Business Tax Savings Tips for Business Owner & Startup

Every individual or business owner perceives income tax as an unnecessary burden. They want to do their best to minimise it. So, here are a few business tax savings tips that work most of the time.

Business Tax Savings Tips for Business Owners >Business Tax Savings Tips for Business Owners & Start-upsamp; Start-ups

For small business owners, handling tax obligations seems like a daunting task. They must gather all their financial records and file tax returns on time to stay on track. Even after that, they wonder what they can do to evaluate their tax situation and save money on their tax outgo. Taking charge of financial planning, tax preparation, and recordkeeping are good ways to reduce the tax burden and feel confident about getting the best advantage. For instance, while many entrepreneurs avoid taking loans, they don't know that different types of Business Loans can also provide them with tax benefits.

Check out these business tax savings tips and decide which ones you can use to run your business smoothly and minimise tax obligations.

Income Tax Rules for Small Business Owners

A partnership firm, Limited Liability Partnership, or another legal business entity is considered a small business if it has an annual turnover of less than Rs 50 Lakh. That means it is exempt from paying any taxes on its income and profits. As an SME owner, you can claim this benefit only if your annual revenue is less than Rs 50 Lakh after reducing all business operational costs. If the yearly revenue exceeds Rs 50 Lakh, you must pay taxes according to your state and industry rules.

10 Business Tax Savings Tips

Here are a few business tax-saving tips for small business owners. You can use the strategy that works for you in the best appropriate way:

1. Business Utility Expenses

SME owners using their phones and vehicles purely for business purposes can show them as their business utility expenses. Some business utility expenses you can claim for deduction include preliminary expenses like enterprise establishment, convenience expenses like phones and vehicles, and regular expenses like rent, internet connection, electricity, etc. Capital expense depreciation is also eligible for tax deductions, provided you pay them from your company's account.

2. Expenses on Hotel Booking and Travelling

If you travel for business purposes, remember to book the tickets and hotels at your business expense instead of your personal account. It will come under your business expense, and you can claim a deduction from your company's taxable income. It is an excellent way to claim tax deductions on expenses for hotel booking and travelling.

Also, Check: Income Tax Audits In India: Everything You Need To Know

3. Medical Insurance Premium

Medical insurance premiums of up to Rs 25,000 are tax deductible under Section 80D of the Income Tax Act, 1961. It will also cover your children, spouse, and parents. However, you may not claim this deduction if you also hold a full-time job parallel to running a small business. In that case, your employer must be providing you medical insurance coverage.

4. Hiring Family Members

Hiring your family members and paying them monthly salaries is one of the most efficient business tax-saving tips for SME owners. If they don't have any other income source, you can pay them a salary of up to Rs 2.5 Lakh a year while ensuring their income from your business does not become taxable. Since their salary will come under your business expense, it will reduce your company’s overall tax burden.

5. Always Deduct Tax at the Source

If you take services from providers and make payments for them, always remember to deduct the tax at source. If you fail to do so, the expenses will become non-admissible, resulting in an unnecessary tax burden. For instance, if you pay Rs 3 Lakh to a service provider and do not deduct a TDS of 10%, the whole Rs 3 Lakh will become a taxable profit. 

1. Invest the Surplus in Marketing

Business marketing expenses are tax-deductible. So, if you are not investing enough in marketing, it’s high time to implement the right strategies to reach out to more potential customers. It will not only increase your business but also provide tax benefits.

7. Avoid Cash Transactions

To encourage digital transactions in the country, the Income Tax Department provides tax benefits if you pay your workers' salaries digitally. If you make a cash payment of Rs 20,000 to a single individual, it becomes non-tax deductible in your account books. The income tax department will nullify such transactions, increasing your tax liability. Hence, you should always pay your employees via bank transfer.

8. Depreciation

If you operate a company in the manufacturing industry, you can obtain additional tax benefits for your business. As per Income Tax Act, you can claim 15% depreciation on machinery, in addition to this, 20% depreciation in the first year. So, you can benefit from a total depreciation of 35% (15%+20%) in the first year.

9. Save Tax by Donating

If you are a successful business owner, you can donate some part of your income towards a social cause. Apart from giving you a sense of satisfaction, donating money also provides tax benefits. Donate to a registered charitable organisation or PM’s relief fund to save tax money by donating. Donating to a political party also provides tax breaks. 

10. Use Housing Loan Interest to Claim Tax Benefits

By taking a Home Loan, you can not only build a long-term asset with high growth potential but also become eligible to claim tax benefits. Under Section 80C of the Income Tax Act, you can claim a tax deduction of up to Rs 1.5 Lakh. However, you must link your company with the PAN to avail of this benefit.

Conclusion: 

As a legal taxpayer in India, you must abide by the laws and pay taxes to operate your business smoothly. That said, take advantage of these business tax savings tips and plan your taxes smartly to save substantial amounts of money. Also, if you need additional funds for your business, you can apply for different types of Business Loans from Hero FinCorp and get the required funds to operate your company in a smooth and hassle-free way. You can use a commercial loan calculator to plan your repayment efficiently and become debt-free without stressing your finances. 

FAQs

• What are tax exemptions for small businesses?

Small business owners must pay different types of taxes to stay operational in India. However, the Income Tax Department provides several ways to save money on tax obligations. These are called tax exemptions that SME owners can use to reduce their tax burden.

• Is tax paid on turnover or profit?

If the sale transactions attract capital gains tax, it will not be a part of the turnover. Turnover is the gross revenue amount recognised in the P&L account, supply, and distribution of goods and services.

• What is the taxable income for Pvt Ltd company?

A private limited company with a turnover of under Rs 400 Crore will have a tax obligation of 25%. It is 30% if the turnover exceeds Rs 400 Crore.