage to keep the business running! We're left with not much choice except to establish an overseas entity in a tax-free country, probably somewhere in the Middle East, at least for the revenues from clients in that region. Hmm...now where's that forex rulebook?