5 Income Tax-Saving Tips for Small Businesses

income tax saving tips

income tax saving tips

All business organizations need to pay taxes every financial year. The government and the income tax department try to get the maximum income tax from companies. On the other hand, business organizations look for all possible ways to reduce their tax liability. If you run a small business organization, there are many ways you can reduce your tax liability. It will help to strengthen the financial condition of your company.

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Choosing The Right Type of Company Registration

It is essential to choose the right type of company registration. It is because tax regulatory authorities will look at the registration type and demand for taxes accordingly. In India, you can register your company under different categories.

Types of Companies Brief explanation
Private Limited companies You can register your business under the provision of a private limited company with a group of shareholders. All members of the company have the same liability to protect personal assets. Such companies have at least two or a maximum of 15 directors and a minimum of 2 or a maximum of 200 shareholders. At least Rs 1 lakh is needed to register such a company. All individuals are equally responsible for paying taxes.
Partnership Firm Such companies are suitable for all those who agreed to share roles, responsibilities, profits equally as mentioned in the partnership deed. Minimum 2 and less than ten partners can own such a business organization and equally share the tax burden.
Open Person Company It is suitable for all those who enter the business world with a limited amount of money. You are entirely responsible for all activities of your company. To start such a business organization, you need Rs 1 Lakh rupee. The good thing is that you don’t have to share profits with anyone. The income tax department will ask for taxes per the business volume you generate in a financial year.
Sole Proprietorship It is one of the simplest forms of business that anyone can set up and run. Here, only one person is suitable for losses and profits. You pay taxes as per your business volume.
Section 8 companies If you do charitable works for the welfare of the unprivileged section of society and need a donation from external financial sources, register your company under the section. You don’t need to maintain a minimum capital for registering such a company. Minimum two shareholders and a maximum of two directors can live in such a company. Section 8 companies get many tax exemptions from the government and income tax department.

Identify the nature of your business and choose the right type of registration for your company. It will help you reduce the tax liability to a great extent and save a lot of money for various beneficial purposes. If you cannot understand which company type is suitable for your organization, consult a competent lawyer and discuss your needs with him. He will guide you towards the right path and help register your business under the right category, enabling you to save on taxes.

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Track All Your Expenses

Most business people pay more attention to the incoming flow of income. They hardly take note of their expenses. As a result, they end up paying more taxes on profits.

Be clever while you operate a business and try to expand it in a short time. Record all your expenses as far as possible. It will help you know more about the overall financial condition of your company, update the balance sheet, negotiate with the tax officers regarding your tax liability and save a significant amount of money on taxes.

Conduct More Digital Transactions

Many business people have a terrible habit of using cash for day-to-day business activities. Remember that you cannot ask for tax deductions if daily cash expenses exceed Rs 20,000. Income tax officers will not entertain your claim for a tax deduction if you use too much cash in day-to-day business activities. Therefore you must use digital transactions as far as possible. It becomes easier for you to show the balance of income and expenses and ask for relaxation in tax amount from regulatory authorities.

  • Employ Family Members

Keeping family members as employees in your company is one of the most flexible ways to reduce the overall tax liability of your company. You can pay them salaries like any other employees. If the family member doesn’t earn from any other source, pay him Rs 250000 as a yearly salary. They will not be liable for paying taxes. As wages given to employees cost the company, they can’t be taxed. Therefore, it reduces the overall income burden on your business firm.

  • Buy Medical Insurance

Company owners can claim up to Rs 25,000 (paid as a medical insurance premium) for tax deductions under section 80D of the Income Tax Act 1961. Your spouse, children, and parents are eligible for this benefit. However, you cannot take advantage of this provision if you run a startup company parallel to holding a full-time job with an organization that provides medical insurance coverage.

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Take A Business Loan

If you plan to expand your business to a new location or struggle with cash crunches, taking a business loan can help you. But you must prove your eligibility for business loans available in the market. Have a look at the interest rates of loan packages and choose what is suitable in your case. If interest rates are higher, it will benefit you immensely. The interest rate will outweigh the benefits and help reduce the overall tax liability.

Advantages of Business Loan

To run a business organization smoothly and successfully, you need to have plenty of reserve cash. However, you can’t claim to have good moments at all times in today’s highly competitive business market. Ups and downs are an essential part of any business activity. Many entrepreneurs in India apply for business loans to get the requested money. Some significant advantages of business loans online are detailed here below-

Sufficient Loan Amount For Eligible Business People

Most business loans in India promise to pay eligible candidates handsome money starting from Rs 50,000 to Rs 50 lakh for almost all necessities. You can use the received money to operate your day-to-day business activities successfully, purchase new hardware and equipment, expand your business organization in a geographical location, and fulfill other financial obligations vital for your company’s growth. Keep in mind that bank executives will evaluate the overall financial health of your company, creditworthiness, business volume, existing debt burden, and other factors to finalize a loan amount you deserve.

