While GST was expected to make taxation easier for businesses, the regular changes in GST policies are not really helping. As a result, a large number of small enterprises and start-ups in India miss out on some excellent tax-saving opportunities. Read this post to know five effective ways in which small companies can legally save more in tax payments.
Small businesses too need efficient tax planning to save taxes. While business taxes have always been complex in India, GST was expected to bring in the long-expected respite. But the regular changes by the GST Council since its implementation have not really made things easier for the businesses.
As a result, a large number of small businesses and start-ups are mostly unaware of the different ways in which they can save taxes. If you are a small business owner, here are some effective ways to help you save taxes-
Business Expense Deduction
As per the IT laws in the country, small businesses are allowed to claim deductions on the generated revenue for most of the expenses entailed in the process of running the business. In other words, small business owners can make use of appropriate tax deduction on business expenses to reduce their tax liability considerably.
But to take advantage of these deductions, a small business should systematically and diligently record all of the business expenditures and transactions.
Initial Expenses Deduction
If you are starting a new business, you are allowed to write-off the initial expenses of setting up the business. Under Section 35D of the IT Act, initial costs of starting a new business are eligible for tax deductions as they are considered capital expenditure.
This deduction can be written-off in 5 instalments over five years. All the preliminary expenses such as engineering expense, market surveys, etc. are eligible for this deduction.
Tax Deduction for Home Offices
For a lot of start-up owners, their entrepreneurial journey begins right at their home. They use their home as the main office of their business operation. If you do have a home office, expenses such as utility bills, depreciation, mortgage, property tax, etc. are eligible for a tax deduction.
Also, many business owners with a home office have a rental agreement with the property owner. In this case, the rent is considered a recurring business expense which makes it eligible for a tax deduction.
Deduction on Entertainment and Meeting Expenses
If you are just starting a small business, you will regularly have to meet your clients and even entertain them. Throwing house parties for staff and clients is also very common in the Indian start-up culture. But do you know that all these entertainment and meeting expenses are eligible for tax deductions?
As per the IT Act, entrepreneurs can claim a tax deduction on many different expenses such as expenses for throwing a house party, taking clients on dinner, sporting events, or movies, and much more. As long as all of these expenses are systematically recorded, they are eligible for tax deductions.
Avoid Late Filing
The tax authorities are now very stringent with regards to late returns filing, and the penalty for the same has increased significantly since FY 2017-16. Money saved is money earned, so a small business owner should always know the return filing deadline to avoid paying any penalty.
They can hire a reputed income tax consultant for the same to make sure that the tax returns are accurately filed well before the deadline.
Decoding Business Taxes in India
As business taxes are complicated and time-consuming, a large number of small businesses in India consider professional tax advisors for the same. Just like the tips listed above, tax experts know several effective ways that can help a small business save a considerable amount of money in taxes.
If you are a small business owner or planning to start one soon, the guidance of professional tax experts can play a significant role in the success of your business.