Home Audit & Assurance Tax Planning Strategies for Small Business Owners in India

Tax Planning Strategies for Small Business Owners in India

Tax Planning Strategies for Small Business Owners in India

Tax Planning Methods for Small Enterprise House owners in India

All entrepreneurs should pay revenue tax on their revenues by way of the e-filing portal. Typically, it may be a considerable sum, and there are a number of exemptions and deductions to cut back SME homeowners’ tax liabilities. Since revenue tax is likely one of the most difficult points to grasp, we’ve got listed a number of tax planning methods for SME homeowners in India.

Rent Your Kin and Household Members

Hiring your kinfolk and members of the family is likely one of the most important tax-saving steps. You’ll be able to pay them salaries similar to different staff. In the event that they don’t have some other revenue supply, you possibly can pay them a wage of as much as Rs 2.5 Lakh in a yr. Whereas it is not going to make them liable to direct tax, you can too scale back your taxable revenue by displaying their wage as a price to your organization.

Declare Deductions on Travelling and Accommodation

As a enterprise proprietor, you would possibly have to journey often for enterprise functions. So, the subsequent time you journey, ebook your tickets and inns at your organization’s expense as a substitute of your private account. Since you possibly can present them as a enterprise expense, they won’t be a part of your taxable revenue.

Spend money on Advertising

Are you continue to utilizing conventional advertising strategies? It’s time to implement digital methods to achieve extra prospects and improve profitability. Concurrently, it would additionally profit your small business from the tax perspective, as enterprise advertising bills are tax deductible. So, it could be a fantastic concept to extend your advertising funds.

Pay for Enterprise Utilities

If you happen to use your telephone or car for enterprise functions, present them as utility bills and declare tax deductions on them. These embody your telephone, automotive, driver’s wage, parking fees, web fees, and so forth. If you happen to function the enterprise from residence, you may additionally declare deductions on electrical energy bills. Point out them when submitting your ITR on the e-filing portal to acquire tax advantages.

Purchase Medical Insurance coverage

Medical insurance coverage premiums as much as Rs 25,000 are tax deductible underneath Part 80D of the Earnings Tax Act, 1961. You may as well cowl your partner, dad and mom, and kids underneath this. Nonetheless, the deduction doesn’t apply in case you additionally maintain a full-time job the place your employer gives medical insurance coverage.

Fastidiously Deduct TDS

As an entrepreneur, you could deduct tax at supply when buying a services or products from a vendor. Failing to take action will make the expense non-admissible and improve the tax burden. As an illustration, in case you pay Rs.3 Lakh to an agent and don’t deduct 10% tax at supply, the entire Rs.3 Lakh will develop into taxable.


Donating cash to a superb trigger gives internal satisfaction and results in tax advantages. Donate to registered funds and charities like PM’s Reduction Fund to save lots of direct tax with donations. Donating to a political occasion additionally gives tax breaks.

Take a Residence Mortgage

Aside from offering monetary advantages, taking a Residence Mortgage can be useful from the tax perspective. Furthermore, you’ll construct a long-term asset, and its worth will considerably admire over time. Hyperlink your PAN with the corporate and declare a tax deduction of as much as Rs.1.5 Lakh a yr underneath Part 80C of the Earnings Tax Act.

Declare Depreciation

You’re eligible for added tax advantages if your organization operates within the manufacturing sector. Underneath Part 35AD, you possibly can declare as much as 20% extra depreciation than common by putting in new equipment and gear in your facility. Nonetheless, you could declare the additional 20% depreciation within the yr of buy solely. In any other case, it would develop into taxable.

Pay Workers Salaries Digitally

Because the Indian authorities largely favours constructing a cashless financial system, keep away from money transactions so far as attainable and deal with them digitally. As an illustration, paying workers salaries in money may even carry you within the eyes of the Earnings Tax Division. If you happen to pay greater than Rs.20,000 money to a person in a single day, the Earnings Tax Division will nullify the transaction and improve your taxability. Therefore, at all times pay your workers salaries by way of financial institution transfers.


Even small deductions when submitting returns on the e-filing portal can lower your expenses. Whereas a number of tax-saving choices can be found for small enterprise homeowners, you could use them to minimise your tax burden. Claiming tax deductions will enable you to save appreciable cash and convey you to the great books of the tax division.

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