The stress of saving income tax and the need for strategies:

All businesses want to minimize their tax liability. This tax burden is a major worry for small business owners, especially as there is limited cash flow and multiple expenses to be met. The Government of India has provided a special section in Income Tax Rules for small businesses, called "presumptive taxation schemes". Under presumptive taxation sections 44AD, 44DA, and 44AE of the Income Tax Act, a resident partnership firm (except LLP) and small businesses are not required to maintain books of account or provide detailed accounts.

Income is calculated, has no factual basis and is estimation based. They must apply a certain percentage of their revenue, known as their taxable business income. Hence tax-saving investments and strategies should not be just considered in isolation; rather, the above aspects should be considered, and tax savings should be an integral part of a company's long-term financial planning.

Here are a few useful income tax-saving tips for small businesses. 

Travel on company expenses to save on deductions

When undertaken under the company name, travel expenses within the country can be claimed under tax deductions. Foreign travel is not included under deductions. It is thus advised by tax experts to book travel tickets and accommodation as a business expense so it can be deducted from the Company's taxable income.

Convert the Company into LLP to reduce taxable responsibility:

Converting a company to an LLP comes with a huge tax benefit in Qualified Business Deduction (QBI), which does not apply to corporations. Eligible taxpayers can deduct up to 20 % of their QBIs. 

The benefit of depreciation for an extra tax deduction:

It is one of the best tax-saving methods for small businesses. Income tax rules allow tax deduction on machinery for manufacturing units. The companies can also claim additional depreciation on wear and tear. In addition to the standard depreciation rate of 15 %, additional depreciation of 20 % can be claimed. Vehicles can be bought in the Name of the Company, and depreciation is claimed on these.

Write off start-up expenditure.

There are ways to write off the expenses of your small business to reduce tax liability. You can deduct expenses incurred during the initial phase of setting up your business, provided you understand which expenses are deductible. Start-up costs, such as state and legal fees, director fees, accounting fees, and expenses for conducting organisational meetings, come under permissible deductions. 

Hire a tax consultant for exclusive advice

Knowing under what we can claim exemptions and deductions is not easy as a lay person. The experts handling taxation daily are well versed with the laws of the land and can considerably reduce the tax liability of companies and individuals. Legalo experts deal with tax laws, tax compliances, and tax planning and can help small businesses considerably limit their tax liabilities. Our consultants know all about tax regulations under the Income Tax Act of India that small businesses must abide by when filing their taxes. We offer assistance for:

• Tax documentation
• Filing e-returns
• Evaluating the Company's legal and financial liabilities
• Completing tax forms like Form 16, Form12 B, etc. and submitting them on the Income-tax website 
• Helping make legitimate tax-saving plans for the long term.

Conclusion: 

Tax deductions can be exciting, and business owners can benefit greatly by taking measures along these lines. Money saved is money earned. Knowing that there are many tax-saving provisions, it is wise to hire a consultant and implement tax-saving practices that will benefit the business and the owners.

Read our post on saving tax for individual salaried person here - How to save income tax?

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