Five Tax saving tips for small business owner in India
All about Tax Savings and their Benefits
Entrepreneurs, servicemen, business owners, and government employees are liable to pay income tax on the basis of their income scale to the government of the country. Being a taxpayer is important and is one of the best ways to keep your income records clean and transparent.
Paying your tax on time should not be treated as a mere obligation but a responsibility that an individual needs take care of in order to ensure a country’s economy works well and with transparency. This will also help the government to function smoothly and the country to develop on a broader aspect. The tax you pay is depending on your incomes scale and can be a considerable sum. There are ways in which you can get deductions and exemptions to minimize the tax you need to pay. All you need to do is have some tax-saving tips in mind.
Need of Paying Tax on Time
Every financial year, the taxpayers are supposed to file their returns and pay their fair share of taxes to the government. The Indian government has also made some provisions that can help taxpayers to reduce their taxable incomes by making investments. If you are a taxpayer, you should always take care of the tax being paid at the right time and also pay it as per your income, don’t overdo it or just underpay it. If you are no expert, you can take the help of a chartered accountant to guide you once and get clarity of the components and benefits of filing tax and saving tax.
How do Tax-Saving tips work for Small Businesses?
Who doesn’t want to save money? We all do and tax-saving tips can be considered when we want to reduce the payable amount to the government while filing tax and use the same for other purposes. Tax saving tips have been found to be the most beneficial for people involved in small businesses.
Tax-saving tips can be a great resource for small businesses in India. This will not only help the business to flourish but also increase the chances of making more out of the existing resources.
Saving the payable tax is one of the best ways to help your money grow and be transparent with your income at the same time. With the help of tax-saving tips, you can also avail deductions for a variety of essential long-term purchases. For example, you can get tax-saving deductions in the Income Tax Act for the interest accumulated on your home loan or education loan as well as for your savings account. Below mentioned are five tax-saving tips for small business owners in India:
Apart from home loans, medical insurance is also a tax saver. To a specified amount paid for medical insurance is eligible for tax deductions under section 80C. This is applicable only if the individual has purchased medical insurance and not on the insurance being provided by the employees. You can only know about tax-saving tips for small businesses once you start exploring the facts. Don’t forget the fact that the more you save, the better future will wait for you!
- Make Your Own Family Members and Relatives a part of your business: The best and most preferred way of saving tax deductions in small or large businesses is to involve your family members in your business. These relatives could be blood relatives or cousins or anyone from the bloodline. Appointing your children to work as legitimate employees has always been a great tax strategy. In this way, you can deduct their salaries from your business income as an expense. Since the salaries paid to the employee, is a cost to the company, it can be set off against the company’s taxable income, thereby reducing the overall tax to be paid by the company. More the number of relatives, more the tax savings. However, these relatives should be legit employees and not merely documented ones. If the relatives are working in your organization full time, a reasonable compensation within the tax slab can be given to them saving taxes for both employer and the employee and is found to be one of best tax-saving tips for small business suggested.
- Contribute to the National Pension System: Saving tax by saving money for your future is indeed an explorable option and a tax-saving tip for small businesses that you will always be proud of. Contributing to the national pension system is another way of saving tax deduction and ensuring a better future for tomorrow. NPS is a government-sponsored pension scheme launched in January 2004 for government employees only, however later in 2009, it was made available for all sections by making regular contributions to NPS, the employee can avail tax benefits and on retirements, the subscribers are allowed to withdraw a part of the corpus in a lump sum and use the remaining amount to buy an annuity to take care of their financial needs after retirement. The maximum tax deductions allowed is Rs 1.5 lacs and is inclusive of the 80C limit.
- Housing loans and health care needs: Saving tax on home loans and other health care needs is a direct method of tax-saving tips for small businesses. Not only on the home loan prepayment and the entire payment but also many healthcare needs that are available for users to buy and take care of their health by making monthly/yearly payments. For home loans, you can claim tax deduction up to Rs 1.5 lakh under 80C for repayment of principal component of a home loan, availed or purchased, or construction of the residential property. The construction of the property must be completed within 5 years from the end of the financial year in which the loan was taken. If the property is sold or transferred within these five years, tax deductions claimed so far will be reversed, i.e., added back to your income in the year of the sale, and then tax will be deducted according to the slab. So, a home loan can be a real benefit for you if you are exploring options for tax savings. Along with 80C, Section 24B, a deduction up to Rs two lacs on interest repaid during pre and post-construction period time can be taken. In addition to this, Section 80EEA provides an additional deduction of Rs 1.5 lacs on interest payments made on home loans. The only criteria to be fulfilled for this deduction the value of the housing property has been capped at 45 lacs and in the case of a first-time buyer only. If a person already has availed home loan in the past or is having other residential properties in his name, he/she is not eligible for this tax saving.
- Make Donations/Charity: Giving a part of your income to needy people is a great deed and for someone looking for ways to reduce taxes, this deed can not only help you fulfill your goals as a socially responsible business and engage your employees in a meaningful activity, but it can also help provide your business with a tax deduction, usually equal to the fair market value of the property donated. If you own a pass-through business, you should be aware of the fact that your ability to deduct charitable gifts could be limited in 2020. The tax cuts and jobs act capped personal itemized deductions for state and local taxes and can be a great tax saving tip.
- Business Utilities: Business utilities stand for various items being used during the entire process. For a business owner, the mobile phones, the salary to their drives, vehicle, or even the parking charges if being done for the sole purpose of business can be claimed and be helpful for tax deductions. This completely depends on the purpose of the action. If someone is operating machines from their household, the electricity expenses can also be included in the business utilities.
Apart from home loans, medical insurance is also a tax saver. To a specified amount paid for medical insurance is eligible for tax deductions under section 80C. This is applicable only if the individual has purchased medical insurance and not on the insurance being provided by the employees. You can only know about tax-saving tips for small businesses once you start exploring the facts. Don’t forget the fact that the more you save, the better future will wait for you!
