For small and medium businesses, there is no such thing as having too much money. The size of the business also dictates the amount of investment capital it can leverage, and the cash flow it generates. Anything that can help the organisation save money is therefore always welcome. One way is by finding out if you’re overpaying taxes. Money saved is money earned, so figuring out if you’ve overlooked cash-conservation methods—like legally sidestepping certain taxes—is critical. Worse than not having enough money to operate your company or generate revenue, is finding out much later in the game that you’ve overlooked something that was right under your nose. There are a number of important ways in which you can make the tax system work for you. Find out what legal, government-sanctioned loopholes (like deductions/breaks), you could be exploiting, but aren’t. If you’re not taking advantage of these deductions, then you’re definitely overpaying taxes Location, location, location: This real estate mantra is just as applicable when it comes to taxation avoidance. Where your business is located can entitle you to certain exemptions. If you find that your business falls into the following categories, you’ve probably been overpaying your taxes without realising it. Tax exemptions and/or deductions apply to small businesses that fulfil any of the conditions noted below:
- Based in a designated ‘backwards area’. Your business is eligible for deductions under section 80-HH of the Finance Act, if you’re located in a backwards area.
Additionally, if your business was never part of a larger organisation, i.e. if it wasn’t the result of a split; doesn’t contain machinery that belonged to a plant or commercial establishment in the same area; and employs 10 workers and above (in electricity-based manufacturing) or 20 workers and above (in non-electrical production/work), then your organisation is entitled to a reduction of 20% in taxes paid on profits and gains.
- You are eligible for similar exemptions under, subject to similar conditions, under Section 80-HHA, if your business is located in a rural area (as defined by Section 35 CC (I) of the Income Tax Act, 1961.)
Depreciation-linked deductions: if you own assets, the depreciation in their value over time can be offset by deductions capped at 20 lakhs. In addition to a few other conditions, the assets must belong to the assesse, must be fixed, and should be used for business or professional purposes. Rehabilitation allowance: Under Section 33-B of the Income Tax Act, 1961, small businesses are entitled to an allowance amounting to 60% of write-offs they are already eligible for, in the event of certain natural and man-made disasters.
- Natural: typhoons, floods, earthquakes, cyclones, hurricanes, cyclones, or other forms of natural upheaval
- Man-made: riots, civil unrest, enemy attacks, and retaliatory attacks
- Accidents: freak explosions and destruction of property.
There are a number of other deductions as well that are worth looking into including
- those that apply to expenses incurred while acquiring a patent or copyright
- Businesses that conduct scientific research.
Make sure you explore these entitlements, and take advantage of them in order to claim your rightful due from the government.