7 Tax Savings Tips for Small Business Owners
Saving taxes doesn’t just apply to salaried professionals. It is applicable even for those running businesses. Irrespective of whether you are running a small business or a large enterprise, your net profits are bound to be taxed. Tax saving is necessary, remember that it is your hard earned money which you will be letting go. Why give your money to the government when you can invest in a tax saving scheme and claim tax benefits. Yes, it is now possible to reduce the burden of taxes by investing in financial instruments that come under Section 80C.
Under Section 80C of the Indian Income Tax Act, 1961, there are several tax saving instruments, where investors, depending on their investment objective, risk appetite, and investment horizon, may choose to invest and claim annual tax deductions of up to Rs. 1.5 lakhs.
Running a small business requires a lot of cost cutting. And one way to do so is by saving as much tax as possible. There are several factors that determine the profit or loss of a company. While that may not be entirely in your hands, what you can do is save your business money by smartly investing in tax saving schemes and lower the tax burden from your company’s shoulders.
We understand that as the owner of a startup, filing income tax returns for the first time can be stressful and taxing (no pun intended). If you too are someone who has recently launched their start up and looking for some tax saving tips, here are a few things to keep in mind in case you wish to maximize your profits by saving as much tax as possible –
- Make the most out of Section 35D
There is a lot of expenditure that entrepreneurs have to bear during the startup phase. These expenses can be categorized as capital expenditure required for venturing a new business or a startup. This capital expenditure, which can vary from business to business, can be written off as per Section 35D of the Indian Income Tax Act. As per this section, capital expenditure for the first five years of the business can be claimed for a tax deduction. However, this expenditure should be divided into five equal installments.
- Ensure you file returns on time avoid late fees
There is a deadline date before which you need to file returns. You might want to make sure that you do not delay the income tax returns filing process because that will cost you, literally. Filing returns after the deadline are subject to a certain late fee.
- All the municipal expenses shall be paid with cash
The problem with paying municipal expenses with cash is that there is a fear of saving the receipt till the time of filing returns. Cheque payments make a lot more sense because it’s recorded in your bank statement or cheque book. This allows you to use it as a proof and claim a tax deduction.
- Keep a close tab on your company expenses
Let’s take, for example, if you own a day and night café, you will have to keep a close tab on the expenses like ration to run a 24 hour kitchen, daily payment of staff which might be in batches on three, daily expenses like packaging costs (food containers), disposable cutlery, regular drinking water, etc. If you do not track these daily expenses, it can cost you big during filing returns.
- Seek professional help
If you are filing returns for the first time, it is advisable to seek the advice of a certified public accountant (CPA). They can not only help you with filing returns but can also advise some tactics which might help you in maiming your tax deductions. Learn from the best so that when your business grows, you have the knowledge of gilding through the nuances of a tax code.
- Take the help of online tax calculating tools
Due to advancements in internet technology, you can now calculate your taxes at the ease of your fingertips. There as several free tax calculator tools available online, which small business owners can make the most out of. You can now calculate your TDS, HRA, and your overall taxable income online using an online software tool.
- Make the most out of Section 80C
There are several tax saving instruments that come under Section 80C, where tax payers can invest up to Rs. 1.5 lakhs per fiscal year and claim for a tax deduction. Equity Linked Saving Scheme or ELSS is one such equity scheme, which comes with a statutory lock in or three years and tax benefits. Investors with a moderately high risk profile and willingness to seek long term capital appreciation through equity related investments can consider investing in ELSS. ELSS has the potential to offer investors with tax benefits, as well as it can offer some returns if stayed invested for the long run. ELSS is the only tax saving equity mutual fund under Section 80C, which qualifies for tax benefits. However, investors should bear in mind that equity investments are exposed to volatile market conditions, and hence, returns are never guaranteed.
So if you are a small business owner and looking for a scheme that can help you save taxes and also offer you an opportunity to invest in equity markets, you can consider investing in ELSS.