If you are thinking of starting a private limited company in India and are worried about the high tax rates you will be subjected to, then you should know that there are various tactics and methods you can use to cut down on your taxes. Below, we look at six such accounting methods to save taxes on your operations.
One of the most common ways to save on taxes for a private limited company India is to provide a salary to the director. And since no personal tax is charged for people with annual incomes of Rs 250,000 or less, you should try to keep the salary within this range. So for example, if the business is liable for taxes of Rs 10 lakhs, then you can put in Rs 20,000 per month as director’s salary. As such, you will be charging Rs 240,000 as director’s salary per year, and hence will only have to pay business taxes on the remaining Rs 760,000.
Salary To The Family Member
You can also add in any of your family members as an employee of the company and deduct their monthly salary from the taxable profits. Taking the above example forward, you can pay Rs 240,000 per annum as salary for your wife who may be assigned as a worker, which will reduce the taxable profits from Rs 760,000 to Rs 520,000.
If you are just starting out a private limited company, then you will have to bear many expenses like those related to memorandum of association, articles of association, registration fees and so on. All such expenses, known as preliminary expenses, can also be deducted from the taxes payable for the first year of operation. Unfortunately, many businesses forget to take advantage of this. So, if you have just started out your company, make sure that you instruct your accountant to deduct all preliminary expenses. And if you need any help with registration of your company, consider consulting quickcompany.in.
If you use your personal vehicle for company purposes, like for meetings and such, then you should keep a record of such expenses. These can then be deducted from the profits before paying taxes on them. Just be sure to have a proper documentation of the vehicle expenses.
Sometimes you might take out your employees to a trip in order to unwind them. Or you may think of hosting a very lavish party in the office to show them your appreciation. But do you know that all such expenses are deductible from your taxable profits? If not, then consult with your accountant, provide them the bills of such expenses and see to it that these entertainment expenses are properly accounted for.
Under the company guidelines, a director can be paid sitting fees for attending the board or committee meetings. The fee has been decided not to exceed Rs 100,000 per sitting. And as per the income tax clause, it will only be charged tax at about 10%. So, remember to charge sitting fees for all the meetings.
Author’s Bi0: Alex is an independent blogger who has penned columns for renowned publishing houses. She often unites with Outreach firms like Submitcore.com to share her wisdom via posts.