You have money from practically every category as a company owner except ‘Income from Salaries.’ When you are unaware of tax-saving opportunities like Group Health Insurance Policy and other tax-saving tips, you may find yourself paying a considerable amount of tax money to the government each year. It is usually important to keep these items in mind to avoid taxes.
Deductions under Income Tax Act Section 36
Certain costs are excluded from taxes under the business & profession category of income under Income Tax Act Section 36. There are significant benefits to claiming tax exemptions.
Here are the 3 most common deductions under Section 36.
1. Provident Fund Contribution
- Section 36(I) (iv) deals with a deduction of the amounts paid by the employer towards the Employee’s Provident Fund. It states that the employer can claim a deduction regarding any sum paid by way of Contribution to a Recognised Provident fund. However, certain conditions need to be met to receive tax breaks.
- The Provident Fund, where the employer makes the contribution, needs to be recognised. In case, the fund is unrecognised, the amount paid by the company will not be eligible for a tax deduction.
- Also, the deduction should be in accordance with Section 43B. Section 43B reads that any payment payable to an employer as a contribution to a recognised provident fund is deductible in the previous financial year when he contributed the amount.
2. National Pension Scheme Contribution
- Employers can deduct contributions to pension funds as described in Section 80 CCD.
- Income Tax Department says the employer would be eligible to claim the tax deduction subject to the following condition.
- The deduction amount will be restricted to 10% of the staff’s salary.
- Furthermore, ‘salary’ includes a DA (dearness allowance) but excludes additional perks and allowances.
3. Borrowed Capital Interest Deduction
- The sum of interest payable on capital loaned for the company’s business and profession is granted as a deduction.
- In addition, according to section 43B, a deduction will be permitted if the credit is obtained from a bank, state financial corporation, PFI, or a state industrial financial corporate entity.
- Furthermore, when capital is loaned for the purchase of any capital asset, interest obligation corresponding to the period until the asset is placed to use is not allowable as a deduction.
Group Health Insurance Policy
- Aside from providing financial aid during medical crises, a Group Health Insurance Policy offers various other benefits. One of the most notable is tax breaks. Such tax advantages are available to both the company and the employee. However, certain requirements must be met in order to qualify for tax exemption.
- Companies in India can claim tax breaks for providing group health insurance policy coverages to their staff. Employers pay a premium to cover their workers, which is classified as a business expenditure for the corporation.
- This item is included in the company’s profit and loss statement and is tax-deductible under the Income Tax Act. As per the IRDA Act of 1999, such tax advantages are deemed “employer entitlement.”
- If both the company and the worker pay the insurance premium in a mutually decided proportion, the company can claim a tax deduction only for the sum provided, not the amount contributed by the worker.
- For example, if the company offers 75% of the premium amount and the worker contributes the rest 25%, then, the employer can only enjoy tax benefits on 75% of the total premium amount. The employee can receive tax benefits under Section 80D for the amount they have contributed.
Here’s a list of the employer types who may qualify for the aforementioned tax benefits:
- Sole proprietorship
- Public companies
- Start-up ventures
- Partnership firms
- Micro, Small & Medium Enterprises (MSMEs)
- Private companies
Plum Insurance is always striving to provide its clients with the best possible insurance experience. Their program covers every base, so you’re sure to find the coverage you can use to motivate your staff in adverse situations.
Business Nature Specific Deductions
- Tax breaks are often implemented to encourage firms to invest in industries critical to the country’s economic development.
- Any corporation engaging in such defined activity would be entitled to a tax break or deduction on earnings produced from such operation for a certain period of time.
- Some of the firms that have gained from this include those engaged in creating, maintaining, and managing infrastructural facilities, performing scientific and industrial R&D (research and development), etc.
- Incorrect documentation of indirect wages is a common issue faced by most small-scale manufacturers.
- When they do not keep the Excel sheet of payment done in cash, it is difficult to track the expense that should be accounted for as per the rule.
- It is always advised to maintain expense books properly as there are various government and internal audit checks also which make it mandatory for you to maintain such records. Additionally, under-recording of costs leads to a larger amount of tax payments.
It is amazing to see how many business owners aren’t aware of their tax-saving benefits. Not only that, many don’t save for tax at all. To avoid taxes every year, one should be aware of tax-saving regulations and tax-saving instruments like Group Health Insurance Policy, and also should save for tax as much as possible. If you are already saving for tax from many sources, it is even more important to track your expense. It will only benefit you in the long run.