Income tax is the harsh reality that every business owner has to accept. And of course, “The hardest thing to understand in this world is the income tax.” – Albert Einstein.
However, it is our duty to contribute towards paying tax, and we can’t escape from this duty because it is the source of revenue for the government.
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So as I said that we couldn’t neglect to pay tax but to save money on tax is the best option that one might consider.
Let us consider what are the various ways by which one can save tax in India for business owners.
1) Expense on Hotel/Travel
The business owners have to move from one place to another due to some business related work.
And if you are a business owner then who can understand it better than you. So one thing that you can consider doing is that don’t spend the expense involved in traveling from your account instead file it to company’s account.
For, e.g., if your salary is ₹15,00,000 and around ₹3,00,000 is the traveling expense then you can show this travel expense as a business expense and pay tax for the left amount only i.e. ₹12,00,000.
2) Invest the surplus in marketing
In this Digital Era where everything is becoming digital, you can dump the old ways of marketing and go digital with your products and services.
It will benefit you in two respects. Firstly, by trying new techniques of marketing, you can grow your business and reach out to the new audience.
Secondly, all the expense involved in marketing is tax-deductible so that you can save money on this as well.
Therefore, the surplus that you will be left with at the end of the year, you can invest it in marketing and advertising.
3) Restructure your pay and save tax
Various allowances, like Conveyance, Uniform, Driver, Medical Treatment, etc. would end as soon as your job ends. Right?
So these are the expenses which you are forced to make, and these are nontaxable if your employer mentions this beforehand.
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This is not a part of your salary, so you should talk to your employer about it. But it is up to the employer that which all allowances he/she would like to grant.
However, to avail tax-free allowance one has to show it, and for that, you need proof from your employer.
4) Home Office Deduction
If there is a part of your house which you use for office related work or any other business purpose, then you may be able to take a deduction for a home office.
For, e.g., if you use your house as inventory, or you pay utility bills, or you give rent every month then you can deduct costs based on the square footage that you use particularly for business.
This is how you can save tax on home office deduction.
5) Save tax on Donations
Donating is a special way of saving money on tax where you are performing a good deed and can save money on tax as well.
Let’s see the details about this procedure.
Donations to registered charities will only allow you to save money on tax. You can donate to PM’s relief fund, political parties or registered charities in order to get 100% tax benefit.
However, if you donate something in the form of good, then you won’t receive any kind of tax benefit.
Also to avail the tax benefit, retain the receipt of your donation with you.
6) Profit on Selling Shares or Long Term Capital Gains
If you invest in stocks, it is entirely up to you to make your 100% profits non-taxable or not.
Let us see how?
Let’s suppose you invested ₹5,00,000 in stocks, and in 10 months it becomes worth ₹5,40,000. Now if you sell them in the 10th month itself then it would become taxable that is you would have to pay tax on ₹40,000 profit, and you cannot neglect that.
But if you sell them after 12 months then there is no need for you to pay tax on the gain that you got.
7) Save tax on HUF Account
If you have two sources of income, one is your salary, and the other is any part time work that you perform for additional revenue.
So for this secondary income, you can create an HUF account that is Hindu Undivided Family account which is available to Hindus, Sikh, and Jain families.
The advantage is that you can save additional income in HUF account or you can say it lets you divide your income into entities in order to avail same tax saving benefits twice.
8) Save tax on Education Loan
There is always a point in one’s life where there is a requirement for you to take an education loan for your kids or spouse or yourself, and therefore in that case you are eligible to claim a tax deduction.
But the deduction is allowed only for repayment of interest and not for repayment of principal amount. And the good thing is that there is no upper limit for claiming the deduction.
Also, only the individual taxpayers can only claim the deduction and not the HUF account holder.
9) Food Expenses
Many a times business owner has to go out for lunch to meet the vendors, clients, etc. Since all of these are the business meeting where it is only you who ends up paying the bill. Right?
So you can make use of a smart trick here.
Show all these food expenses as a business expense and save money on tax.
But you should take care that you utilize these food costs in right way. Make sure that you don’t visit some lavish restaurant. However, if you desire to visit such places and are ok with spending your money, then that’s a different case.
10) Hire Independent Contractors instead of Employees
This is an important thing that small business owners can consider doing.
So if you are a small business owner and cannot afford to pay payroll taxes and other benefits to the employees, then you can always look up for independent contractors.
As when you hire a contractor, then there is no need for you to pay payroll taxes to them.
However, if the contractor that you hired meets the legal definition of an employee, you could face penalties.
So be careful.
A guide to saving money on tax is priceless for every business owner. And therefore I gave you these ten tips on saving money on tax.
Now out of these mentioned tips which one do you love and will apply in the future. Let me know in the comments section below.
About the Author
Ankur Aggarwal is a Digital Marketer, Entrepreneur, Traveler, Blogger, Foodie. He has multiple websites but incomeboy.com is his new venture. The purpose of Incomeboy is to pass on 100% accurate and genuine information on making and saving more money either online or offline in India. Write to him at email@example.com.