If you own a business in India, you will have to mandatorily abide by the statutory compliance and keep in mind to pay the attached taxes and fees on time.
Despite the successful implementation of GST, the taxation process is yet complex for business owners. For the seamless running of your business, you have to pay a significant amount of tax to the Government of India.
Therefore, through this article, we will be discussing the eight tax saving tips for all business owners and will share the best practices to help you earn more from your small or medium-sized business.
Let’s begin with the first one!
Top 8 Tax Saving Tips for Small Business in Maharashtra
1. Electronic payment of municipality taxes
One of the prudent ways by which you can claim the taxes paid to your municipal corporation or municipality as deductions under income from house property.
All you need to do is to keep a record of the payments and a copy of the receipts. Electronic methods of payment of such municipality taxes ensure that the bank account of the person has all necessary proof in case of damage or loss of receipts.
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2. Upgrade to Smart and Efficient Accounting
As many small businesses in India are labour-intensive enterprises, they are habituated to paying wages in cash form. At times, it is even observed that as much as 40 per cent of a small business’s manufacturing expenditure is going into direct and indirect wages.
If your business fails to keep track of these expenses, this, in turn, increases your profit margins because of unrecorded information in your expenses account, hence you become liable to pay more taxes.
Therefore, for those business owners who have been ignoring their bookkeeping to date, it is high time that they must take a closer look at the state of affairs in their accounts department. There are many free accounting software too to simplify these accounting-related tasks
3. Claim benefits on a Home Loan
If you believe obtaining a bank loan for a home purchase or construction will be challenging, you are mistaken.
By linking your PAN card with your business, you may qualify for a deduction on the monthly interest of your home loan.
This can be claimed under Section 80C of the Indian Income Tax Act, allowing for a deduction of up to ₹1,50,000 per year, which includes the interest on a housing loan.
4. Deducting TDS
A few transactions require you to deduct the tax at sources, for example, the payments made as commissions to your business agent or a freelance employee.
In case the business owners fail to deduct the TDS, the whole amount becomes inadmissible for claiming tax rebates.
Hence, business owners must ensure that they are keeping track of all such essential transactions and deduct tax at 10 per cent for them.
5. Medical insurance premium
As an entrepreneur, you can claim any medical insurance premium, to the tune of ₹25,000, for tax deductions.
This amount is deductible under Section 80D of the Indian income tax act, and the insurance can be for your spouse, dependent parents, or dependent children.
Note that, this tax saving option will not be applicable for business owners for whom the business is a second job. If you are already employed in a full-time job where you are provided medical insurance premiums from the form.
6. Claim Additional Depreciation
You will be glad to know that the Income Tax Act allows a claim of an additional 20 per cent depreciation on new machinery installed during the year.
The provision is intended to benefit certain notified industries under Section 35AD. An important point to note here is that it is only applicable for the first year of a new machine or equipment operation.
By claiming the additional depreciation at the rate of 20 per cent, you can save that amount as expenses incurred.
For example, when new equipment or machinery is installed in a manufacturing enterprise, it can claim an additional 20% depreciation in the year it is put into use.
Additionally, section 35AD provides a full deduction of capital expenses for businesses that fall under the specified categories, such as those involved in building public infrastructure like hospitals, cold storage, and highways, with the goal of promoting private sector investment in these areas.
7. Expense on Hotel Booking and Travelling
Small business owners are usually bound to commute from one place to another due to various business-related work. Being a business owner, you can understand it very well.
As entrepreneurs often have to travel for various business-related tasks. To save costs, consider filing expenses such as travel and hotel booking to the company’s account instead of paying for them out of your own salary.
For example, if your salary is ₹20,00,000, and you have a travel expense of ₹5,00,000, you can claim this as a business expense and only pay taxes on the remaining amount of ₹15,00,000.
8. Avoid Cash transactions
The Indian Income-tax department does not permit any cash transactions in your books for tax payments if the transaction exceeds the daily limit of ₹20,000 for a single person.
For example, if you are paying workers more than ₹20,000 in cash as wages on a single day, the transaction will not be recognised by the income-tax department, which will result in a higher tax burden and additional costs.
To avoid this, it is recommended to make bank transactions for any payments above ₹20,000 in a single day.
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The above-mentioned are a few ways which shall help you to implement the best business practices that will allow you to save more by reducing your tax burden.
It is very usual for many business owners to be less or hold little knowledge of these business practices related to their accounts.
Well, it is never too late to adopt the prudent methods of saving taxes for running a successful business. If you still have any doubts or are confused about the ways of saving your taxes, you can reach out to our financial experts, here.