5 tax saving tips for small business owners in India

As a small business owner, you will observe that tax filing and tax payments are stressful procedures. Also, if the amount of tax payment is huge, it becomes even more stressful. After all, earnings (i.e. net profits) are out of your control, but you can definitely lower your tax burden.

There are many ways for small businesses to save taxes and implementing them will also help them to track their finances. Here's a look at 5 tips which can help businesses on their tax journey:

• Make municipal payments by cheque: Cheques are considered a better mode of payment than cash. If you pay municipal taxes by cash, you can lose the receipt of those payments. After which you will not be entitled to a tax benefit. On the other hand, using a cheque helps maintain a clear record of transactions. So even if you lose the receipt, you'll find a record of the transaction in your bank account. It serves as a proof of payment through which you can claim tax deductions.
• Claim additional depreciation: The Income Tax department provides small businesses tax deductions on depreciated machinery and equipment. Apart from normal depreciation small businesses can also claim an additional 20% on depreciation. For example, let's say a business installed a new sewing machine, then apart from the regular 15% depreciation, they can also claim additional 20% for depreciation for the year the machinery was put in to use. In addition to this, under section 35AD of the Income-tax Act capital expenditure of certain industries is entirely tax deductible. Thus, it is crucial for small businesses to be aware of tax laws and their filing procedures.
• TDS is a mandate: Deducting tax at the source can help to reduce the tax burden on your business. Under the Income Tax Act, there are certain services for which TDS is a mandate such as payments made to third-party vendors and commissions paid to a business agent. If 10% TDS is not deducted the entire expense becomes inadmissible, and your tax burden will increase significantly.
• Make sure to file returns: Filing returns is a regular procedure every small business should follow. It helps to present an accurate picture of the business performance in front of the Income Tax Department. Also, if you are looking for a short-term loan for your business, then you must submit ITR returns along with other necessary documents as a part of the loan application procedure. Lenders always assess the financial position and performance of a borrower to reduce their risk of bad debts.
• Try accounting software: Most small businesses in India employ labor-intensive techniques. So payment of wages is mostly made in cash. It is important to keep a record of wage expenses. If a business fails to do so, then its profits will increase, and it will be liable to pay more taxes. That is why small businesses should employ smart and efficient accounting practices such as free accounting software. It calculates taxes easily with 100% accuracy. In addition, it also helps to identify segments where deductions can be availed, thereby easing your tax hurdles.

Final takeaway:

Small businesses can easily integrate these tips into their daily operations. After which they can save up a lot of tax payments. Also, if a small business requires funds to meet working capital requirements, expansion, purchase machinery or other expenses, it saves tax on the interest payable on a business loan in India. So, it is important to keep these techniques in mind to avail maximum tax deductions.

Meanwhile, if you are looking short term or long term loan options have a look at Indifi's product portfolio. Loans are easily available at zero collateral and payments can be made in a flexible manner by borrowers.

Indifi is India’s leading SME lending marketplace. Indifi provides the best-fit business loans for Travel, E-commerce, Hotel, Retail, Restaurant, Manufacturing, BPO, B2B, and other SME businesses.