You toil as an Indian small businessman to expand your business and earn profits. However, if you do not think about taxes ahead of time, the government will take most of your profits. Clever planning of taxes does not only help you save your money on tax paid but also allows you to invest more into your business.
In this guide, we introduce you to the top 10 tax saving ideas for Indian small business owners in 2025. They are legally permissible, realizable, and compliant with existing income tax regulations.
1. Select the appropriate business structure
The first and most important is to choose the right legal structure for your business. This determines the amount of tax you will pay directly.
- A Sole Proprietorship is taxed according to individual income tax slabs, up to 30% (plus cess).
- A Private Limited Company may opt for a concessional flat rate of tax of 22% under Section 115BAA.
- An LLP (Limited Liability Partnership) is taxed at a single rate of 30%.
Selecting the right structure can reduce your effective tax rate and provide your business with a more professional image.
Tip: If your business has expanded and you are still a sole proprietorship, it might be worthwhile to switch to an LLP or company for more favorable tax benefits.
2. Choose Presumptive Taxation (Section 44AD / 44ADA)
If your turnover in business is in ₹3 crore (for business) or ₹75 lakh (for professionals), you can choose the presumptive taxation scheme.
- According to Section 44AD, businesses can account for 6% income for digital receipts or 8% for cash receipts.
- Professionals (including consultants, designers, attorneys, etc.) can under Section 44ADA report 50% of gross receipts as income.
This scheme allows you to:
- Avoid maintaining detailed books of accounts.
- Avoid mandatory tax audits.
- Pay tax on only part of your income.
It makes it easy to comply and lowers your overall tax cost.
3. Claim All Business-Related Expenses
You are able to claim all costs that you spend for business wholly and exclusively. The more legitimate costs that you claim, the less you will pay in tax.
Typical deductible costs include:
- Leasing of office
- Employees’ wages and salaries
- Telephone and internet bills
- Advertising and promotional expenses
- Fuel and travel costs
- Software subscriptions
- Repairs and maintenance
- Professional fees (e.g., CA, legal adviser)
- Business entertainment and meals (in moderation)
Tip: Retain bills and receipts. Make payments in cash less than ₹10,000 so that the cost can be claimed as a deduction.
4. Claim Business Asset Depreciation
If you purchase assets such as computers, machines, office equipment, or even a vehicle for business use, then you can claim depreciation under the Income Tax Act.
Depreciation is where value of the asset is being written off each year because it has been used or worn out. This reduces your taxable profit without any real cash outflow.
Example:
- A computer or laptop can depreciate by 40%.
- Fixtures and furniture come under 10%–15%.
Tip: Ensure the assets are being utilized for business purposes and are accurately accounted for in your books.
5. Invest in Section 80C Tax Saving Plans
As with salaried employees who receive salaried income, business owners too receive Section 80C deductions, up to a maximum of ₹1.5 lakhs annually.
Eligible investments are:
- Life Insurance Premiums
- Public Provident Fund (PPF)
- ELSS Mutual Funds (Tax-saving mutual funds)
- 5-year Tax Saving Fixed Deposits
- National Savings Certificate (NSC)
These types of investment not only help you save tax but also allow you to establish long-term financial security.
Tip: Among them, ELSS mutual funds have the minimum lock-in period (3 years) and give reasonable market-linked returns.
6. Health Insurance Premiums (Section 80D Deductible)
If you are paying premiums for your own, spouse, children, or parents’ health insurance, you can claim deduction under Section 80D.
- Up to ₹25,000 for spouse and self (aged less than 60 years)
- Additional ₹50,000 if parents are senior citizens
- Maximum aggregate limit is up to ₹75,000
This can be asserted even if you work for yourself or are working in a business.
Key: Premiums should be paid via banking channels, not cash, to qualify as tax deductible.
7. Hire Relatives in Your Business
You can hire your relatives, your spouse, or your children in your business and pay them a salary for the work they do.
Benefits:
- The payment they receive is a tax deduction to your business.
- If their joint income is under the tax threshold, they don’t pay tax.
- This strategy lets you shift income within the family and cut down overall tax burden.
Tip: Ensure payment is reasonable and effort is real. Maintain good payment records.
8. Claim Input Tax Credit (ITC) Under GST
If your company is a GST-registered company, you can claim Input Tax Credit on GST incurred on business expenses and services.
Eligible ITC are:
- GST on office rent
- GST on professional fees (law, accounting)
- GST on software, hardware, laptops
- GST on advertisement fees or promotional services
This reduces your net GST payable and saves you money indirectly.
Tip: Get invoices under GST from vendors and furnish timely returns (GSTR-1 and GSTR-3B).
9. Deduct Home Office Expenses
If you work from home, you can deduct portions of your home expenses as business expenses.
These deductible expenses could be:
- Part of rent
- Electric bills
- Internet charges
- Business use furniture and fixtures
- Repairs and maintenance
If 25% of your home is devoted to offices, then you can claim 25% of those charges as business expenses.
Be careful: This argument should sound reasonable and backed by some simple evidence. Don’t exaggerate.
10. Advance Tax Payment in Time
If your total tax liability for a financial year is more than ₹10,000, you are liable to pay advance tax in installments within the financial year.
Installment payment dates are:
- 15% on 15th June.
- 45% by 15th September
- 75% by 15th December
- 100% by 15th March
Non-payment of advance tax incurs interest charges under Sections 234B and 234C.
Tip: Pay online using Challan 280 from the income tax website. The advance tax amount can be determined by your CA on a quarterly basis.
Bonus Tip: Hire New Employees and Avail of Extra Deduction (Section 80JJAA)
If you’re hiring new employees and growing your business and they are getting less than ₹25,000 per month, you might be able to avail of a special deduction under Section 80JJAA.
- You get an extra 30% relief on the salary paid to such new employees for 3 years.
- This over and above the actual cost of salary.
Terms:
- Employee has to work at least 240 days.
- Should be an addition, not a substitute.
This is a best fit for retailers, manufacturers, logistics, and food delivery businesses.
Summary – Top Tax Saving Tips for Small Business Owners
- Form the correct business entity to avail the benefit of reduced or flat rates of taxation.
- Utilize presumptive taxation under Sections 44AD/44ADA to minimize tax compliance.
- Claim all trade expenses to minimize taxable profits.
- Deem depreciation on assets such as laptops, machinery, and office appliances.
- Invest up to ₹1.5 lakh in 80C schemes like ELSS, PPF, or NSC.
- Calculate up to ₹75,000 under Section 80D on health insurance premiums.
- Use family members and pay them wages to reduce net income.
- Take Input Tax Credit (ITC) on GST qualified business expenses.
- Claim portion of home expenses if you use part of your home for business.
- Pay advance tax punctually to avoid interest charge.
Tax planning is not just saving dollars – it’s smarter, more efficient business management. As an Indian small business owner, these tips can save you tax dollars and leave you with more to invest and grow.
If taxes seem too much to manage, don’t panic. Legal Dalal assists entrepreneurs with:
- Income Tax Return filing
- GST Registration and Returns Filing
- Audit and Accounting
- Business Incorporation
- Licenses and Compliance
Call us now at: +91-80942 37237 Contact us at: www.legaldalal.com Start saving smarter. Grow faster.
