Every company owner is liable to pay a tax on her business income and must file the Business Income Tax Return (ITR). As a business owner, if you are unaware of the ways to save tax on business income, you may might end up paying a large sum of money. This is certainly not favourable for small businesses. Here are a few tips on optimising your taxes on the income earned from business.
As an entrepreneur, your work may involve travelling to meet clients, prospects, etc. If you file the expenses to the company’s account instead of paying from your personal savings account, the amount will not be taxed.
Owners of manufacturing companies enjoy benefits like additional depreciation on machinery and equipment. The year new equipment is installed, the company is entitled to additional depreciation up to 20% along with normal depreciation. Claiming the additional depreciation will save you from paying extra taxes on this 20%.
Additional Read: Tax Benefits of SME Loans in India
Apply for Housing Loans
Housing loan interests can be used to claim tax benefits on your business ITR. Having your PAN card linked to your company makes you eligible for getting a deduction on the interest you pay on your house loan every month.
If you make donations to registered charities and retain the receipt of the donation, you will be eligible for certain tax benefits. This is not just a smart but a socially responsible way of saving on business taxation.
Qualified Business Income Deduction
2017 saw a new method of tax deduction for business owners through the Tax Cuts and Jobs Act. The Qualified Business Income deduction (QBI) deduction is a 20% deduction on the tax return of the business owner. You are eligible for QBI deduction if your business is a sole proprietorship, an S corporation, or a partnership. This is a good strategy for optimising taxes, especially for small business owners.
Additional Read: Tax Saving Tips for Small Businesses
Life Insurance Premium
Life insurance is, without any doubt, an important instrument for the security of an individual and her family. It has additional benefits like providing return on investments. Besides that, the premium paid on life insurance of self, spouse, children (irrespective of whether they are dependent or independent and married or unmarried) can be claimed under section 80C, along with other deductions (maximum capital of 1.5 lakhs).
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So, the next time its tax season, save money with these smart tips and tricks. For any financing requirements, get in touch with Tata Capital today.