Running your own business and making a profit can be quite the balancing act for many. We often hear business owners complain of how minuscule a profit they make after all the tax-cutting. Nobody wants to part with a major chunk of their hard earned money in the form of taxes. This needn’t be the case! Let’s talk about some simple tips that can help you save money on taxes.
- Keep an account of all possible expenses
Businesses that are labour intensive often fail to maintain a record of the indirect wages paid in cash. This presents a problem when the company files its taxes and there is no paper trail of this payment. The final profit of the company would be higher owing to the absence of record of this expense. As a result of this the tax paid by the company would be much higher. To avoid this, it is necessary to make a habit of maintaining cash receipts of the labourers thumb impression or signature.
- Deduct tax at source
As per the Income Tax Act of 1961, the buyer needs to deduct tax at the source before making any sort of payment to the seller. Failure to do so would result in the entire expense being deemed inadmissible thereby increasing the taxation.
- Account for depreciation
Specific businesses as mentioned under section 35AD can avail this tax saving clause. Businesses in the manufacturing industries in particular that purchase new machinery in a particular year can claim upto an additional 20% depreciation for that year. This brings down the taxable amount significantly.
- Deduct utility bills
If you have a home office or use your personal phone or car for business purposes you can declare all expenses relating to it as business expenses when you file your taxes. You can claim any cost incurred in electricity, water, property tax, phone, driver, tolls and parking charges as a business expense and save big on these.
- Invest in insurance policies and PPF
While life insurance and medical insurance policies safeguard you and your family in the event of unforeseen circumstances, these are also great instruments when it comes to tax saving methods. A life insurance policy can be claimed under section 80C and 80D respectively.
Public Provident Fund or PPF is a popular and trusted form of deposit scheme. You can claim upto Rs. 1,50,000 along with other investments under section 80C. PPF is also beneficial because even the interest earned on them is tax-free when compared with interest earned on Fixed Deposits.
The Indian government regularly tweaks the existing taxation laws to make the environment conducive for startups and small businesses in general. The recent announcements of exemption from capital gains tax and angel investment taxes for startups are examples of this. It is important to be aware of these taxation laws, exemptions and other tax saving tips. As they say, you reap what you sow. With a little effort to implement these tips you can turn around the expenses incurred in your business and make substantial profits in no time.