Chartered Accountant
Company Secretary
Every business owner or entrepreneur must face the harsh reality of income tax. Income tax is the most difficult thing to comprehend in our world.
We must pay income tax and cannot escape this obligation because it’s a source of revenue to the government. We can still try to reduce our tax burden.
Consider the different ways entrepreneurs can reduce their income tax in India.
How to lower taxes for businesses?
The business expenses of those who use their phones and vehicles for business can be claimed as business expenses.
If used for legitimate business purposes, vehicle expenses, tolls, phones, driver’s fees, parking, etc., can be claimed. You can also claim expenses such as electricity if you work from home.
They can help reduce the tax burden on entrepreneurs and startups.
You can save tax on some business expenses.
Section 35D of the Indian Income Tax Act allows for the deduction of costs incurred before the start-up of a business unit.
The expense is deducted from the taxable income in equal amounts over five years.
The company can deduct the costs of phones and vehicles entrepreneurs use for their business.
You can include the phone bills for the driver’s fees or parking charges in the company’s expenses.
The electricity used for business by someone who works at home can be included under the expense “head of the company.”
It is a good way for a startup to lower the tax burden. Rent and Wi-Fi charges are also deducted from the taxable income.
The firm can deduct the cost of all capital expenditures as an expense.
Depreciation can be claimed if you purchase all capital assets in your company’s name. This will reduce your tax burden.
Due to their business activities, entrepreneurs are often required to relocate.
No one understands it better than a businessman.
You can also consider not spending the money on your account for travel or hotel bookings. File it on the company account.
If you earn Rs. 20,00,000 per year and your travel expenses are around Rs. 5,00,000, you can claim the travel expenses as a business cost and pay taxes on the remaining amount. i.e. In this case, Rs15,00,000.
Entrepreneurs can claim tax deductions for medical insurance premiums up to Rs25,000.
The insurance may be purchased for the entrepreneur’s spouse, their dependent parents, or children.
Remember that this tax savings option will not apply to business owners with a full-time position already covered by medical insurance.
Hiring family members to help start a business and paying them a regular salary is one of the best ways for entrepreneurs to reduce their tax burden.
The company may pay this relative to Rs 2.5 lakhs (with the current tax rate) without any tax liability.
This cost can be deducted from the company’s taxable income, thus reducing its total expenditure.
It also benefits the entrepreneur because they have trusted people in their business.
In certain transactions, the Indian Income Tax Act requires that the buyer or service receiver deduct tax at the source when paying the seller or service provider.
If a person does not do this, an expense will be inadmissible. This will increase their tax burden.
You pay Rs3,00,000.00/- to your agent in a single year and do not deduct the tax of 10%. In such cases, the entire expense of Rs3,00,000.00/- will be deducted from the taxable profit.
Digital is the new era. You can ditch the old marketing methods and move to digital for your products and services.
You will gain two benefits.
By using new digital marketing methods, you can grow your business and reach a larger customer base.
Second, you can deduct all marketing expenses. You can also save money by doing this.
You can use the excess you have at the year’s end to invest in marketing or advertising and reduce your tax.
The Indian Income Tax Department will not allow you to make any cash transactions in your book account for tax payment if a person exceeds the daily maximum limit of Rs20,000.
If you pay your employees more than Rs20,000 in wages in one day, the Income-tax Department will cancel the transaction.
You will pay more taxes , and you will also be paying more than you should. It is better to pay any amount above Rs20,000 at once in the bank.
The Indian Income Tax Act provides many benefits for entrepreneurs who are involved in manufacturing enterprises. For example, the act offers additional depreciation and specified businesses under section 35AD.
Suppose new machinery or equipment is installed in a manufacturing company during the year. In that case, the unit is eligible for an additional 20% depreciation in the year the machinery or equipment is used.
A separate section, section 351AD, has been introduced that allows enterprises to deduct their total capital expenditure if they engage in the businesses listed in this section.
Benefits under section 35AD were intended to encourage private investment in public infrastructure, such as hospitals and highways.
If you bought new machinery and claimed a normal depreciation of @15% but forgot to claim an extra depreciation of @20%, you will have paid additional taxes on the 20%.
The additional depreciation is only available in the first year.
Donations are another way to plan your business taxes. You can save tax money by donating.
Donations to charities registered with the IRS will not allow you to receive tax relief. You can give to the PM’s Relief Fund, political parties, or registered charities and get a 100% tax deduction.
If you give tangible items, you will not receive a tax deduction.
Remember to keep your donation receipt for tax benefits.
You’re mistaken if you believe that obtaining a loan from a bank to build or purchase a home for yourself is a difficult task.
If your PAN card is linked to your business, you may be able to get a monthly interest deduction for your home loan.
You can deduct up to Rs 1,50,000 per annum under section 8C. This includes the interest on a home loan.
Every penny you save is a penny you earn!
A startup entrepreneur must record each transaction. The software can be used to keep track of and record expenses.
There are more ways to save money on taxes than mentioned above. The government will allow you to do this without evading tax.
Take advantage of these tax deductions and create a tax plan appropriate for your business.
