Tax Planning for Small Business Owners and Entrepreneurs in India

Tax Planning for Small Business Owners and Entrepreneurs in India

Written by Ramsay, In finance, Updated On
July 16th, 2023


It is tough and challenging for business owners, especially small owners and entrepreneurs, to manage their business efficiently daily. And when ITR filing time comes, the situation becomes more demanding. Because small businesses do not have the capacity to hire too many resources to manage their taxes and legal affairs, they end up suffering the most.

Such situations can easily be avoided by simple tax planning tips and tricks. By following these, small business owners and entrepreneurs can ensure they do not spend much time taking care of tax chores and do not end up paying extra.

Tips and Tricks for Simple Tax Planning

Tax Planning for Small Business Owners

Since small businesses won’t have a huge finance team and they could have situations where they may have to manage things on their own, knowing the different provisions under Indian tax becomes even more essential for them. Here are some tips to always stay on top of your ITR filing:

Preliminary Expenses Write-Off

When entrepreneurs set up their businesses, they may face and incur certain costs. These costs are known as preliminary or start-up expenses and are a part of capital expenditure. As per Section 35D of the Indian Income Tax Act, small businesses and entrepreneurs are allowed to write off their initial costs as a deduction. The business owner can do it in five equal installments over a period of five years.

Business Expenses

During the filing, small businesses are also allowed to claim all their expense deductions while running their company on the generated revenues. It would mean that small businesses can reduce their overall tax burden by claiming the appropriate tax deductions on their business expenses.

To do this, business owners must record all business expenditures transactions properly and accurately. If, as a business owner, you need clarification regarding the same, you can also refer to an online tax consultant to clear your doubts.

Additional Depreciation

The income tax department has many provisions to support small business owners and entrepreneurs. One of those is the additional depreciation or reduction on any new machinery that they installed in the year. The business owners can claim a reduction of 20% during their ITR filing.

But remember, it supports specific industries mentioned under section 35AD and is only applicable for the first year of the machinery operation.

Home Office

During the initial phase of any business, especially small businesses, the owners prefer to use their home as their office instead of renting one. It is usually done to ensure they are able to reduce their overhead costs and can focus on making revenue and profits.

If, as a business owner, you are also using your home as your office address, you can claim the same as a deduction on expenses and reduce the overall tax burden. Business owners can also claim deductions on expenses on depreciation, property taxes, utility bills, and mortgages.

The depreciation deductions can be claimed under section 32, and all other expenses under section 37 of the Indian Income Tax Act. It will significantly reduce the overall tax burden of these business owners.

Avoiding Penalties

Small business owners end up paying extra money by not filing their taxes on time. There are deadlines that everyone needs to adhere to, or else they can be charged penalties for late filing of ITR.

If small businesses end up paying penalties, they will not be able to maximize their overall profits. Moreover, business owners can enjoy several tax benefits if they pay taxes on time. So, always remember to know the tax filing dates and never miss filing your taxes on time.

To Conclude

As a taxpayer, it is crucial for everyone, including individuals, small or large business owners, and entrepreneurs, to abide by the tax laws. As new business owners, people may find managing their expenses and other tax-related situations challenging. Therefore, they should plan their taxes smartly and take the help of professionals in case of any need.

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