A Deep Dive into the Strategies and Benefits of Taxes Saved by Businesses

Taxes Saved

Saving on taxes or understanding tax-saving tips is a crucial aspect of managing business finances effectively. A common question often arises about how to save ta in a private limited company in India. Can we do something legally so that taxes are saved? Some tax planning tips can be implemented in today’s business life to derive immediate and long-term benefits. Some of the tips below are best suited for Startup Tax Strategies.

Here are some tax benefits for entrepreneurs in India:

  • Utilise Section 10AA for SEZ Units:
      1. Businesses operating in Special Economic Zones (SEZs) can avail of a deduction under Section 10AA of the Income Tax Act.
      2. There are many SEZs in India, and to name a few are: 
        1. Visakhapatnam Special Economic Zone,
        2. Noida Special Economic Zone
        3. Kandla Special Economic Zone
        4. Cochin Special Economic Zone
        5. Mangalore Special Economic Zone
        6. And many other zones across various parts of India.
      3. Key benefits of having a unit in SEZs
        1. Exemption from GST
        2. Dutyuty-free import of raw materials for production 
        3. 100% income tax exemption on export income for SEZ units for the first 5 years, after that 50% for the next 5 years 
        4. Setup of businesses without any hassles of licenses or lengthy procedures
        5. Good banking setup for funding
        6. Easy acquisition of land for the setting up factor and other facilities
        7. Access to labour as the government promotes the ecosystem around the SEZs
  • Optimise expenses in the business:
      1. Ensure costs are incurred in the company so that all expenses are allowable. 
      2. For Example, A car should be purchased in the business, allowing it to depreciate, along with fuel and repair costs.
      3. Interest paid on the loan taken for the car is also an allowable expense.
  • Leverage Research and Development (R&D) Credits:
      1. Businesses investing in research and development activities may be eligible for tax credits and deductions. Ensure compliance with relevant provisions.
      2. For example, contributions paid to national laboratories and spending money on scientific research are some of the expenses that are 100% allowable.
      3. Contribution paid for the use of research done for social science or statistical research
      4. Many specific research activities are allowable expenses.
  • Explore Capital Allowances:
      1. Businesses can claim depreciation on assets and capital expenditures as per the rates prescribed by the Income Tax Act. Be aware of the different depreciation rates for various assets.
      2. Buy assets in the business and claim depreciation.
      3. Buy property in the business, and rental income and expenses can be claimed.
  • Claim Input Tax Credit under GST:
      1. Ensure proper documentation and compliance with Goods and Services Tax (GST) regulations to claim input tax credits on GST paid for business expenses.
      2. Businesses often take 100% of the GSTR 2A populated input credits and then pay interest and penalties for ineligible input credits.
      3. For example, a car purchased for official use by the business can be depreciated, and all expenses are eligible for expenses. Still, the input credit paid on the vehicle and expenses is unavailable for ITC.
  • Utilise Section 35AD for Capital Expenditure:
      1. Businesses investing in specified sectors like hotels, hospitals, and scientific research can claim deductions under Section 35AD.
      2. The government announces investment-linked income tax benefits to increase capex investment in some industries. Under these schemes, a new setup is done to increase the investment and not by splitting the existing business. Any expenses incurred for such investment are allowed for 100% exemption.
  • Avail of Start-up Tax Benefits:
      1. Start-ups can benefit from tax exemptions for a specified period under the Start-up India initiative. Ensure eligibility and compliance with the prescribed criteria.
      2. Tax holidays allowed for startups in a block period when they started earning profits.
  • Maintain Proper Accounting Records:
      1. Accurate and timely maintenance of accounting records helps correctly compute income, deductions, and compliance with tax regulations.
      2. Businesses often don’t give proper importance to accounting and bookkeeping; thereby, improper reconciliation of books calculates wrong profits and wrong tax, which can lead to interest and penalties for no reason. 
  • Pay timely Advance Taxes:
      1. Paying accurate advance taxes on the due dates helps to bring down interest and penalties under section 234 of the income tax for short and delayed payment of income tax.
      2. Compute the Advance tax quarterly and ensure it is trueup and rechecked every quarter to ensure the correct tax is paid. Some prudent businesses pay slightly higher taxes and take a refund on completion than paying less. 
  • Optimise Business Structure:
      1. Evaluate the most tax-efficient business structure, considering factors like proprietorship, partnership, Limited Liability Partnership (LLP), or private limited company.
      2. If the business threshold increases for a proprietor or a partnership, they should convert to a Company to save substantial taxes on the profit. The average rate of taxes for Properitership when the profits are more than 5 Cr is 47% vs in the company it is 27%.
  • Take Advantage of Presumptive Taxation:
      1. Small businesses can opt for presumptive taxation schemes, like the Presumptive Taxation Scheme under Section 44AD, to simplify tax compliance.
      2. Professionals use this as a tool to bring down more partners in LLP and company structure to bring down overall tax by dividing it effectively between the parties.
  • Claim Deductions for Charitable Contributions:
      1. Businesses contributing to eligible charities can claim deductions under Section 80G.
  • Stay Updated on Tax Reforms:
    Keep abreast of changes in tax laws, exemptions, and incentives introduced by the government to adapt your tax strategy accordingly.
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It’s advisable to consult with a tax professional to ensure compliance with current tax laws and regulations and to tailor strategies based on the business’s specific circumstances. www.cfoangle.com is the company that helps different sets of legal entities generate the best tax structure and save substantial taxes for taxpayers.

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