Tax planning is a very important element for every businessman. Infact it is an integral part of your financial planning. The right tax planning can save you huge money.  But you should adopt legitimate tax planning which is within the ambit of available rules and regulations of the government. Tax planning may cover various aspects like timing of your purchases, income and expenditure, selection of investment and retirement plans, timely and accurately filing of your taxes, claiming all applicable deductions and thus enjoying every tax benefit offered by regulations.

Here are 6 tax planning tips for small businesses in India

 

  First  – Choosing the right business structure: The different types of business structures (i.e. partnership firm, LLP and company) offer different tax advantages. For e.g. Dividend Distribution tax is not applicable for LLPs while companies have to pay DDT at 16.609%. In the sole proprietorship form of business you can declare your business income on your personal income tax form. Thus you can choose optimum structure for your business so that you enjoy various tax advantages. Second – Claiming all  applicable deductions: One of the primary reasons for why small business owners pay more taxes than necessary is that they don’t take advantage of all of the deductions they’re legally allowed to them.  In many cases they can’t prove they are qualified. In some cases they are not aware of deductions available. You must maintain a record of all your expenses. Your books of accounts should always tally.

• The preliminary expenses deduction: The preliminary expenses (capital expenditure incurred in setting up your business) can be claimed as deduction under section 35D of the Income Tax Act, 1961 by an Indian Resident company. The examples of preliminary expenses are expenditure related to preparation of feasibility and project report, conducting market surveys, and engineering expenses incurred prior to commencement of business are allowed. The deduction is allowed in five equal installments in each of the five successive years beginning with the year in which the business commences.

• Home office Deduction: If you want to opt for home as your, you can deduct the related expenses like depreciation, property taxes, electricity bills, etc. against business/profession revenues, but you might have to forgo the exemption on long term capital at the time of sale of such office (residential premise) offered by section 54 or 54F.

• Business expenses: The expenses incurred in running any business is allowed as deduction against revenues generated. This implies that any expenditure incurred let’s say Rs. 100 may save tax up to Rs. 30.90, depending upon the tax bracket in which the assessee falls. So, you should maintain a proper record of all expenses so that you can claim appropriate deductions.

• Charitable donations: The amount donated towards charity attracts deduction under section 80G of the IT Act. This deduction is available to all the assessees i.e. even to companies. However, donations made to prescribed funds and institutions only qualify for deduction. You must get a stamped receipt from the institution to claim deduction.

Third – Hiring a professional: Indian tax laws are not very easy to understand and calculate. There are various deductions, tricks etc for saving taxes. Also there are various penalties, fines, interest, etc for non/late filing. If you are unsure about anything related to your tax obligations you must seek professional help. A good accountant may become your most important advisor, and could save you lots of money. Fourth – Timely payment of taxes: Make sure that you submit all your returns accurately, and on time so as to avoid penalties. If you owe taxes, and wait until the last minute when taxes are due, you have less time to set aside money to pay them. Fifth – Maintaining proper records: Maintain accurate records at all times, and keep all your invoices and receipts in a safe place. The books of accounts and other documents are to be kept for at least 6 years from the end of relevant assessment year. Sixth – Setting aside funds: Try to keep some funds separately to meet your future tax liabilities and to ensure that you have sufficient cash to meet any type of tax obligation. To conclude: There are other benefits in addition to 6 tax planning tips for small businesses in India discussed above, like carry forward of losses for eight years and adjustment of capital gains towards losses which a businessman can utilize. Even treatment of dependents (including parents) on specific illnesses or disability can be claimed up to a certain limit. By claiming all these benefits you can reduce your tax outgo to a great extent. Make sure that you have met all your tax obligations and thus minimize your exposure to audit. At Taxmantra.com, we have launched comprehensive retainership tax and regulatory services for companies, limited liability Partnerships/ General Partnerships and Proprietorship Firms. Under this unique retainership service, we take care of complete tax and regulatory compliances on your behalf, which makes you focus just on your business. There would be a specialized service team assigned to each assignment involving accounting, corporate law and taxation services with a Single Point of Contact (SPC) to co-ordinate the entire project.  For more on this – Feel free to visit our Business tax and regulatory page for more on services