Tax Planning Tips For Small Business Owners
Tax planning is an integral part of every small business. With appropriate tax planning, you can save a considerable amount of money each year for your business. However, for this you need to know the different provisions available under Indian tax laws. In this article, we shall discuss some tax planning tips that can go a long way in benefiting your company.
- Write off preliminary expenses
At the beginning of your entrepreneurial journey, you may incur certain costs while setting up your business. These preliminary or start-up expenses come under capital expenditure for starting a new business. Section 35D of the Income Tax Act allows you to write off initial costs (say, a market survey or engineering expenses) as a deduction, in five equal instalments, over the first five years.
- Business expenses
The Income Tax Act allows small businesses to claim deductions on expenses entailed while running the company on the revenues generated. This means you can reduce your tax burden by availing of appropriate tax deductions on all your business expenses. However, for this to be possible, you must record all your business transactions and expenditures diligently and systematically.
- Additional depreciation
The Income Tax Act allows you to claim an additional reduction of 20% on any new machinery installed during a year. This provision is to benefit specific industries mentioned under Section 35AD. It is applicable only during the first year of the new machine’s operation.
- Home office
Most entrepreneurs use their homes as offices to reduce operating costs on the business. If you use your home as the principal office for your business, you can reduce your tax burden by claiming a deduction on expenses related to your home office, including depreciation, utility bills, property tax and mortgage. You can claim tax deduction under Section 32 for depreciation and Section 37 related to other expenses. This can help you reduce your tax outgo significantly.
- Avoid penalty for late filing
There are specific deadlines when it comes to tax filing in India. As a responsible entrepreneur, you may want to submit your tax returns before the due date. Or else you may have to pay a penalty. It is not only vital to maximising your tax benefits; you must also ensure that you utilise your capital wisely.
Click here to know more about the dates for filing your tax
- Make a retirement plan
Regardless of your plans to retire, you must formulate a planned and timely exit strategy at the earliest stage of your business. As the owner of a small business, the most treasured part of your net worth is your equity in the business.
However, relying purely on your business as your retirement strategy may not be wise. You may want to plan ahead for uncertain times by setting aside some income regularly in a retirement account or create a specific plan towards retirement. This can help you reduce your tax burden now while preparing for a comfortable future later.
- Seek professional help
A dependable authority that can help you manoeuvre your business through the many nuances of the tax code can prove to be an invaluable resource. A good tax expert advises you on more than just tax filing; they also provide tactical, proactive recommendations on how to maximise your deductions. Speak to your tax professional regularly to get an understanding of the opportunities to reduce your tax liabilities.
To sum it up
As a legal taxpayer in India, it is crucial to abide by the laws and pay the necessary taxes when you start a new business. That said, you can take advantage of all the available tax deductions under the provision of the law. By planning your taxes smartly, you get to save a considerable amount of money in the end.
Also, if you need funds for your business logging into the official website of HDFC Bank and visit their Business Loan section. Get a basic understanding of its features and facilities, the documentation required, fees and charges, etc. You can apply for the HDFC Bank Business Loan online in a seamless and hassle-free manner.
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* The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action. Tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.