Eight Tax Tips for Small Businesses in India:- www.deekpay.com

Small businesses play an integral role in the long-term economic development of the country. The tax system can promote and assist these deserving businesses and reduce financial losses. Income tax returns are not only an accountability tool for businesses by the government, but also a reflection of their credibility. Running a business is a daunting task, and the tax system is an important part of it. If not handled properly, the tax system can have a major impact on the operations of a business. Therefore, tax planning is crucial and it can help you save a lot of money every year. Here are a few tax tips for small businesses to help you benefit in the future:

**Small business tax proposals**

This article gives you a list of small business tax tips to help them overcome tax complexities and save money in the process.

- Planning expenditures

- Record-keeping

- Restrictions on cash payments

- Avoiding late filing

- Offsetting travel and home office expenses

- depreciation

- Deduction of TDS at source

- Engagement of accountants

**Planning expenditure**

For start-ups and small businesses, the initial start-up costs can be quite high and these are known as initial expenses. Initial expenses refer to the costs incurred in setting up a business, such as the purchase of machinery, legal fees, company registration fees, etc. Initial expenses such as construction costs and market research costs are capital expenditures. These expenses are deductible under Section 35D of the Income Tax Act. Initial expenses can be deducted from the total income in five equal instalments over a period of five years.

**Record-keeping**

One of the easiest ways to ensure a positive tax return is to keep detailed records throughout the year. Failure to do so can lead to a number of consequences, including a possible investigation or departmental inquiry. These records should support the income, tax credits and deductions on your tax return until the end of the period, which is the legal period by which taxpayers must keep their books. Copies of tax returns filed should also be kept securely for use on future tax returns. Using accounting software to record all income and expenses is a useful form of record keeping.

**Restrictions on cash payments**

Cash payments seem convenient in most cases. However, small businesses must exercise caution. Cash payments in excess of Rs. 20,000 to a single individual in a single day may result in tax credits being disallowed for these expenses. If a payment needs to be made above that amount, it is advisable to use banking channels rather than cash. For businesses with informal labour, all cash payments need to be properly recorded. Failure to do so may result in a higher tax bill. However, Section 6DD of the Income Tax Act provides some relaxation by listing exceptions where cash payments in excess of Rs 20,000 can be made.

** Avoidance of late filing **

When it comes to filing tax returns, time is money. One of the main benefits of filing a timely income tax return is the carryover of current year losses to future income. These losses can be carried forward for up to eight consecutive years. This means that you can deduct business losses from the underlying income, which will help reduce the tax burden on future income. However, this benefit is not available if you do not file your tax return on time. Late filing may incur penalties. For small businesses with an annual income of up to Rs 5 crore, the penalty for late filing is Rs 1,000.

**Offset against travel and home office expenses**

Income tax provisions allow certain deductions for expenses that contribute to the growth and maintenance of a business. For businesses where travelling is a necessity, travel expenses and lodging can be listed as a business expense as it relates to the purpose of the business. To save money, small businesses often use their home as an office. If this is the case, then the taxpayer can claim expenses related to the home office, including rent, repairs, utilities, depreciation, maintenance and property taxes. Section 32 of the Income Tax Act allows tax deductions for depreciation and Section 37 allows deductions for other expenses.

**Depreciation**

Additional benefits are available to manufacturing companies. The Income Tax Act allows tax deduction for depreciation of machinery. For new machines purchased within a year, taxpayers can claim 201 TP3T of depreciation plus normal depreciation. Thus, for each newly commissioned machine, you can claim 151 TP3T of regular deduction and additional 201 TP3T of depreciation. This helps recover the cost of the asset over time. These benefits are designed to encourage capital investment.

**TDS deducted at source**

Certain transactions mentioned in the Income Tax Act require the buyer to deduct TDS at source, such as payments to freelancers or commissions. If the taxpayer fails to deduct TDS, the entire amount will not be available for credit. This will eventually turn out to be a tax burden. For example, if a business owner pays a commission of Rs 1 lakh and fails to deduct TDS on 10%, the entire amount of Rs 1 lakh will not be available for tax profits.

**Hire of accountant**

Tax planning is a key way to reduce your tax burden. Simply reading tax policies and rules may not be enough. To avoid paying higher taxes, professional help is crucial. Experts will help prepare the books and assist in calculating taxes. They will help small businesses cope with complex issues and provide tactical advice to help reduce the tax burden while taking advantage of tax saving schemes.

**Concluding remarks**

It is vital to comply with rules and regulations and pay the necessary taxes. All these tips will guide small businesses to save on this tricky issue. Taxes may dig some cash out of a business's pocket; however, savings can easily be maximised by carefully studying the Income Tax Act and keeping proper records of expenses. The government also offers many benefits for timely submission of taxes. At PayU, we help people make seamless digital transactions and offer convenient tax filing services. To know more, visit PayU.