Entrepreneurs and business owners are required to pay income tax on the profits made from their endeavors. They constantly look for deductions and exemptions to reduce their tax liability because this might be a sizable sum. One of the most complicated concepts to comprehend is income tax. The following topics have been covered in this article:
Your Own Family and Relatives Can Be Employed
Taxes can be significantly reduced by hiring family members. They are eligible for salaries similar to those paid to other workers. The corporation will only be able to pay the recruited family members Rs. 2,50,000 per year if they have no other source of income. The avoidance of tax liability will be ensured by this. Because the salaries paid to the employees are a cost to the business, they can be deducted from its taxable revenue to lower the total amount of taxes the business must pay.
Transportation and lodging
It is customary for entrepreneurs to travel places for business purposes. It is more likely for business owners to spread out their locations across a number of cities if they have multiple locations. Book your travel and lodging on the company’s dime rather than out of your own pocket starting with your next trip if you want to avoid taxes. Business expenses can be deducted from the company’s taxable income.
Spend more money on marketing
It’s time to switch to digital marketing if you’re still relying on traditional methods of advertising because it gives you access to a wider audience and increases the likelihood that you’ll attract new clients.From a tax perspective, this will be advantageous for you as well because marketing expenses are tax deductible. Increasing the marketing budget is therefore not a terrible idea.
Business Services
Owners of businesses who use their personal automobiles and phones can prove these costs are related to utilities. For instance, costs for phones, vehicles, parking, driver’s wages, and other expenses are claimable if they are only incurred for business purposes. Electricity costs are also deductible if your home is being used for business. The tax burden will be lessened as a result. Some of the corporate utility costs that are deductible include the following:
Initial costs:Under Section 35D of the Income Tax Act, all costs incurred before the enterprise was established are deductible. These are deducted from taxable income for a period of five years and are listed as preliminary expenses.
Convenience costs: If your use of vehicles and phones for work purposes is considerable, these costs may be deducted from your income on the company’s books as a business expense.
Regular expenses: If you run your business out of your house, you can write off your power costs as a “head of the company” expense. Rent and other costs related to your internet connection are also deductible, in addition.
Asset Depreciation Expenses
All capital expenses can have their depreciation written off as an expense against the company’s revenue.
You can also claim depreciation, which lowers your tax liability, if all capital expenditures are made in the name of the business.
Expenses for depreciation of capital assets are also deductible under “income of the firm”.By making capital investments and claiming depreciation, you can reduce your tax liability.
Health Insurance
In accordance with Section 80D of the Income Tax Act, 1961, up to Rs 25,000 of your insurance premiums can be deducted as a tax deduction for you, your spouse, your children, and your parents. If you work a full-time job and manage a company simultaneously, this rule does not apply because your employer will cover your medical expenses.
Donation
Donating money provides you with tax advantages in addition to the feeling of doing good deeds. You must donate to registered charities and funds, such as the PM’s relief fund, in order to deduct your donations from your taxes. You can also receive tax benefits by giving money to an established political party.
Housing Loan
If you think getting a mortgage to buy a house is not advantageous, you’re mistaken. It will be a long-term asset that has the potential to increase greatly over time and offers tax advantages. If you have linked your PAN with the company, you are eligible to claim tax deductions under Section 80C of the Income Tax Act of up to Rs 1,50,000 annually.
Depreciation
Additional tax advantages are provided to businesses engaged in manufacturing. Companies (under Section 35AD) installing new machinery and equipment over the course of a year are eligible for up to 20% more depreciation than would otherwise be allowed in the year the equipment or machinery was first put into use.
You will be responsible for paying taxes on the unclaimed 20%, for instance, if you bought new machinery and only claimed the standard 15% depreciation.
Digital Transactions
It is not advisable to pay your employees in cash in this day and age when everything is done digitally. The income tax department will also place you on its red list. If you make a single cash payment of more than Rs 20,000 to an individual, it is not allowed in your accounting books.
For example, if you pay a worker more than Rs 20,000 in cash in a single day, the income tax department will consider the transaction null and void. As a result, your taxability rises. As a result, it is always best to pay your employees via bank transfer.
One rupee gained is one rupee saved. It only makes sense to take use of tax-saving features when there are several of them. Long-term gains can be realized by putting tax-saving strategies into practice.
