Tax Planning Methods for New Companies

Taxes is usually a little complicated for people, however in the case of companies, nicely, let’s simply say it’s a complete new stage of complexity. Working a enterprise in itself is difficult. One has to juggle so many tasks and with taxes within the combine? It may be a little bit of a headache for certain. Now, if you would like your new enterprise to unfold its wings and develop, effectivity is essential. Each rupee you save counts, and that’s the place tax planning comes into play. By way of tax planning, you’ll be able to unlock the utmost advantages from the obtainable tax deductions and exemptions within the Revenue Tax Act. That is particularly vital for younger companies as cash saved can gasoline enterprise enlargement. So on this weblog, let’s perceive what Tax Planning for New Companies is and determine why it’s so vital. We’ll additionally have a look at some tax planning methods that may assist your new enterprise thrive. Let’s dive in!

Understanding tax planning for companies

Everybody needs to minimise their tax liabilities, and companies are not any completely different. Tax Planning for Companies is the method that helps them organise their monetary construction so that they must pay the least tax doable legally. This structuring contains assessing the prices, income, operations, investments, belongings, liabilities, and different features to strategically optimise the general tax burden. Companies are vital for a rustic’s growth. They contribute to financial progress and so they create employment. The federal government recognises their significance and gives incentives and numerous tax advantages to encourage enterprise development.

In line with the Revenue Tax Act, companies can profit from many provisions equivalent to deductions for capital expenditures, incentives for exports, beneficial tax remedy for sure varieties of revenue, and extra. The neatest transfer for brand new companies is to kick off tax planning proper from the beginning. The primary few months and years are vital and tax can have a huge effect on the underside line.

Why Is Tax Planning Essential for Startups?

  • At first, tax planning makes certain that your enterprise stays compliant with the regulation. Working a enterprise is difficult sufficient, so the very last thing you want is the effort of coping with the revenue tax division. 
  • Secondly, tax planning helps lower your expenses which helps the underside line, which is vital within the first few years of any startup.
  • New companies usually search for traders for sooner development. Traders carefully have a look at how a enterprise handles its taxes, so having a great tax plan could make startups extra interesting to them. If traders consider {that a} enterprise is dealing with their funds proper, they’re more likely to see it as an important alternative. 
  • Tax planning additionally makes companies extra environment friendly. By saving tax, they’ll allocate extra sources to areas like enlargement, advertising and marketing, and product growth.
  • Some tax advantages may be availed if a enterprise invests in analysis and growth. This not solely helps them save tax but additionally promotes innovation and long-term development.
  • The primary few years may be make-or-break for startups, so that they want further care and a focus initially. That’s why Tax Planning for startups is essential at this stage, because it helps them play by the principles whereas they reap advantages. Consulting with a tax planner early can show to be one of many smartest selections one could make, because it ensures easy crusing and enterprise sustainability. 

Additionally Learn: Finest Tax Saving Funding Plans & Schemes

Tax Planning Methods for Small Companies

Now, let’s check out some tax planning methods that small enterprise house owners can use to cut back their liabilities legally –

Choosing the proper enterprise construction

Completely different enterprise buildings have completely different tax implications. For instance, sole proprietorship of a enterprise signifies that the person proprietor is personally responsible for taxes. However, in a partnership, all companions share the tax tasks. When you go for an organization, chances are you’ll face double taxation, which signifies that not solely will it’s important to pay the company tax, however as a shareholder additionally, you will must pay tax on the dividends you earn. There are various buildings {that a} enterprise can take, equivalent to Restricted Legal responsibility Partnerships (LLPs), non-public restricted corporations, and One Individual Firms (OPC). It’s a must to perceive how every construction works and what its tax implications are.

Recordkeeping and Documentation

A enterprise has many bills, so it’s vital to maintain observe of all of them. Equally, it’s vital to maintain correct information of your revenue, invoices, and receipts. Sustaining detailed monetary information not solely helps you declare tax deductions but additionally helps you perceive and handle your total monetary well being. This documentation could make the method of tax submitting a lot simpler and in addition enable you in claiming the relevant deductions.

