Entrepreneurs and business owners are responsible for paying income taxes on revenues generated. Every entrepreneur or business owner must embrace the harsh reality that they must pay a portion of their revenue to the government in taxes. This can be a significant sum, and they are continuously looking for deductions and exemptions to reduce their tax liability. However, we must contribute to paying income tax, and we cannot avoid this obligation because it is ultimately a source of money for the government. Here are a few tax-saving strategies that startups and entrepreneurs can use:

Hire Family Members

Hiring family members might be a crucial step toward lowering taxes. If the family member has no other income, the corporation can pay them up to ₹2.5 lakhs per year (based on the current tax slab) without incurring any taxes.

This will ensure that they do not become liable for taxes. Salaries paid to employees are a cost to the firm and can be deducted from the company’s taxable revenue, lowering the company’s overall tax liability.

Travelling and Accommodation

Entrepreneurs frequently travel to meet business needs. This is done more generally if an entrepreneur has operations in multiple cities. If you want to save money on taxes, book your trip tickets and accommodations at the expense of the company, rather than your own. This is considered a business expense, therefore it can be deducted from the company’s taxable income.

Invest in Marketing

If you are still utilizing traditional marketing methods, it is time to switch to digital marketing, which allows you to reach out to more potential clients, boosting your chances of finding new customers. This will also assist you financially, as marketing spending are tax deductible.

Business Utilities

Business owners who use their automobiles and phones can disclose utility expenses. For example, expenses for phones, vehicles, parking fees, driver’s salaries, and so on are claimable if they are only for business operations. If you own a home, you can claim your electricity bills as well. This will help to lower the tax burden. The following are some of the business utility expenses that can be claimed as deductions:

Medical Insurance

Section 80D of the Income Tax Act of 1961 allows for tax deductions on medical insurance premiums of up to Rs 25,000. You can include your spouse, children, and parents in this. This does not apply if you run a startup while also working full-time for an employer who provides medical insurance.

Correctly deduct tax at source

The Income Tax Act contains particular rules that allow entrepreneurs who purchase a service or product to deduct tax at the source when paying the vendor. If an individual fails to do so, the expenses will be inadmissible, resulting in an additional tax burden.

For example, if you pay Rs 3,00,000 as a commission to an agent but fail to deduct the 10% tax, the entire amount will be excluded from the taxable profit calculation.

Donation

Donating money provides both the satisfaction of doing a good deed and tax benefits. Donations to recognized charities and funds, such as the Prime Minister’s Relief Fund, can help you save money on taxes. You can also get tax benefits by donating to a recognized political party.

Housing Loan

It will be a long-term asset with tremendous appreciation potential and tax benefits. Section 80C of the Income Tax allows you to claim tax deductions of up to Rs 1,50,000 a year, which includes the interest on your house loan.

Depreciation

The government provides significant tax breaks to enterprises in the industrial industry. Under Section 35AD, corporations can claim up to 20% additional depreciation in the year they bring new equipment and machinery into use, in addition to standard depreciation, if installed for more than a year.

Digital Transactions

Paying your employees in cash is not a good idea in this digital age. Furthermore, you will be placed on the income tax department’s “red list.” If you make a cash payment of more than Rs 20,000 to an individual in one transaction, your account books will reject it. As a result, your taxability increases. As a result, it is usually best to pay your employees via bank transfer.

A rupee saved equals a rupee earned. When there are various tax-saving provisions, it is only prudent to take use of them. Implementing tax-saving strategies will be helpful in the long run.

conclusion

Business owners may successfully manage their tax obligations, make the most use of their financial resources, and set themselves up for long-term success by putting these tax-saving techniques into practice. To ensure optimum efficacy and conformity with tax rules, remember to work with financial advisors or tax professionals to customize these techniques to your own goals and circumstances.