Also Read: How To Manage Your Big And Small Purchases With Personal Loan?

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Suitable Interest Charges

Interest charges applied on business loans are a cause of concern for most companies. If the interest rate is very high, a company will have to pay more interest to the bank. Most entrepreneurs look for business loans with the lowest possible interest charges. The competition in India’s financial market is so heavy that banks and financial organizations try to attract more and more companies with low-interest business loans.

You should carefully study the loan proposals made by different banks and communicate with them regarding the overall interest fees applied on the borrowed money. Then, please submit your details carefully to the banker and negotiate with its executive for a business loan with a low-interest payment. Correct information and bargaining are vital to securing a beneficial business loan with a reasonable interest charge.

Minimal Documentation

All frequent credit borrowers know that documentation consumes a lot of time when they apply for loan online and look for the immediate funds. Bank executives always ask you to submit various documents so that they can verify the supplied information, evaluate financial records, credit scores and make a decision regarding the fate of your application for the loan. But this is not the case with small business loans available in India.

Bank executives ask you to submit documents related to your business registration, ITR details, current bank account statements, etc., to verify your claim for the requested money. Minimal documentation helps struggling business people get the much-needed cash and quickly bring their business on the right track. Sometimes the timely availability of funds allows companies to avoid a complete shutdown.

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No Need To Share Benefits

When you have shareholders/partners/investors in your company, it becomes mandatory for you to share profits with them. You don’t face situations like this after taking a business loan online. You have to pay the original loan amount along with applicable interest fees. Depending on your needs, you can take a business loan for one to five years and repay the entire loan amount in small installments.

Trouble-Free Application Process

Multiple banks offer online business loans in India with attractive terms and conditions and flexible interest fees. You don’t need to wander here and there for a suitable business loan. Just use the global internet to extract different business loan offers and independently evaluate their pros and cons. Consider different packages based on the loan amount, repayment period, processing fee, eligibility criteria, terms and conditions, and other factors, and choose a business loan that suits your interest very well.

Once you finalize the loan amount and choose a particular Bank, it’s time to submit your application using an online application form. Complete the form with correct details and review it for possible incorrect information. Do the necessary correction and recheck your application to ensure that it doesn’t contain misleading information. Then, send your application to the banker and wait for 8 to 10 days to get a call from Bank executives.

The offline method of loan application follows the same protocol, but the difference is that you have to visit the bank to submit your application for business loans. A team of bank executives will start evaluating your application from different angles. The bank will ask you to justify your demand for a particular loan amount and submit valid documents to support the data. If your financial records and supplied data are found to be accurate, the bank might approve your application.

After approval, you receive the sanctioned amount in your bank account in 3 to 4 business days. The bank deducts the loan processing fee from the approved amount and credits it to the remaining balance in your bank account.

Enjoy The Benefits of Working Capital Support.

Online business loans are the lifeline for struggling business people. They can use the received loan amount to cover daily business expenses, buy the much-needed equipment, and meet emergency financial commitments, which is vital for your company’s survival. In addition, business loans offer working capital support to your organization and help you come out of difficult times.

You Can Claim For Tax Benefits

Taking a business loan is always beneficial for ardent entrepreneurs. However, when taking a small business loan, you should check the eligibility criteria and look for the possibility of applying for tax benefits. Tax regulatory authorities will let you have tax benefits if you fulfill specific terms and conditions.

It Improves Your Business Credit Score

In simple words, business credit scores are indicators, which let bankers and financial organizations know whether a particular business organization is eligible for loans or not. To obtain a small business loan, your company must have an excellent credit score starting from 700 to 900. By paying the borrowed money at the right time, you can quickly improve the business credit score of your company and maintain a good reputation in the financial market. You will have its benefits in the future when you apply for loans. Seeing the good financial record of your company, banks and financial organizations quickly agree to give you the requested loan money.

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Regardless of the business volume and size, all business organizations want to optimize their tax liability as far as possible and save some money. You can use the recommendations mentioned above to reduce the tax liability up to a certain extent. Taking a business loan online helps to stable a business entity, expand the venture in a new location, and claim tax benefits.

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