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15 Income Tax Filing Tips for Small Businesses

Income Tax Return filing is an important task in the effort towards being tax compliant. It is an activity which is necessary to successfully claim numerous tax benefits, and it also builds the credibility of your business. Tax filing is a once in a year activity unless you do it incorrectly. It is a bit complicated task which should be handled carefully to avoid subsequent scrutiny, penalty and other hassles. Here is a list of some useful tips which will help you as a Business Income Tax filer.

1) Stay organised throughout the year

Small business owners often struggle when it comes to tax filing as they do not have proper data management systems and processes in place. When the filing time comes, it becomes a painful task to gather all the necessary documents and information. So, it is important to maintain proper books of account even if doing so is not mandatory as per Income Tax laws in your case.

2) Stop spending time in Excel

If you use Excel for all your accounting and data management, you may find it difficult to continue doing so as your business grows. Spend some money and get a good accounting platform in place. It will not only help you keep a tab on your company’s performance but also help you in quick and accurate tax filing.

3) Set checkpoint meetings

Proactive tax maintenance throughout the year leads to fewer surprises at filing time. Keep track of your tax outgo throughout the year and keep looking for tax saving opportunities wherever you can.

4) Rely on others’ expertise

Small businesses generally have a centralised organisation structure. Small business owners believe in controlling everything about their business. However, when it comes to taxes, it is best to rely on the experts. Hiring a renowned and trustworthy Income Tax Return filing service provider can not only help you in filing taxes but also in optimising tax savings through tax planning and year-round support.

5) Make taxes part of your financial planning

Financial planning is a critical task performed by every business. Estimating profits and revenue, analysing and reducing cost is part of financial planning. However, small businesses often take the impact of taxes into account very late. As a result, they miss out on several tax saving opportunities. So, it is important to make taxes a part of your financial planning.

6) Deduct your home office

Many small business owners operate from offices at home without realising that they can deduct expenses related to that home office. Such expenses include insurance, mortgage interest payments, repairs and utilities like electricity, internet service, etc. You can claim these deductions while filing the tax return.

7) Depreciation

There are various equipment and furniture that you use for your business. With the passage of time, they lose their value. Depreciation on such assets can be considered a business expense on which tax deduction can be claimed. If the asset is partially used for business and partially for personal purpose then even the proportionate depreciation can be claimed on such asset.

8) Investment allowance

If your business is involved in the manufacturing or production of goods, you can claim the tax benefit in the form of investment allowance.

9) Carry forward of losses

The aim of every business is to make a profit but businesses aren’t always profitable. If your business has incurred a loss, it can be carried forward and set off against income from subsequent years by filing income tax return on time.

10) Startup expenses

New business owners are often unaware of the special tax benefits provided by the government to the start-ups. Certain types of business expenses which are incurred before or after starting a business, in connection with the extension of the industrial undertaking, or in connection with setting up a new unit can be claimed as a deduction. The deduction can be claimed over a period of five years and one-fifth of such expenditure can be claimed each year.

The Corporate Income Tax rate is also lower for the newly set up businesses. Remember this when you pay taxes and file return.

11) Interest expenses

Infusion of capital is required to initiate any business and also to keep it growing. It often happens that small businesses borrow capital on which interest is payable. Businesses can claim tax deduction on the interest paid without any upper limit. With the help of interest certificate from your lender, you can easily claim this deduction by filing taxes.

12) Charitable contributions and CSR activities

Any charitable contribution made by your company to any charitable institution is allowed as a tax-deductible expense, subject to certain conditions under Section 80GGB. The tax deductibility ranges from 50% to 100% of the charitable contribution, depending upon the nature of charity. Small businesses are often unaware of this tax provision and therefore fail to take advantage of it.

However, expenditure incurred on CSR activities mandated under the section 135 of the Companies Act, 2013 but regarding it’s deductibility under income tax is a matter of debate and lacks clarity. It may not allowed as a deduction for tax purposes under the Income Tax Act as it is not an expense relating to business. But there are ways in which the deduction for these CSR expenses may be claimed u/s 80G or 35AC for which you should consult a tax expert.

13) Bad Debts

The amount of any bad debt, or part thereof, that has been written off as irrecoverable in the accounts of the taxpayer for the year is allowed as a tax-deductible write-off. However, if any part of the sum written off is subsequently recovered, the recovered sum is taxable in the year of recovery.

14) Bribes, Kickbacks and Illegal Payments

Expenditure incurred by a taxpayer that is illegal is deemed not to have been incurred for the purposes of the business or profession, and no deduction of such expenditure will be allowed. So, it is important that you avoid any such activity as the tax department can figure such illegal expenses by scrutinising your return. As a result of this activity, you can be penalised.

15) Payments to Foreign Affiliates

Indian companies can claim a deduction for payments on account of royalties, and for interest and fees for technical or management service provided by foreign affiliates, as long as they are not capital in nature. Such payments are deductible in the year the requisite withholding tax is paid to the government.

How can H&R Block help you?

Saving taxes and filing income tax return accurately becomes very easy when you have professional help. This is where we come into the picture. You can either use our intuitive tax filing platform to easily file your tax return or let our tax experts file it for you. We have a team of in-house tax experts who can file your tax returns accurately while giving you maximum tax benefits.

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Niteesh Singh
Niteesh Singh
Niteesh works as a Tax Researcher at H&R Block India. He makes taxes easy to understand for people. He creates content for the website, marketing activities and social media. He carries experience in creating a wide variety of content like blogs, press releases, research papers, etc.

1 Comment

  1. Ashwin Galhotra says:

    Hello Niteesh Singh, Your provided info is really helpful as I have just entered in Business world. But , I need to ask something I am also beginning with new business , the following steps you have written is they mandatory because i would not able to go with all the casualties and work as I am only one person to start my business.
    Can you mark out the points which are necessary.

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