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Home Business How Can We Save Taxes by Doing Business?
Business

How Can We Save Taxes by Doing Business?

Hitesh Sharma September 27, 2022 6 min read 0
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On the profits, their business generates, entrepreneurs, as well as business owners, are required to pay income tax. It could be a sizable sum; therefore, they constantly look for deductions as well as exemptions to reduce their tax liability. One of the more difficult concepts to grasp is income tax.

Key points to save taxes when doing business

Hire your relatives and family members

Hiring family members might be a substantial tax-saving measure. They may receive remuneration similar to those received by other workers. The corporation can only pay the recruited family members Rs. 2,50,000 per year if they do not have any other sources of income. 

Since the salaries provided to the employees are a cost to the business, they can be deducted from its taxable revenue, lowering its overall tax burden.

Keep track of all your costs related to your business

You ought to and must keep track of every expense you incur for operating your business, no matter how big or small. You could end up paying extra taxes on the profits when you don’t record the expenses correctly.

By keeping track of your expenses, you may better understand your company, how you’re spending your money, what areas need your attention next to improve operational metrics, etc. Over time, you’ll have more control over your company and spend less money on taxes.

Accommodation and Travelling

Entrepreneurs frequently travel for professional reasons. Owners of businesses with sites scattered throughout several cities are more likely to do this.

Schedule your travel and lodging on the company’s dime rather than out of your pocket starting with your next trip if you want to avoid taxes. It can be written off from the company’s taxable income as a business expense.

Spend more money on marketing

It’s time to switch to digital marketing when you’re still relying on traditional methods of advertising because it gives you access to a wider audience and increases the likelihood that you’ll attract new clients.

You will gain from this from a tax perspective as well because marketing expenses are tax deductible. Thus, increasing the marketing budget is not a bad idea.

Business Utilities

Business owners that use their vehicles plus phones can prove that these costs are related to utilities. For example, expenses for phones, cars, parking fees, driver salaries, and other items are claimable provided they are done only for business purposes. Electricity costs are also deductible if you operate your home. It will ease the financial burden of taxes. 

A few of the business utility costs that are eligible for deductions include:

Initial costs: Section 35D of the Income Tax Act allows deductions for all costs incurred before the enterprise was established. These are included as initial costs and deducted over five years from taxable income.

Convenience costs: If you frequently use a vehicle or a phone for work, these costs are deductible from the company’s books as business expenses.

Regular costs: When you run your business out of your house, you can deduct power costs under the heading “head of the company.” Rent costs and other expenses incurred because of an internet connection are therefore deductible.

Tax deductions for depreciation: Any capital expenses are also allowed under the “income of firm” category for depreciation. To lower your tax liability, you must make capital investments using the company’s funds and claim depreciation.

Medical Insurance

Under Section 80D of the Income Tax Act, 1961, insurance premiums as much as Rs 25,000 could be written off as a tax deduction. This applies to you, your kids, your spouse, and your parents. 

When you work a full-time job and run a business at the same time, and your employer offers health insurance, this does not apply to you.

Deduct tax properly at the source

The Income Tax Act contains particular provisions that allow business owners paying for a good or service to withhold tax from their payments to the supplier. If someone doesn’t, those expenses won’t be allowed and they’ll have to pay more taxes as a result.

For instance, the entire sum of Rs 3,00,000 won’t be permitted when assessing the taxable profit if you give an agent Rs 3,00,000 commission without deducting the tax at a rate of 10%.

Donation

Donating money offers you the satisfaction of just doing good deeds as well as tax advantages. Donations made to recognised charities and funds, like PM’s relief fund, can help you reduce your taxes. To qualify for tax benefits, you could also donate to an established political party.

Housing Loan

If you think it’s not advantageous to buy a house with a bank loan, you’re mistaken. It can increase greatly over time, is a long-term asset, and offers tax advantages. 

When you associated your PAN with the company, you may be able to claim deductions for taxes of up to Rs 1,50,000 per year under Section 80C of the Income Tax Act.

Depreciation

Manufacturing-related businesses receive substantial tax advantages. Companies (under Section 35AD) building new machinery and equipment over a year may deduct up to 20% more than usual in depreciation in the year they are placed into service.

For instance, you would be obligated to pay taxes on the unclaimed 20% when you bought new machinery, declared normal depreciation of 15%, and did not claim extra depreciation of 20%.

Digital Transactions

Paying your employees in cash wouldn’t be a good choice in this digital age. You will also be included on the income tax agency’s “red list.” This is prohibited in your account books to offer someone over Rs 20,000 in cash together in a single transaction.

For instance, the income tax authority will judge a cash payment of over Rs 20,000 made to a worker in a single day to be invalid. Your taxability thus rises. So, it’s always a good idea to pay your employees by bank transfer.

Conclusion

A rupee saved is a rupee earned. It makes sense to use tax-saving measures when there are numerous of them available. In the long term, adopting tax-saving strategies will pay off.

<strong>Sharadiya Navratri 2022 starts today</strong>Sharadiya Navratri 2022 starts todaySeptember 26, 2022
What are the Benefits of Doing Business Over Jobs?September 27, 2022<strong>What are the Benefits of Doing Business Over Jobs?</strong>

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