Tax is a significant sum of money that every business has to outgo. Here is the list of deductions and exemptions that can help you reduce your tax outgo.

Small businesses are an integral part of the development of a country’s economy in the long run. The tax system can promote and help these deserving businesses with a minimum loss of money. An income tax return is not just an accountability tool for the government, but it also serves as a credibility report of the enterprise. Business is a tough affair, and the tax system is a major component. The tax system can significantly affect the business if not handled properly. For filing taxes, proper planning is essential since it can help you save a considerable amount of money every year. We have listed a few tax tips for small businesses that will help you a lot in the future below:

Tax Tips For Small Businesses 

In this article, we have listed down some tax tips for small businesses that may help them overcome the complexities of taxation and, in this process, save their money. 

  • Chalk Out The Expenses 
  • Keeping Records 
  • Limiting Cash Payments 
  • Avoid Late Filing 
  • Deduct Travel Expenses And Home Office 
  • Depreciation 
  • Deducting TDS At source 
  • Hire An Accountant 
Tax tips for small businesses

Chalk Out The Expenses 

For startups and small businesses, the initial kick-start expenditure can be significant, known as preliminary expenses. Preliminary expenses refer to the cost incurred while setting up the business, i.e., acquiring machinery, legal expenses, company incorporation expenses, etc. Initial expenses such as the construction costs and the market survey costs come under the capital expenditure. They can be written off as deductions, according to Section 35D of the Income Tax Act. The preliminary expenses are deducted from the total income in five equal installments over 5 years. 

Keeping Records  

One of the simplest ways to ensure positive tax returns is to keep thorough records throughout the year. Failing to do so may lead to several repercussions, including a possible inquiry or departmental investigation. The records should support the income, tax credit, and deductions shown in your tax return until the period of limitations runs out, i.e., the statutorily stipulated period for which taxpayers have to maintain the books of account. The copies of the filed tax returns must also be kept properly, as they help with future tax returns. A useful way of keeping records is using accounting software that can record all the income and expenses of the business. 

Limiting Cash Payments 

Cash payments seem to be very agreeable most of the time. However, small businesses must be cautious while doing so. Cash payments exceeding Rs. 20,000 in a day, for a single person, may lead to the prohibition of the tax deduction on such expenses. If a particular payment requires you to pay more than the amount, it is recommended to use banking channels but not in cash. Small businesses with unorganized labour require a proper recording of all the cash payments. Failing to do so may result in paying a higher tax payout. However, section 6DD of Income Tax allows some relaxations and lists out some exceptions where the payment exceeding INR 20,000 can be made in cash. 

Avoid Late Filing 

While filing tax returns, time is money. One of the primary benefits of timely filing of income tax returns is to set off present year losses against future income. These losses can be carried forward for a consecutive period of 8 years. This means you can deduct the business losses from the relevant income, which will help reduce the tax liability on the future income. However, this benefit cannot be availed without filing the tax return on or before the due date. Late filing of taxes may lead to a penalty. For small businesses whose income does not exceed Rs. 5 lakh during the financial year, late filing of the taxes would lead to a penalty of Rs. 1000. 

Deduct Travel Expenses And Home Office 

For expenses that help the business grow and sustain, certain deductions are allowed by the Income Tax Provision. For businesses wherein travel is essential, travel fare and accommodation may be shown as business expenses as it is concerned for business purposes only. To cut the costs, small businesses usually use their homes as offices. If that is the case, then the taxpayer can claim a deduction on expenses related to the home office, including rents, repairs, utility bills, depreciation, maintenance bill, and property tax. Section 32 allows the tax deduction for depreciation, and Section 37 allows for the other expenses. 


Additional benefits are provided to manufacturing businesses. The Income Tax Act allows a tax deduction for the depreciation of machinery. For new machinery purchased in a year, the taxpayer can claim depreciation of 20%, in addition to the normal depreciation. So, for every new machine being put to use, you can claim the regular 15% deduction and an additional 20% for depreciation. This helps recover the cost of the asset over time. These benefits are to encourage capital investments. 

Deducting TDS At Source 

Several transactions mentioned in the Income Tax Act require the buyer to deduct tax at sources, such as payments made to freelance employees or commissions. If the taxpayer fails to deduct this TDS, the whole amount can no longer be added for reductions. This will eventually turn into a tax burden. For example, if the owner pays Rs. 1,00,000 as commissions and fails to deduct the 10% tax, then the whole amount of Rs. 1,00,000 will be inadmissible for tax profits.

Hire An Accountant 

Tax planning is the essential method of reducing the tax burdens. Reading up about the tax policies and rules may just not be enough. To avoid paying a higher amount of taxes, professional help is of utmost importance. Experts will help prepare the account books and help in the computation of the taxes as well. They will help the small business through the complex aspects and provide tactical recommendations that will help businesses reduce the tax liabilities and simultaneously enjoy the benefits of the tax-saving schemes. 

Final Words 

It is crucial to abide by the rules and regulations and pay the necessary taxes. All of these tips will guide small businesses to save this tricky situation. Taxes may scratch out some cash from the pockets of your business; however, with careful study of the Income Tax Act and maintaining proper records of the expenditure, one can easily manage to save maximum. The government also showers with several benefits on the timely submission of the taxes and the tax returns. At PayU, we help people facilitate seamless digital transactions along with facilities to conduct a smooth tax filing. To know more, visit PayU.