Occasionally, tax payments can be too large to make. Perhaps there was a way to save some money on taxes. You can find out how to legally reduce your taxes in this article.
Skyrocketing sales and profits are the goals of businesses. How can they not be? Profits propel businesses forward.
In addition to your efforts, if you manage to achieve good profits, you need to pay 30% in tax to the government.
Taxes are our legal obligation. Paying taxes cannot and must not be avoided. There are some tax planning strategies you can implement during the financial year to reduce your tax liability.
What is the legality of tax saving? In contrast to tax evasion, tax savings are completely legal.
Tips To Save On Taxes
- 1 Tips To Save On Taxes
- 1.1 1. Founders’ Or Directors’ Salaries
- 1.2 2. Directors’ Sitting Fees
- 1.3 3. Preliminary Costs
- 1.4 4. Paying Tax In Advance
- 1.5 5. Vehicle Expenses Of The Director
- 1.6 6. Rental Expenses
- 1.7 7. Capitalizing On Depreciation And Assets
- 1.8 8. Wages For Family Members
- 1.9 9. Entertainment Related Expenses
- 1.10 10. Expenses Associated With Meetings
1. Founders’ Or Directors’ Salaries
- An organization’s directors receive a percentage of profit based on a predetermined ratio
- It is possible to pay dividends to directors instead of paying them as salaries to save taxes
- The salaries of its founders and directors can be deducted by a private limited company.
2. Directors’ Sitting Fees
- Companies can pay directors sitting fees during board meetings or committee meetings
- An amount of one lakh rupees should not be paid per meeting
- If it is a company expense, it can be claimed, whereas if it is a personal expense, it cannot be claimed
- Alternatively, companies can pay directors sitting fees in order to transfer profits.
3. Preliminary Costs
- Founders and directors are responsible for most of the company’s expenses during the company’s formation
- There are fees for incorporation, memoranda of understanding and agreements, training of employees, fees to the ROC, etc.
- If these expenses are recorded in the books, your company can save tax.
4. Paying Tax In Advance
- Advance tax is also known as pay-as-you-earn tax and is a tax paid in advance based on your estimated revenue
- Paying advance tax on time will prevent you from paying late payment interest on taxes paid at the end of the financial year.
5. Vehicle Expenses Of The Director
- Vehicles used for business purposes, such as attending meetings and traveling for business, must be paid for by the director(s).
- Besides fuel costs, vehicle maintenance and repair costs can be claimed as well. Evidence must be provided.
6. Rental Expenses
- If your company’s registered office is owned by a director or relative, then you may be able to claim tax benefits for this expense.
7. Capitalizing On Depreciation And Assets
- For your business, you should capitalize on revenue-generating assets.
- Not your profit and loss statement, but your balance sheet will reflect the change.
- Your fixed assets appear on your balance sheet and must be depreciated over their useful lives. By doing so, we can enjoy tax benefits.
8. Wages For Family Members
- Family members offer free guidance and assistance to businesses
- Their salaries can be recorded in the books of accounts. This allows you to return your profit portion to the government.
9. Entertainment Related Expenses
- The company throws a dinner or in-house party for family or partners when it has a big win or roughly every quarter
- Book these expenses to save tax.
10. Expenses Associated With Meetings
- To make sure your company reaches new heights, you need to socialize a lot as a director
- Tax savings can be achieved by booking such social events.
When these methods are legal, why not save on taxes? For more information about how all this can be done legally and effectively, contact the experts at Vakilsearch.