Tax Saving Tips for Small Business Owners

Here is a guide to help business owners save taxes and keep track of their finances.
Business Loan
2 min read
12 October 2023

Having to part with your hard-earned money is always difficult. While certain factors affecting your net profit are out of your control, one thing that you can do is lower your tax burden. Implement these simple measures and ensure that your business saves as much as it can. Keeping these tips in mind helps you save tax and enables you to keep track of your finances.

Make payments of municipal taxes by cheque

Cheques are always a better mode of payment than cash. When you pay municipal taxes by cash, you run the risk of losing the receipt. It worsens matters as it robs you of receiving any benefits. , using a cheque gives you a clear record of the payment in your chequebook. Even if you lose the receipt, you will find a record of it in your bank account. It helps you prove that you made the payment and hence claim a deduction.

Record your expenses

For example, if you run a packers and movers enterprise, you will have to pay people to drive the trucks, pack and unpack products, and load and unload the vehicles. If you pay your labourers in cash and do not maintain a daily or monthly record, you can land up in serious trouble. The reason is that your business expenses will not be accurate, and you will have to pay more in taxes.

Be aware of depreciation cuts

The tax department provides manufacturing businesses with a tax deduction for machinery depreciation under the Income Tax Act sections. In addition to normal depreciation, you can claim additional depreciation of 20% for new machinery purchased in that year. For example, suppose you install a new embroidery and sewing machine for your clothing business. You can claim an additional 20% for depreciation in the year when the equipment is put to use apart from the regular depreciation (15%).

Another section, 35AD, makes total capital expenditure in certain industries tax-deductible. So, be aware of the tax laws and file your taxes correctly to avoid losing out on these sizeable savings.

Limit making cash payments

It may seem convenient to make cash payments, but ensure that they do not exceed Rs. 20,000 in a day. This is because the income tax prohibits deductions of expenses when cash payments go beyond this amount. So, for example, if you have to pay suppliers of cotton, silk, and applique patches, split the payment over several days. You can also use other sources of finance, such as a cheque or electronic transfer, to make the payment.

Ensure that you deduct tax at source

Tax deducted at the source helps reduce your tax burden. If you fail to do this, it can cost your finances. There are certain services for which doing this is a mandate as per the IT Act.

For example, suppose you paid a sum of Rs. 4 lakh to a recruitment firm to staff your clothes manufacturing facility. You forgot to deduct 10% TDS the entire expense will be inadmissible. As a result, your tax burden will increase manifold.

Be thorough with filing returns

Filing your returns on time gives the Income Tax Department an accurate picture of your business's performance. When you file returns on time, you can also enjoy certain perks. For example, if your packers and movers business has made an income loss, you can carry it forward next year. In addition, you can set it off against next year's business income for up to a period of 8 years.

Buy a vehicle for your business

To run your packing and moving business, you will need several business vehicles. But, when you purchase a business vehicle, it will reflect as an asset in your balance sheet. So, you can claim depreciation on it. This is an excellent way to save money as well as boost your company's performance.

Save tax by donating

You can also avail of tax benefits by donating to charitable organisations. Donations to eligible charities can be claimed as deductions, reducing taxable income. Not only does this support a good cause, but it also aids in lowering the overall tax burden. Be sure to keep receipts and documentation for accurate record-keeping.

These tips can easily be integrated into your business's daily operation. Doing this at every level will help your firm save a sizeable amount when paying your taxes. When your business is looking for finance to fund working capital, growth, machinery purchases, or other expenses, you save tax on the interest payable on a business loan. So, keep these tips in mind and make the most of tax deductions.

Also, if you need funds for your business, log in to the official website of Bajaj Finserv and visit the Business Loan section. Before applying for a loan you can get a basic understanding of the features and benefits, the documentation required, fees and charges, etc.


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Frequently asked questions

How can business owners save taxes?

Business owners in India can save taxes through deductions for expenses, investments in tax-saving instruments, utilising depreciation benefits, and taking advantage of available tax credits and exemptions.

How can I save 100% income tax?

It is not possible to save 100% income tax legally in India. However, individuals and businesses can optimize tax savings through legitimate means like investing in tax-saving instruments, utilising deductions, and taking advantage of available exemptions and credits.

How can business owners pay taxes?

Business owners in India are required to pay taxes based on their business structure. They typically pay taxes such as Goods and Services Tax (GST), income tax, and corporate tax. These can be paid through online or offline modes, including internet banking, debit/credit cards, or by physically visiting authorised banks or tax offices. It is important to maintain accurate financial records and comply with the relevant tax regulations.