Tax Savings Tips for Business Owners & Entrepreneurs in India

Are you a business owner or entrepreneur in India seeking ways to minimize your tax burden legally? In this blog post, we will explore legal tips for saving taxes that can be beneficial for both well established businesses and startups. By implementing these strategies, you can optimize your savings while staying compliant with Indian tax laws. From employing family members to leveraging home office deductions, we have you covered. Let’s get into these valuable opportunities for reducing your businesss tax liabilities!

 

Employ Family Members

 

If you can hire your family members in business and give them business roles within the organization, it can help you save taxes and give them an opportunity to work as well.

 

Since the salaries paid to these employees are considered as business expenses (or CTC) by the company, this is the company’s taxable income.

As long as your family members do not have any other sources of income, you can pay them a salary up to Rs 2.5 lakh per year without their income from your business being subject to taxation.

Save Money on Medical Insurance Expenses

 

According to Section 80D of the Income Tax Act, you have the option to claim deductions on health policies up to INR 25,000 by paying medical insurance premiums.

 

Consider Changing Your Business Structure

 

Changing your business structure can help you save taxes. For more detailed information, refer to the provided table.

Claim Deduction On Business Travel Expenses

 

If you travel to different cities for business purposes like attending meetings or conferences, you can claim deductions for expenses for those trips. These expenses may include airfare or train tickets, accommodation costs, meals, transportation fees and even tips. To ensure validity of these deductions, it is important to maintain detailed records of your travel expenses along with proper documentation such as receipts or invoices.

Business Utility Expenses Deductions

 

If owners of small and medium sized enterprises (SMEs) utilize their phones and vehicles solely for business purposes, these expenses can be considered as business utilities. You can deduct various types of business utility expenses, including basic expenses like establishment costs, convenience expenses such as phones and vehicles and regular expenses like rent, internet connection and electricity.

Utilize Depreciation Expense

 

If you use your company’s funds to pay for capital expense depreciation, you can also claim it as a deduction.

Depreciation is a useful tool for saving on taxes that every business owner should utilize. When you acquire assets for your business, such as machinery, vehicles or equipment, their value decreases over time due to wear and tear. This decrease in value is known as depreciation.

As per the Income Tax Act of India, machinery can be depreciated at a rate of 15%, with an additional 20% in the first year. This results in a total depreciation of 35% (15+20%) in the first year.

Always Deduct Tax at the Source

 

Deducting tax at source is always a good practice, this keeps business compliant to all the laws and avoids penalties. You can use TDS while paying salaries, bills to employees and vendors.

Invest the Surplus in Marketing

 

Investing the extra budget in marketing is beneficial for your business in multiple ways. Firstly, it allows you to deduct marketing expenses as business expenses under Section 37 of the Income Tax Act. Plus, it also serves to the growth and success of your business.

 

Save Tax by Donating

 

In addition to saving taxes, donations given to charitable organizations can provide tax benefits. Under Section 80G of the Income Tax Act, the Indian government offers tax benefits for donations made to eligible charities.

Use Section 80C Deductions to Claim Tax Benefits

 

For any person in India, Section 80C of the Income Tax Act presents an excellent opportunity to claim tax benefits. In this section, you have the opportunity to make investments or incur expenses that qualify for deductions up to Rs. 1.5 lakh from your taxable income.

You can use Public Provident Fund (PPF), National Savings Certificate (NSC) or Employee Provident Fund (EPF). Additionally, payments towards life insurance premiums, tuition fees for your children’s education, repayment of home loan principal amount and contributions made to the National Pension Scheme (NPS) are also eligible for deductions under Section 80C.

Conclusion

 

As a responsible taxpayer in India, it is important to comply with tax laws and fulfill your tax obligations for smooth business operations. However, if you can save money legally, it’s good for both business and you. Therefore, make use of these valuable business tax saving tips and plan your taxes intelligently to save substantial amounts of money.

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