The benefits of tax planning
As an entrepreneur managing a startup, you will want to invest in business expansion, product line growth and advertising. With good tax planning, you can save a lot on tax amounts and channelize that money into more fruitful avenues or simply use it to cover your operating expenses.
Not filing a return/filing late will create a lot of problems for you. You will need your tax receipts while applying for any loans, immigration processes and net worth certification.If you file your return late you are in for interests and penalty fines.
As a business owner, you will probably have to fill up ITR 4S (for people with income from businesses up to 60 lakhs) or ITR 3 (for people who are partners in a firm.
There are some basic rules to follow while planning your taxes. First, as a small enterprise owner you should not think of taking on extra expenses just to minimize taxes. For example, making important purchases of equipment/machinery prior to financial year end is a good strategy while making unnecessary purchases or making random donations for tax saving is bad policy.
Common pitfalls to avoid while tax planning
Don’t forget to save receipts, however trivial they might seem. Don’t fall into the trap of lumping everything under miscellaneous expenses. At least, aim to have an approximate idea of the expenses of your business like where and when was the business trip, entertainment expenses and a record of the people you were with. Just maintain the basic information on a receipt and hold on to it till the end of the financial year.
Don’t lump the purchase of equipment with supplies when planning taxes. Equipment is categorized as a capital expenditure and hence has to be depreciated. If you do not report your purchases correctly you can get into a legal mess (if caught). Additionally, you stand to earn a bad name for your business.
Don’t enter incorrect TAN number. This number is mandatory in terms of tax deductions at the source (TDS). If you give the wrong number, your tax deductions will not be credited to you.
Don’t forget to sign the tax return form. Forgetting to sign and submit the ITR (in cases of manual filing) and ITR 5 (in cases of online filing) is a very common mistake. Be careful, otherwise your ITR might get rejected.
If you have hired an external agent to handle your tax returns, make sure to check your filled form before submission. Even typos can prove to be costly mistakes so 100% dependence on agents is not recommended.
You need to list all sources of income while filing tax returns and this includes capital gains and financial benefits from mutual funds.
As always, the above information is meant as a guide only and Zoostr recommends getting professional tax advice to ensure you are in the best position possible.