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TAX SAVING TIPS FOR SMALL BUSINESS OWNERS IN INDIA

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Posted on
May 14, 2019

Running a business requires a business owner to undertake oodles of tasks. But, it isn’t always easy. To gain the most and increase net earnings a business owner needs to pay heed to various factors. While most of the factors that tend to impact business profitability are out of control.  Fortunately, there is one thing that you can certainly do is lowering the tax burden. 

Implementing effective tax planning can help you keep your tax bill as low as possible. It can save a significant amount of your revenue from being paid as tax to the government every year.  

Thus, to support and make your business liable to lesser taxation here are some tax-saving tips for small business owners in India. Keeping these tips in mind will help you save tax legally by claiming the right deductions.

So, to get started read below… 

# TIP 1: RECORD YOUR EXPENSES

The most crucial step towards minimizing the tax burden is adopting good bookkeeping practices.  Irrespective of type or size of business every business owner should consider maintaining a regular record of business expenses.  Failure to do so can be real trouble for business owners who pay wages in cash. Unrecorded cash expenses can reflect higher profit margins making you liable to pay more in the form of taxes. Thus, to avail, necessary tax exemptions master your skills of solid record-keeping and also make sure to keep an eye on all state of affairs in your accounts department.

# TIP 2: CLAIM DEPRECIATION

Under the sections of Income-tax act manufacturing units in India are liable to avail a tax deduction for depreciation of machinery. The provision is entitled to offer an additional depreciation of 20%, apart from the regular depreciation (15%). However, the benefits of this additional deduction can only be claimed during the first year of machinery or equipment being put to use. Similarly, another section, 35AD provides a tax deduction on total capital expenditures to enterprises involved in businesses specified under this section.

# TIP 3: AVAIL BENEFITS ON UTILITY EXPENSES

As per the Government of India, various business utility expenses used for serving the legitimate purpose of business can be included under the slab of tax-deductible entities.

The various business expenses that you can claim for lowering taxable income are: 

  • Preliminary expenses

Under Section 35D of Income Tax Act, 1961, all expenses incurred before the incorporation of a business or new unit are entitled to be deducted from the total taxable income. 

  • Regular Expenses

Various expenses such as electricity consumption (if working from home), Wi-Fi or internet charges or rent amount can be claimed under business utility expenses. 

  • Convenience Expenses

Expenditures made on vehicles, phones, or parking for business can be deducted as a company’s expenses.

  • Asset Depreciation Expenses 

All capital expenses made in the name of the company can be deducted as expenses to reduce total taxable income. 

# TIP 4: DEDUCT TAX AT SOURCE

As per the Act of Indian Income Tax deducting tax at source is mandatory while making certain transactions. The payments covered under this provision may include commission issued to a freelance employee or a business agent. Failure to deduct tax at the source makes the expenses inadmissible for claiming the deductions.  

# TIP 5: CLAIM BENEFITS ON HOME OFFICE

As per the Indian Income Tax Regulations businesses operating from their home office or a rented space can avail the exemptions on tax. The expenses such as mortgage interest payments, insurance, repairs, rent, and other business utilities can be considered as a business expense and are liable to be tax-deductible. Additionally, if a business owner possesses an office and pays property tax then he/she can also claim for the deduction of that amount from the gross income.

# TIP 6: AVOID MAKING CASH PAYMENTS

Making payments in cash will only lead to increasing your tax burden. This is because as per the regulations of Indian Income Tax cash transactions exceeding ₹20,000 in a day are prohibited to be deducted as expenses. Therefore, make sure to either distribute payments by splitting it into several days or by using other electronic modes of transaction. 

# TIP 7: FILE YOUR TAX RETURNS ON TIME

By filling returns on time small business owners can avail the benefits of various perks accorded by the income tax department. For instance, if your business has incurred an income loss then you can carry forward it next year. These losses are allowed to be adjusted against the income of next year, until the period of 8 years. However, this tax benefit can only be availed on filing the tax returns on time or before the due date. 

CONCLUSION

Hence, there are ample ways by which the small business owners in India can lighten their burden of tax payment. By implementing the aforementioned tips in business’ daily activities a sizeable income can be protected from tax. However, still, it’s not too late. Incorporate these practices and make the most of tax exemptions and deductions. 

Furthermore, if you are looking for financing to expand your business, then, fortunately, you can save the tax on interest paid on business loans. To know more about quick, collateral-free small business loans, click here.