Income tax filing is a mandatory duty of every business owner, which one cannot escape, as it constitutes a revenue stream for the government. Knowing the tax laws and handling the tax obligations helps entrepreneurs adhere to the tax rules, legally minimize their liabilities, and raise profitability.
Here are some of the legitimate strategies that can present tax relief and allow you to allocate your resources towards the scaling up of your company. These tax-saving tips for private limited companies in India include:
Tips to Save Tax in a Private Limited Company
1. Make Use of Tax Holidays
Tax holidays are periods during which companies can obtain tax immunities or receive tax rebates. Some tax holidays that are present include:
- Companies that function in Special Economic Zones (SEZs) are not liable to taxation and can receive concessions.
- Start-ups can seek a 100% tax holiday covering three out of the initial ten years as governed by Section 80-IAC.
2. Claiming a Tax Write-Off under Section 80C
Private limited companies can insist on deductions subject to Section 80C by financing them through authorized instruments like life insurance premiums and the Employee Provident Fund (EPF).
Such financing can decrease the income subject to taxation, making way for savings of Rs. 1.5 lakh.
3. Specialized Tax Management
Engaging in specialized tax management and efficiency helps ensure that your organization maximizes the applicable tax deductions, credits, and reliefs.
An experienced tax expert or a reliable firm like Kanakkupillai can assist in devising the structural details and funding necessary to mitigate tax liabilities lawfully and efficiently.
4. Streamlining of Business Operations
Reorganizing your ventures, such as incorporating holding and subsidiary companies or merging multiple companies, can help minimize your tax liability. Such business restructuring also helps maximize your tax efficiency by revamping operations and taxes emanating from transactions between separate entities within the same corporate group.
5. Recruiting Family Members
An effective way to ease the tax incidence or burden for company owners is to recruit their family members and pay wages like regular employees. In case the relative is not receiving any additional income, the company can make payments of 2.5 lakhs annually as per the ongoing tax slab, with no tax payment for these family members.
Due to salary payments being an expense of the company, they are liable to deductions as taxable income, thereby bringing the total costs down for the company. This, too, has advantages for the entrepreneur, as they have reliable and trustworthy individuals around them and can nonetheless expand their business.
6. Apply For Preliminary Expenses
Businesses can claim deductions on utility expenses carried out solely for business reasons, such as expenditures on drivers’ salaries, vehicles, phones, or fees for parking. If your business functions from home, then you can also claim the electricity expenses. Some of the business operating or utility costs are redeemable for deductions:
- Costs associated prior to the business operations: All Preliminary expenses before the incorporation of the enterprise qualify for deductions according to Section 35D of the Income Tax Act. These are charged as preliminary expenses and are liable for concessions from the net earnings for five years.
- Convenience costs: Widespread use of phones and automobiles for business interests is seen as business expenditures and is liable for deductions as per the company’s books.
- Recurring costs: If your company functions from home, you can lower electricity costs under the “head of the company.” You can also remove expenses drawn due to net connectivity and house rent, and seek deductions.
A decline in the cost of capital expenditures also comes under the purview of tax cuts under the head “income of the firm”. You have to carry out capital expenditures from the company’s account and claim depreciation to decrease your tax liability.
7. Premium Amount of Medical Insurance
Any premium amount of medical insurance worth Rs. 25,000 can be tax-free for entrepreneurs. This deduction is pursuant to Section 80D of the Income Tax Act, and the insurance can be offered to the spouse, dependent children, and parents.
However, it is essential to note that such a tax benefit privilege will not apply to business founders for whom the venture is a secondary occupation or a side project and who are engaged in a full-time occupation for which their hirer has extended them medical insurance premiums.
8. Tax- Beneficent Pay Structure
Designing a salary structure with elements like allowances, dividends, premiums, and benefits that minimize taxes can lower a company’s tax liability. Optimizing employees’ net earnings can also benefit them.
9. Put Money in Specified Bonds
Procuring specified bonds issued by the government, for instance, those in accordance with Section 54EC, can help to suspend or decrease capital gains tax. This can be significantly helpful when the company disposes of its assets and decides to reinvest the earnings.
10. Make Use of Employee Welfare Deductions
Expenses which are directed at employee benefits, such as educational costs, health insurance premium and various welfare wellness programs, are deductible according to Section 36(1)(iv).
Any quantity of money which the employer bestows on their employee as Provident fund or ESI qualifies for deductions. But it is only legitimate when the amount granted is allocated to the given welfare account with the stipulated date.
Such employee welfare expenses not only are tax advantaged but also elevate employee relations and satisfaction.
11. Tax Management Towards Dividends
Dividend income is chargeable in the hands of investors or shareholders.
Organizations can use strategies that are tax-advantaged and allocate profits in a manner that is tax-efficient for shareholders.
12. Maximize TDS Remissions
Handling TDS payments proficiently guarantees compliance and averts penalties, interest, and the denial of expenditures.
Prompt and unerring payments can assist in diminishing the company’s overall tax obligations.
13. Redeem on GST
By fully taking advantage of the Input Tax Credit (ITC) mechanism, which permits businesses to seek credit for GST payments on purchases, and opting for the correct tax rate categories and GST classification, private limited companies can lessen their GST burden.
14. Interest on Housing Loan
If you consider borrowing a bank loan to buy a house to be a complicated matter, you are slightly misled.
By linking your PAN card to your company, you are eligible for a deduction on the monthly interest of your house loan. According to Section 80C of the Income Tax Act, you can demand a deduction of up to ₹1,50,000 annually and include housing loan interest under this segment of the deductions.
Summing Up: How to Save Tax in a Private Limited Company
For efficient tax saving in a private limited company across India, it is imperative to adopt lawful and tactical tax planning strategies that conform to the Income Tax Act and different mandatory guidelines. Following the above-mentioned tax planning and optimization practices, from paying salaries to the founders and directors, employing deductions like 80C, claiming expenses, streamlining payouts, Indian companies can substantially lower their tax burden while remaining compliant with the legal regulations.
After all, every penny saved is a penny earned, and these legally permissible tax-saving ways can help minimize income tax. To structure your investments and manage your business and tax obligations, our experts assist you in operating in the most tax-advantaged manner.
