Financial Planning for Entrepreneurs in India

Most entrepreneurs make a common financial mistake of clubbing personal and business money. This leads to tax complications, hides real profits, and puts personal money at risk during business slowdowns.

Check out the essential measures to separate your business and personal finances for effective handling of money:

• Open a Separate Current Account: Ensure to put your business income and expenses in a separate current account. Do not use a savings account for business transactions.
• Pay Yourself a Fixed Monthly Salary: Set a fixed monthly amount for personal expenses from the business account. In a sole proprietorship, salary paid to self is usually treated as drawings. On the other hand, in a company or a (Limited Liability Partnership) LLP, salary or remuneration should be structured as per applicable tax rules.
• Separate GST: Ensure to maintain a specific reconciliation between business receipts and GST output liability.
• Business Credit Card: Use your business credit card only for business expenses. It helps during GST audits and income tax scrutiny.
• Separate Income Tax Return: File the ITR-3 or ITR-4 presumptive tax for business income. Make sure to file your personal investments under the correct income tax heads.

Note: Insurance premiums should be classified correctly for tax and accounting purposes. Personal life or health insurance premiums are generally claimed under personal tax provisions, while eligible business insurance expenses, such as keyman insurance premiums, may be considered separately under business expenditure rules.

A salaried employee requires an emergency fund of 3 to 6 months of expenses. In comparison, an entrepreneur requires 6 to 12 months of emergency fund because business income can drop to zero for a certain time period during economic downturns, lost clients, or market changes.

Check out the various types of emergency funds required for different business stages and the right fund to park the money:

Unlike salaried employees, entrepreneurs and their families son not have the safety net of a group term insurance sponsored by an employer. So, their families depend completely on them for financial security. This necessitates a dedicated term insurance plan for entrepreneurs to provide financial security for their families in the event of their unfortunate demise.

Check out the various coverage components required for entrepreneurs, the formula to decide the required coverage, and associated examples:

Salaried employees may receive group health insurance from their employers, but entrepreneurs and self-employed individuals usually need to arrange personal or family health insurance independently.

Although many entrepreneurs ignore this risk, a single hospitalisation can lead to the drain of long-term savings or can even force the liquidation of investments.

Check out the various health insurance plans that entrepreneurs should consider to get financial relief in times of medical emergencies:

• Base Health Plan: An individual or family floater health insurance policy with an adequate sum insured can help cover eligible hospitalisation, ICU, daycare, and related medical expenses. OPD coverage should be mentioned only if it is included in the chosen policy.
• Super Top-Up Plan: You can consider a super top-up plan with a higher sum insured above a defined deductible, such as ₹10 lakh, to manage large hospitalisation expenses at a relatively lower premium.
• Critical Illness Plan: You can select a separate health insurance coverage for critical illnesses, such as cancer, stroke, or heart attack, with a lump-sum payment.
• Professional Indemnity: If you work in consulting, finance, legal, medical, technical, or advisory domains, you may also need professional indemnity insurance to cover liability arising from professional errors, negligence, or claims, depending on your work and client contracts.
• Section 80D Benefits: Under the old tax regime, eligible taxpayers can claim health insurance premium deductions under Section 80D. The limit is generally ₹25,000 for self, spouse, and dependent children, plus ₹25,000 for parents, or ₹50,000 if the parents are senior citizens, subject to the applicable rules.

Entrepreneurs do not receive a regular income like salaried professionals. This necessitates effective investment planning to accommodate variable monthly profits, provide life cover for financial security, ensure tax efficiency, and remain flexible during fluctuating business cycles.

Check out the various investment plans for entrepreneurs along with their available tax deductions, their return type, life cover benefit , liquidity, and their effectiveness for the entrepreneurs:

Why is ULIP particularly suitable for Entrepreneurs?

Unit Linked Insurance Plan (ULIP) is a well-known insurance product that is particularly suitable for young entrepreneurs due to the following reasons:

• Irregular Income Accommodation: Some ULIP plans offer premium holiday options, allowing policyholders to temporarily pause premium payments, as well as a top-up facility that enables additional lump-sum investments during favourable market conditions.
• Life Cover: In addition to the investment component, a ULIP plan provides life cover benefits to the entrepreneurs without the need for a separate term insurance, helping in effective financial planning for entrepreneurs.
• Free Fund Switching: Some insurers offer ULIPs where you can switch between different funds at no extra charge. This ensures that the policyholder can change investments as per changing market conditions at no extra cost.
• Tax Treatment on Maturity: ULIP maturity proceeds may be tax-exempt only if the policy satisfies Section 10(10D) conditions, including the premium-to-sum-assured condition and, for ULIPs issued on or after 1 February 2021, the ₹2.5 lakh aggregate annual premium limit. If these conditions are not met, proceeds may be taxed as capital gains.
• 5-Year Lock-In Period: A mandatory 5-year lock-in period forces the young entrepreneurs towards disciplined investment. It avoids the entrepreneur's tendency to redeploy personal savings into business requirements.

Axis Max Life Online Savings Plan Plus is a ULIP offering that can help entrepreneurs grow their wealth over time. This plan with zero premium and allocation charges and four fund options: equity, balanced, debt, and liquidity. Moreover, investors can switch funds without incurring any additional charges. To check the potential growth of your investments over time, you can use a free online ULIP calculator that can provide immediate and accurate results.

Entrepreneurs in India can reduce their tax liability significantly through smart tax planning. Several taxation provisions apply to entrepreneurs and business individuals.

Presumptive Taxation — Section 44AD & 44ADA

Section 44AD and Section 44ADA deal with presumptive taxation, which is a simple tax structure allowing small businesses to report income as a fixed percentage of their turnover, without the need to maintain detailed books of account. Check out the key details of various sections applicable under the presumptive taxation system:

Advance Tax Obligations

The employers of salaried employees deduct TDS from their income, while entrepreneurs must pay advance tax in quarterly instalments. Failure to pay advance tax or deferment of advance tax may attract interest under Sections 234B and 234C.

Check out the due date to file the advance tax, applicable tax liability, and consequences of the default:

Section 44AD of the Income Tax Act allows businesses to pay only one advance tax instalment as the full estimated liability by March 15 of the financial year. The provision aims to simplify the cash flow planning for small businesses.

Section 80C — Entrepreneur Tax Deductions

Section 80C of the Income Tax Act allows tax deductions to entrepreneurs for investments in various instruments. However, this provision is allowed only if you are filing your income tax return under the old tax regime.

Check out the various deductions under Section 80C and the associated limits:



Under the old tax regime, an eligible entrepreneur may be able to claim deductions such as ₹1.5 lakh under Section 80C, an additional ₹50,000 under Section 80CCD(1B) for NPS, and eligible Section 80D deductions for health insurance. The actual tax saving depends on the taxpayer’s income, regime, eligible investments, family situation, and applicable limits.

A salaried employee is eligible to receive various retirement benefits, such as a provident fund, pension, and gratuity. On the other hand, entrepreneurs get zero benefits from such sources. So, they have to build the entire retirement corpus on their own through disciplined personal investments.

Retirement Corpus Calculator: How Much Does an Entrepreneur Need?

The total retirement corpus required by an entrepreneur depends on several factors, such as monthly expenses, inflation, and other retirement-related factors. Check out the value of different factors that are considered in the retirement corpus:

You can easily use a free online retirement planning calculator to estimate your retirement corpus needs similar to the one shown above, based on your unique criteria. Given below are some of the essential instruments for retirement planning that can be used by entrepreneurs to live a smooth and stress-free retirement phase:

• ULIP Plans: The dual benefits of life cover and investment component offered by the ULIP plan make it an essential tool for long-term market-linked returns and tax-free maturity benefits. There are currently various types of ULIP plans and funds that one can choose from.
• National Pension System (NPS): The National Pension System (NPS) helps build disciplined retirement savings, offers an additional tax deduction of up to ₹50,000 under Section 80CCD(1B), and allows 60% of the accumulated corpus to be withdrawn tax-free at the age of 60. Currently NPS is among the most popular retirement planning focused investment options in India.
• Public Provident Fund (PPF): PPF is a government-backed long-term savings option with a 15-year lock-in. The interest rate is notified periodically, so it should not be presented as a fixed guaranteed rate for the entire tenure.
• Pension Plans: Pension plans and annuity plans can help you convert your accumulated corpus into guaranteed lifelong income in retirement. With deferred annuity options, entrepreneurs build the required retirement corpus through regular premium payments and convert it into a monthly pension after they retire.

A keyman insurance policy is a type of insurance product taken by the company on the life of a founder, CEO, or any other critical employee whose absence would severely impact the overall business operations. In this case, the company pays the premium and remains the beneficiary.

Check out the essential differences between keyman insurance and personal term insurance across several factors:


Every entrepreneur should buy two main types of insurance coverage:

• Keyman Insurance Plan: To protect the business against revenue losses.
• Personal Term Plan: To provide financial protection to your family.