6 Income Tax Saving Tips for Small Businesses in India

The secret to a business’s long-term survival and profitability is effective expense management. Small and medium-sized firms, large conglomerates, and all other types of businesses must follow this rule. Maintaining control over personnel costs, using technology to replace labor-intensive manual operations, increasing production productivity, and reducing tax payments are just a few of the crucial decisions and actions that go into managing expenses. Saving taxes is one strategy to keep a firm competitive in the market out of all the strategies to regulate or minimize business expenses. This article is for you if you’re seeking for strategies to reduce your tax obligations. Here are a few practical suggestions for small businesses to reduce their tax burden.


1. Ensure that all of your business-related expenses are properly tracked. You could have a variety of expenses as a business owner each day. You must keep a record of every expense, regardless of how big or small it is. You can end up paying higher taxes on your profits if you don’t do this. Additionally, keeping track of your business expenses will help you better understand how you are using your money or capital, spot areas where costs can be cut, concentrate on enhancing operational metrics, etc. Over time, you might be able to exert more control over how your company runs while lowering its annual tax burden.




2. Profit from the depreciation cost Whether you run a manufacturing or retail company, you probably employ a lot of depreciable machinery and equipment in your daily operations. According to the Indian Income Tax Act, 20% of the cost of new machinery purchased during the current fiscal year may be written off as a deduction. In addition to the 15% regular depreciation advantage, you may also claim this deduction. Section 35D of the IT Act allows for a 100% deduction of the cost if the new equipment was installed as part of a Capex plan.


3. Utilize online transactions According to the updated Indian Income Tax Act regulations, businesses cannot claim any tax advantages for cash transactions with a value greater than Rs 20,000 each day. For the purposes of obtaining tax benefits under income tax regulations, the transaction will be deemed null. Therefore, if you do cash transactions, your business’s tax liability will increase. Spreading the cash payment over multiple days would allow you to save more on business taxes while staying under the Rs. 20,000 daily caps. However, this could raise the possibility of mistakes when keeping a daily company account. Adopting digital payment systems like UPI, NEFT, or net banking is the best solution. Remember, in business, a penny saved is a penny earned.


4. Take the tax out at the source. Every time a firm pays for the services it receives from a third-party vendor, it is required under the Income Tax Act to deduct tax at the source. Let’s say, as a business owner, you pay a leasing company Rs. 80,000 + 18% GST (Goods and Services Tax) as rent for the office space you use for operations. In this scenario, you are required to subtract 10% TDS (Tax Deducted at Source) from the total amount payable as tax from the source before crediting the money to the leasing company. If you fail to deduct the TDS, then the amount will not be considered a business expense, and you will be liable to pay taxes on the same. Thus, it will increase your annual tax liability.




5. Take out a company loan. Consider applying for a small business loan or an MSME (medium, small, and medium-sized businesses) business loan if you need money to expand your company or purchase new equipment to boost production. However, you won’t receive the money until your company satisfies the requirements for a business loan. While business financing is an excellent way to obtain capital for company growth and expansion, you must be careful to monitor the interest rate on business loans to make sure it is manageable. Consider applying for a loan from Tata Capital, one of the top lenders in India, if you’re seeking business loans. They offer business loans at a competitive rate starting at 19%.


Read More: CBDT enables E-Filing of updated Income Tax Return on Income Tax Portal for AY 2022-23 (FY 2021-22)


6. Participate in various initiatives Section 80C allows small enterprises to deduct a variety of expenses up to a maximum of Rs. 1.5 lakh each fiscal year. Public provident fund (PPF), life insurance, and medical insurance are all tax-saving investments that businesses can make. Conclusion Use the different tax-saving suggestions for Indian small businesses to your advantage now that you are aware of them to lower your company’s tax obligations while accelerating its growth and success.