Effective tax planning is the best way to reduce tax liabilities. That means planning well in advance, looking for opportunities to save tax from initial business start up through to eventual exit. It also means looking at the whole picture, to see how you can pay less tax both within the business, on your personal income and in terms of potential inheritance tax.
The simplest way to save tax is to ensure you are taking full advantage of tax allowances and reliefs. Using an appropriate level of debt financing allows you to save tax by setting interest payments against taxable profits. You may be able to reduce tax bills significantly by making sure you claim all your business mileage, or taking advantage of research and development tax credits.
Tax Deductions in India
- Public Provident Fund (PPF)
- Life Insurance Premiums
- National Saving Certificate (NSC)
- Bank Fixed Deposits (FDs)
- Senior Citizen Savings Scheme (SCSS)
- Post Office Time Deposit (POTD)
- Unit-linked Insurance Plans (ULIP)
- Home Loan EMIs
- Mutual Funds & ELSS
- Stamp Duty and Registration Charges for a Home
- Retirement Savings Plan
- Tuition Fees
- Medical Insurance Premiums
- Infrastructure Bonds
- Charitable Contribution
- Treatment of Disabled Dependents
- Deduction for Preventive Health Check-ups
- Interest Paid on Education Loan
- Deduction on House Rent Paid
You can save tax by using the right business structure, whether you are a business start up or need to change the way your existing business has been set up. That should include thinking about the best way for the business to hold any assets (such as property) in order to reduce tax bills.
You’ll pay less tax if you can extract cash from the business in the most tax-efficient way. With relatively low capital gains tax rates and generous Entrepreneurs’ relief, converting income into capital gains can substantially reduce tax bills. You may also save tax by taking payments as dividends rather than salary, or taking advantage of tax relief on pension contributions.