Additionally Learn: What are Tax Planning, Tax Evasion, and Tax Avoidance?

Taking Benefit of Tax Credit and Deductions

There are various deductions within the Revenue Tax Act {that a} small enterprise can profit from. These deductions promote the financial development of the nation, funding, and compliance with rules. You must have a radical understanding of the tax code so you’ll be able to establish which deductions apply to your enterprise. Listed below are some advantages obtainable beneath the IT Act – 

  • In case you are self-employed and use your private home for enterprise functions, you’ll be able to declare a deduction and avoid wasting tax on lease, utility payments, upkeep and so on. 
  • You possibly can declare a deduction for charitable donations beneath Part 80G. It permits deductions for contributions made to eligible charitable organisations, and the deduction quantity varies from 50% to 100% of the sum you donate.
  • You possibly can declare Enter Tax Credit score (ITC) beneath the Items and Providers Tax (GST) regime. It would help you declare credit score for the taxes paid in your purchases towards the taxes collected in your gross sales.
  • From Part 30-37, you can see deductions for bills incurred for enterprise or occupation. This contains deductions on lease, salaries, repairs, insurance coverage, and different bills which are instantly associated to the operation of the enterprise.
  • You too can save on taxes by deducting revenue that’s taxable beneath the top ‘revenue from different sources’.
  • If your enterprise is concerned in exports, you’ll be able to profit from deductions beneath Sections 10A, 10AA, and 10B.
  • When you resolve to spend money on Analysis & Growth actions, you’ll be able to declare a deduction beneath Part 35.
  • In case you are trying to make investments, you’ll be able to benefit from tax-saving choices equivalent to Fairness-Linked Financial savings Schemes (ELSS), New Pension Scheme (NPS), and Unit-Linked Insurance coverage Plans (ULIP) to avail deductions beneath Part 80C.
  • A enterprise can even benefit from the provisions associated to depreciation, that are acknowledged in Part 32. Belongings equivalent to buildings, equipment, automobiles, and even patents and logos can lose worth over time as a result of put on and tear or obsolescence. You possibly can declare depreciation on any such belongings used for enterprise functions.  

There are various such deductions obtainable within the IT Act, so staying knowledgeable concerning the tax legal guidelines may also help you save massive in your new enterprise.

Quarterly Tax Planning

Doing all of your tax planning each three months may appear tedious, however it may be advantageous. This can pressure you to repeatedly assess your monetary efficiency and provide you with time for changes. Common tax planning additionally lets you precisely estimate your annual tax legal responsibility and helps cut back stress and workload in the course of the busy tax season as a result of let’s face it, nobody likes to take care of last-minute tax-related stress.

Collaborating with a Tax Skilled

Secure to say a enterprise proprietor has rather a lot on his plate at any given time, however tax planning is simply a type of features of enterprise that’s higher managed with skilled assist. An authorized tax planner has years of expertise and is aware of the ins and outs of the tax world in methods regular individuals don’t. They’ll information you thru the varied tax legal guidelines, preserve you up to date on the adjustments, and enable you capitalise on tax-saving alternatives as they come up. With a tax planner to handle your tax obligations, you may be free to handle the conditions that demand your consideration so you’ll be able to concentrate on rising and creating your new enterprise within the essential early stage.


You’ve now understood the which means of tax planning and its advantages, and also you’ve seen the methods you’ll be able to undertake to minimise your tax liabilities. Whilst you can definitely tackle taxes by yourself, you can see {that a} tax advisor is usually a highly effective ally in your enterprise enterprise. Once you begin a small enterprise, little question bills pile up. Some enterprise house owners see tax planners simply as one other expense, however they might not be extra fallacious. It’s a must to view a tax planner as an funding, and a really sensible one at that. Their skilled insights and steerage can actually take your enterprise to the following stage. If you have already got a enterprise however haven’t fairly absolutely taken benefit {of professional} tax planning but, that’s high quality. Even when one of the best time to do your tax planning was yesterday, the second finest time to begin is correct now.


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