Irrespective of the size of the business, managing and controlling expenses is essential to its long-term survival and profitability. Maintaining a good inventory turnover ratio, reducing tax on business income, controlling employee costs are some steps included in it.
The ability to reduce taxes is one of the most effective ways to reduce costs and increase survival and competitiveness of business. This blog post will help you if you’re confused about how to reduce your tax while running or starting a small business. To learn about the numerous tax-saving tips, continue reading.
The Top 5 Tax-saving tips are as follows:
1. Keep track of every expense related to your business
You 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 your profits if you neglect to record the expenses.
By keeping track of your expenses, you can better understand how your business is operating right now, what areas need your attention to improve operational metrics, etc. Over time, you’ll have more control over your company while saving money on taxes.
2. Pay attention to depreciation costs
According to the Income Tax Act, a manufacturing business is entitled to claim an additional depreciation of 20% for any new machinery purchased in that year in addition to the regular depreciation of 15%. Additionally, under Section 35AD of the Income Tax Act, you can claim 100 % of the cost of installing new machinery provided it is part of the company’s Capex plan.
For example, let’s say that you manufacture paints and that you recently installed new machinery to replace the old. In this scenario, in addition to the regular 15% depreciation, you may also claim an additional 20% depreciation. You must pay taxes on the 20% unclaimed amount if you don’t claim the additional depreciation.
3. Use electronic transactions
If your cash payments total is more than Rs. 20,000 a day, you are not eligible to claim any deductions under the new Income Tax Act rules. This will raise your tax liability.
Therefore, it is preferable to split out cash payments over a few days to avoid going over the Rs. 20,000 daily limit. Using alternative digital banking methods, such as a cheque, NEFT, RTGS, or UPI is the best way to make payments because this can minimize errors. Note that a rupee saved is a rupee earned!
4. Reduce Tax at Source
While paying for the services, received from a third party vendor, tax at source must be collected as per the Income Tax Act.
For example, suppose you are paying the leasing firm INR 94,400 (Rs. 80.000 plus 18% GST) for the space you have taken on lease to operate your business. In this situation, you must first subtract 10% from the source as tax, before crediting the leasing firm. As a result, you must subtract Rs. 9,440 from the recipient’s total tax due as tax adjusted, and credit Rs. 84,960 to the recipient’s bank account.
5. Apply for a business loan
If you meet all the requirements for a business loan and you have plans to make a capital purchase or are considering growing your company, or are having working capital issues, consider applying for a small business loan.
Always keep in mind that if the interest rate is on a higher end, the drawbacks will exceed the advantages while evaluating the option’s viability.
Conclusion
Your techniques of doing business should change in accordance with how businesses are evolving so that you can react quickly to the continuously changing business dynamics. Saving money on costs is one way to do this.
The above- mentioned points are some of the best ways to reduce your income taxes and support the expansion of your business.
Bonus tips!
- Always submit your tax returns on time to avoid penalties
- You can carry forward business losses for up to following 8 assessment years
Hope you found this blog worthy of reading! You can contact our team at Finaccle for the best income tax saving tips to help you save a lot of money in addition to the following :-
- Financial services
- Accounting services
- Legal services
- GST return filing and other services related to these domains!
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About Sejal Munoth
Sejal, is a BCOM graduate and is currently working with Finaccle for its social media related domain. She has a passion in writing and learning!
