This article has been written by Ashish Khamesra, pursuing a Diploma in Business Laws for In-House Counsels from LawSikho.
Table of Contents
Introduction
Income tax is the cruel reality that each entrepreneur or a business proprietor needs to acknowledge. Furthermore, obviously, the hardest thing to comprehend in this world is income tax! Nonetheless, it is our obligation to contribute towards covering income tax, and we can’t escape from this obligation since it is, at last, a wellspring of income for the public authority.
However, we can try to minimize our tax liability. Let us consider the various ways by which one can save income tax in India for entrepreneurs.
Business utility expenses
Entrepreneurs who utilize their vehicles and telephones for business purposes can show these as business or utility costs.
For instance, costs for vehicles, tolls, telephones, driver’s charges, leaving, and so forth can be guaranteed as business utility costs whenever utilized for a real business reason. Different costs, for example, power expenses can be guaranteed on the off chance that one is working from a home office.
These can diminish the tax trouble for entrepreneurs and their beginning up. Here are a portion of the business utility costs one can use for tax saving purposes:
- Preliminary Expenses: The expenses caused before the beginning of the business unit is deductible under section 35D of the Indian Income Tax Act. It is recorded as the starter cost in the organization’s book and can be deducted from the taxable income for more than 5 years, similarly.
- Convenience Expenses: In the event that the entrepreneurs use a telephone or vehicle with the end goal of the business, consumption on these can be deducted as business costs from the organization’s book. From the telephone bills to the driver’s charges or even the stopping expenses can be accounted for under the organization’s cost.
- Regular Expenses: On the off chance that somebody is telecommuting for their beginning up, the power devoured for work reasons can appear under the cost ‘head of organization’. This is useful for the beginning up to lessen their tax trouble. Wi-Fi or web charges, lease costs are additionally deducted for figuring taxable income.
- Depreciation Expenses on Assets: Deterioration on all capital costs can be deducted as a cost from the income of the firm. In the event that one makes all the capital use in the organization’s name, one can guarantee devaluation on them too which will decrease your tax trouble.
Medical insurance premium
Any medical insurance expense, to the tune of ₹25,000, can be asserted by entrepreneurs for tax derivations. This is deductible under Section 80D of Indian income tax act, and the insurance can be for the entrepreneur’s mate, subordinate guardians, or ward kids.
Yet, recollect, this tax-saving alternative won’t be appropriate for those business proprietors for whom the beginning up is a subsequent work, and they hold an everyday occupation where their manager gives them medical insurance expenses as of now.
Hiring family members
Perhaps the most ideal approaches to diminish tax trouble for entrepreneurs is to recruit their relatives to fire up and pay them compensation as ordinary worker.
In the event that this relative isn’t procuring some other income, the organization can pay them even ₹2.5 lakhs each year (with the current tax piece) with no tax outgo for this family member. As this is an expense to the organization, it very well may be set off from the taxable income of the organization, subsequently, lessening the absolute outgo for the organization.
This additionally benefits the entrepreneur by having confided in individuals around him/her and simultaneously, assists with developing the business.
Always deduct tax at source
There are some particular exchanges under the Indian Income Tax Act which require the purchaser or the help recipient to deduct tax at source while making instalment to the dealer or the specialist organization. Assuming an individual neglects to do as such, such a cost gets forbidden and at last, builds the tax trouble.
For instance, in a year you pay ₹3,00,000/ – as commission to your business specialist and don’t deduct tax @10% on the equivalent. In such cases, the entire cost of ₹3,00,000/ – will be prohibited while ascertaining taxable benefit.
Invest the surplus in marketing
We are amidst the Digital Era where everything is going advanced. In this way, you can dump the old method of advertising and go advanced with your items and administrations. It will profit you in two regards. Right off the bat, by attempting new advanced procedures of advertising, you can develop your business to numerous folds and contact the new client base at a quicker speed.
Also, all the cost engaged with advertising is tax-deductible. Thus, you can get a good deal on this too. In this manner, the overflow that you will be left with toward the year’s end, you can put it in showcasing and publicizing for your beginning up and save tax.
Avoid cash transaction
Indian Income-tax division will not permit any money exchange in your books to represent instalment of tax if the greatest day by day cut-off of ₹20,000 surpasses a solitary individual.
For instance, on the off chance that you are paying your labourers more than ₹20,000 as wages on a solitary day in real money, at that point the exchange would be invalidated by the income-tax division. This will build your tax trouble and not just that, you will be paying an abundance sum than the standard you would have paid something else. Consequently, it is in every case better to make bank exchange while following through on any cost above ₹20,000 in a solitary day.
Depreciation
Indian Income Tax Act gives numerous advantages to the entrepreneurs engaged with assembling endeavours. For instance, extra devaluation indicated business under section 35AD, and so on. On account of an assembling undertaking, assuming another gear or hardware is introduced during the year, notwithstanding the ordinary devaluation, such units are likewise qualified to guarantee extra deterioration up to 20% in the year when the hardware or apparatus is put to utilize.
Essentially, a different section, section 35AD was presented giving a complete derivation of capital consumption done by ventures in the event that they are occupied with businesses indicated in this section. The thought behind giving advantages under section 35AD was to support private area interest in an open framework like medical clinics, cold stockpiling, parkways and so on
For instance, say, you have purchased another apparatus and asserted ordinary deterioration @15%, assuming you have neglected to guarantee an extra devaluation @ 20%, you have paid extra taxes on that 20%. You have likewise lost the opportunity to guarantee the cost since the allowance of extra deterioration is accessible just in the principal year.
Save tax by donating
Donating is a unique method of getting a good deal on tax where you are playing out a decent deed and simultaneously can get a good deal on tax. Be that as it may, recall, just gifts to enlisted good causes will permit you to save tax. You can give to the PM’s help reserve, ideological groups or enlisted noble cause to get 100% tax alleviation.
Additionally, on the off chance that you give something as unmistakable materials, you will not get any sort of tax advantage. Furthermore, recall, to profit tax advantage, hold the receipt of your gift with you.
Use housing loan interest to claim tax benefits
In the event that you imagine that profiting a bank advance for building or buying a house for yourself will be risky, you are off-kilter. Since, assuming you have your dish card connected to your beginning up, you can profit an allowance on the interest you pay each month on your home advance. Under section 80C of the Indian Income Tax Act, you can guarantee an allowance up to ₹1,50,000 each year, and you can incorporate the premium of lodging credit under this piece of derivation.
Expenses on hotel booking and travelling
Entrepreneurs need to move starting with one spot then onto the next because of different business-related work. Also, in the event that you are a business proprietor, nobody can comprehend it better than you. In this way, one thing that you can consider doing is that, don’t spend the costs engaged with voyaging or inn booking from your record. All things being equal, document it to the organization’s record.
For instance, on the off chance that your compensation is ₹20,00,000 and around ₹5,00,000 is the voyaging cost, you can show travel cost as a business cost and pay tax for the sum left. For example ₹15,00,000 for this situation.
Conclusion
Each penny saved is a penny acquired! It’s vital for an entrepreneur to record each little exchange in a beginning up in a suitable way. They can even utilize the product to record and monitor their costs in a coordinated manner. Aside from the previously mentioned hacks, there are a lot more roads to save taxes and the government permits you to do as such without avoiding taxes. One should take the advantage of these tax allowance tips and make an appropriate tax plan as indicated by the idea of your startup.
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.
LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join:
