Conducting business today is becoming more difficult and daunting due to the mandatory compliances of the laws. The law of taxation is not something every business or startup may easily recognize. It requires strategic planning to remodel the corporate taxes, and before everything moves out of your hand, you must handle the issues carefully. If you do not make adequate plans to save the amount of tax to be paid, you may need to shell out a huge amount of money to the government every year. Following are some of the important tax planning options that the corporate entities may follow to save money.
● Paying the corporation tax by check
The corporation tax you pay every year can be claimed as deduction towards the income from the housing property. If you pay this tax in cash and do not preserve the receipts, you will not be able to claim the deduction. Paying by check, on the other hand, allow you to claim the deduction against the municipal taxes even if you lose the receipt as the payment reflects in the statement of accounts that you can acquire from the bank.
● Staying in track with the cash expense
Several businesses are labor-based and the salary of the unorganized labor is usually paid in cash. The indirect and the factory floor wages consume about forty percent of the manufacturing expenses of a business. However, you must keep proper track of these expenses for enhancing the profits of the business. Failure to maintain a record of these expenses results in bigger amount of tax burden for the company. Every business must preserve the pay receipts with proper signatures so that it is easier to claim the deduction against these expenses.
● Valuation of stocks
Even though the stock is generally valued at the cost, but for the short-term stocks, the valuation must be carried out on the NRV or the cost, which is lower. The NRV provides that actual value of the stock and prevents it from getting overpriced, which in turn reduces the amount of the taxes. You must follow the practice of proper stock valuation over the years to realize how much you have saved on the tax amount.
● Deduction of tax at source
Several transactions under the Income Tax Act require the buyer or the party receiving the service to deduct tax at source while paying the seller or the provider of the service. Failure to do this may also increase the tax burden.
● Considering the depreciation
The income tax provides benefits to businesses to claim the deductions against the additional depreciation. If a business fails to address this issue, it can lose the opportunity to claim the expenses against the additional depreciation. When it comes to the issues of corporate tax planning, it is one of the major strategies that businesses and startups must consider carefully.
● Balancing charge
Due to the sale of machinery or a plant and replacement, the party paying the tax amount can decide to reduce the cost of the new and replaceable item with the amount of the balancing charge resulting from the disposal of the new item. The balancing charge can be deferred to a later period.
● Capital allowances
As the capital allowances are not available on non-industrial expenses, a business must have careful consideration towards this aspect and transfer the maximum expenditure towards the buildings to the leasehold improvements, fittings, and fixtures to claim the capital allowances.
● Contribution towards pension
At the end of the year, businesses must not overlook the amount that they must increase towards pension contributions to the schemes that are designed for the shareholders and the directors of the company as a means of withdrawing money. While the company gains towards the tax deductions against the contributions made for the schemes, the employee can also save taxes on the contributions and get the benefits in kind. For direct tax planning strategies, every business should consult experts in taxation laws for the assistance required to save money for the payment of the taxes.
● Making cash payments
Businesses must avoid paying above twenty thousand in cash and try to make the same through draft or check. The income tax authorities do not allow such amounts to be deducted while assessing the taxable income.
● Understand the other taxable incomes
Sources of indirect income such as those arriving from the interest are added together during the calculation of the profits. Several businessmen are not ware that such incomes attract tax under the other heads and exempted in some of the sections. They may not avail the tax benefits even if they may not pay higher tax amounts.
● Filing the return on time
If you follow the suggestion of the income tax department, you will avail multiple benefits such as carrying forward the losses on the income. You can carry forward this amount for a period of eight years, and can be set off against the income of the coming years even if you choose not to set off the loss against the income of the current financial year. However, you can only avail this benefit if you file the return within time. Businesses must remember the dates of filing the returns to claim all the deductions.
Record of the transactions
For a business the penny saved is like the penny earned so they must stay in track with all the transactions no matter how small or big it may be to avoid getting into the grip of the taxes.
Seema Mehra is a Chartered Accountant at Ashok Maheshwary & Associates, one of the top CA firms in Gurgaon. She is a professional writer and loves to share tax related topics.