by C.V.Rajan

Created on: January 02, 2008   Last Updated: September 16, 2008

The moment you say Tax, Government is in the picture and anything you have to do with Government, irrespective of which country you belong to, is fraught with rules, regulations, laws, by-laws, registrations, forms, exemptions and notifications.

In a home business, at least to start with, you have to mantle all roles related to production, marketing, public relations and accounting. One area where it is better to pay money and use specialist services/ consultancy is in the area of Taxes. It may not be worth if you waste your time and effort on this slippery area. At least make use of the services of Tax consultants to get the necessary preliminary registrations done at the appropriate Government departments, get the necessary forms filled and submitted, and get clear-cut guidelines on the types of taxes you have to pay specific to the type of business you are doing.

You will be confronted with Income Tax, Sales Tax/ VAT (i.e. Value Added Tax, if you are producing goods), Service Tax (in some countries where it is not considered under VAT), Professional Tax (in some countries/ some specific regions) and so on.

INCOME TAX is a totally independent issue which is not connected to other taxes. Even when you were not a Home Business person, perhaps you were employed somewhere else and hopefully you would have already obtained Social Security Number (or Income Tax Number or Permanent Account Number - PAN in India) and remitting your Income Tax.

If you were in employment earlier and now you have quit the job and started your home business, then you may have to switch over to a different classification of Income Tax assessment. (It depends of the Country). Once you are a business person, you get advantages of deduction of business expenses salaries paid, office expenses (consumables, stationery, raw materials, traveling and sales promotion expenses, depreciation for computers, machinery and vehicle etc). There are again rules related to the extent of xccounting records you have to maintain depending on your turn Over. You may have some specific exemptions for record keeping if you are in home business. It depends on the country.

As regards Sales Tax, VAT or Service Taxes, again there may be a plethora of rules, exemption limits, record keeping procedures etc. What is important to know is, if the item you are selling or if the service you are rendering is taxable, you have to collect the Tax from your customer promptly with your bill and pay it promptly to Government periodically (quarterly/ half-yearly etc). There are records to be maintained, forms to be filled and remittances to be made in-time or face penalties for every lapse or delays.

DO NOT confuse these Taxes with Income Tax. They are totally independent issues and you have no scope of adjustment of one with another.

As regards exemptions, for example, in India, if you are a service provider (not producing any goods which is quite likely the case for many home businesses) like software development, web-site development, CAD service etc., and if your annual billing is less than Rupees 0.8 million, you are exempted from collecting and paying Service Tax.

Next category of taxes is related to Employee Security (Social Security Tax/ Provident Fund Contribution etc). Here again there could be several rules / exemptions etc depending on the country.

As mentioned at the beginning, it is always the best option to involve a Tax Consultant in organizing and maintaining the whole activity related to taxes. Once you are stabilized in business and you have acquired enough knowledge on these affairs, then perhaps you can stand on your own legs on these matters.

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