Expenses that Qualify for Tax Write-offs
As a Small Business Owner, the Indian Tax Department gives you the option to write off certain expenses from your final taxable income. As someone who is self-employed, it is of paramount importance that you know what these expenses are and keep records for them accordingly. Here we cover some of the expenses to keep in mind, but be sure to consult your Chartered Accountant or a Tax Specialist to know the most recent information and exact percentages of the expenses you are allowed to write-off.
1. Rent: The rent for the premises of your office is one of the expenses you can write off. Most startups, when starting out, often begin in home offices or prefer to adopt a work from home policy. Here, the rent that you pay for your residence can also be considered a business expense under the Income Tax Regulations in India. Similarly if you own your premises and pay property tax on it, you will be able to deduct the amount from your earnings.
2. Utilities: Often maintenance, infrastructure and utilities like internet, electricity, water and telecom form the bulk of your expenses. These can be considered as business expenses and written off accordingly. Certain equipment that you purchase will also be liable to be written off under the banner of depreciation. Items like furniture, vehicles and computers can be considered under this section.
3. Education: If you have taken out a loan for educational purposes and are in the process of repaying it, then you can consider the amount that you repay as an expense. This also applies to loans taken for your children’s education. Under section 80C you are also allowed to deduct the education expenses of up to two children for their fulltime education.
4. Charitable Donations: When you start your own business, you may feel like cutting back on any charities that you donate to. However, you can continue to do so and get a tax break as well. Make sure that you give to organizations that qualify for these deductions. These donations will fall under section 80G of the Income Tax Act. As with your other expenses, ensure that you obtain a properly stamped receipt for the donation.
5. Travel, Entertainment & Gifts: As the face of your company, you may be required to travel to various places for meetings or network at events with other entrepreneurs and potential investors. These expenses like tickets, fuel or accommodation can be written off. Entrepreneurs can also write off expenses like business meals where clients or investors are entertained as well as a certain percentage of gifts given as a gesture of goodwill. Remember especially while travelling to keep taxi and dining receipts and keep in mind the currency rate if travelling abroad.
It is important that you keep abreast of any changes the government makes with regard to Tax Write-off as they would save your business a good amount of money both in the short term and the long term. These resources, once saved, can then be channeled back into your business to enable its growth.