Running a business is certainly no easy task. There are a lot of legalities involved in it, and the most important one is filing business ITRs in time. It’s a standard practice for small business owners to find ways to save on taxes. Every little amount saved is precious for small business owners. Here we discuss 10 simple ways of saving on tax.
- Being financially organized- One of the most important ways of saving on tax as a small business is by being organized. Always file your income tax returns on time. Ensure you have made sufficient investments under Section 80 C and 80 D to claim exemptions. Always keep a separate business account, use bookkeeping software to track the banking transactions, and last but not least, as a small business owner, keep all the receipts of your transactions.
- Always make tax deductions at the source- Many small business transactions need to consider service providers or buyers to make tax deductions. For instance, if you pay Rs 200,000 as a commission to your business agent but forget to deduct TDS @10%, the whole 200,000 will be disallowed while doing profit calculations.
- Apply for a business loan- Another way small business owners can save on tax is by applying for a business loan. Tax exemptions could be availed based on the business loan interest rates.
- Avail of home office deductions- Many small businesses operate from home. You may be surprised to know that you can claim tax exemption under ‘home office deduction’. You can give the details of your utility bills, property, and mortgage tax.
- Save by showing preliminary expenses- To help small business owners, the income tax department allows the new entrepreneur to divide the initial business set-up cost into five instalments. It includes market study, project report, and other expenses under Section 35D of the Income Tax Act, 1961.
- Save tax on the spending of high-value items- When we start a business, we often purchase high-value items like printers, furniture, computers, etc. Over the years, the value of each high-value item gets depreciated, and the capital spent on each item will help save tax on the small business owner.
- Medical insurance is essential- A small business owner can claim tax exemption up to Rs 15,000 on the premium paid for medical insurance as per the Income Tax Act 1961. This is one of the easiest ways to save money on taxes.
- Save more on client expenses- Whether you are running a small or big business, you have to meet and interact with new and existing clients to build strong relationships with them. For this purpose, parties are organized, and lunch and dinners are hosted. But to claim tax exemptions, a small business owner should keep the bill copies and later add the same to accounts under the head ‘Client Expenses’ according to Income Tax Deduction requirements.
- Avoid making cash payments- Even if your business is small, avoid making cash payments above Rs 20,000. The reason is that the Income Tax Department of India disallows cash payments and considers mainly cheques, draft, NEFT, or RTGS. For instance, if repairs are being conducted in your factory and you pay above Rs 20,000 in a single day in cash mode, the Income Tax Department will not consider those expenses.
- File ITR on time- The Income Tax Department suggests filing ITRs on time to avail of benefits. You can carry forward the business income losses for a consecutive eight years. You can move forward only when you file ITR punctually.
With wise financial planning, you can save a lot on taxes. You can consult tax professionals for help with obtaining the most tax exemptions.