It is true there are lawful ways in which we can plan the steps to save taxes. These are well recognised rules and are used by companies all around the country. This article will help you identify these lawful steps that will help you save certain amount of your taxes:
1. Salary to the Director
Directors of a private limited company are among the individuals who have helped set the foundation of the company. They are usually paid from the profit that the company makes in the form of dividend, and the value is always pre decided one. So instead of paying them in the form of dividend, they can be paid salary from the profit itself. Salary is an allowable expense and can thus help you save your taxes.
2. Sitting fees to the director
The company is free to pay certain amount as fees to the directors. This fees is usually paid to the directors in the form of “sitting fees” for attending board meeting. The amount that is paid to the director is pre decided by the Board of Directors. Section 194J of the Income Tax Act, 1961 can be used for reference in setting the limit of the said fees. The effect of the said fees would be the same as above, and will eventually help you in saving tax.
3. Preliminary Expenses
It is not a child’s play to set up a company. There are a lot of expenses that the founders have to incur in order to set up a company. These expenses may range from a simple printing cost of certain document to the fess paid in order to draft the MOA and the AOA for the company. Thus in order to take the full advantage of such expenses, it is important that it is taken under the book keeping in order to help them later save their tax.
4. Rent Expenses
A business is usually set up at a place or a premise, now if the place where the business is set is already on rent then that can be shown in the books but in case the building or the premise is in the name of the founder or the director or some relative of the director in that case also expenses in the name of rent can be shown in the books and the sum can be transferred to the concerned person in the form of rent. This is another way of helping you save your tax amount.
5. Depreciation on the assets
During the initial stages various assets are brought for the company that is expected to be used in long run. These assets can be categorised as fixed assets or capital assets. These assets can generate revenue for the company by appearing on the asset side of the balance sheet. Usually assets like furniture, computers, printers, cables, etc. come under the said category.
6. Paying family member’s salary
Usually certain family members do help out in the initial stages out of their love for you. They do not seek any financial benefits in doing so. But what you can do in order to save your tax amount is start mentioning their salary in your book keeping expenses.
7. Entertainment expenses
Nothing can be give you more joy than knowing that you can actually save 30% of the tax by simply mentioning the party expenses in your book keeping. Obviously the celebration or the party is thrown in order to celebrate the success of your business and once a quarter such entertainment expenses can be mentioned in your books.