Tax saving strategies for my Information Technology company in India

As a technology company in India, there are several tax saving strategies that you can implement to minimize your tax liability. Here are a few suggestions:

1. Make use of depreciation: As a technology company, you may have a lot of assets such as hardware, software, and equipment. You can claim depreciation on these assets to reduce your taxable income.

2.Optimize your salary structure: You can structure your salary in a tax-efficient manner to reduce your tax liability. For example, you can receive more of your compensation in the form of allowances and reimbursements, which are taxed at lower rates than regular income.

3.Set up a tax-efficient business structure: Depending on your business needs, you can set up your company in a tax-efficient manner. For example, you can set up a Limited Liability Partnership (LLP) instead of a Private Limited Company (PLC) to take advantage of not paying tax on distribution of profits (popularly called dividend tax)

Strategic ways for tax saving

Particulars Section Example
Tax exemption for Start-ups for 3 consecutive years 8OIAC A ltd registered under DPIIT and eligible for exemption under 8O-IAC, availed same deduction while filing ITR
30% deduction on additional employee cost 80JJAA 80JJAA
Gratuity Insurance policy U/S36(1)(v) U/S36(1)(v)
Depreciation on cars for employees 32 A ltd having vehicles and availed deductions on providing transportation facilities to employees
Give remuneration instead of share in profits 36 A ltd gives remuneration to its directors and claimed deduction u/s 36

1) Tax exemption for Start-ups for 3 consecutive years:

Any private company or Limited liability partnership getting recognition as a Start-up may apply for Tax exemption under section 80IAC. Post getting clearance for Tax exemption, the Start-up can avail tax holiday for 3 consecutive financial years out of its first ten years since incorporation. However companies has to pay MAT (Minimum Alternative tax) at the rate of 15% which can be carried forward and utilised after the tax holiday period.

2) 30% deduction on additional employee cost:

a. A company should be audited U/S 44AB.

b. The business should be new. It should not be formed by splitting up or reconstruction or by way of transfer.

c. Form 10DA to be filed one month prior to the due date for furnishing the return of income.

c. The said expense to be disbursed through bank or cheque or any electronic mode.

d. The said expense should not be greater than Rs.25,000 per month for each employee

3) Gratuity Insurance policy

An assessee making contributions to a group gratuity insurance policy obtained from an approved insurer as per the Approved Gratuity Insurance in Karnataka, the complete amount of premium is eligible for deduction U/S36(1)(v).

4) Depreciation on cars for employees

An assessee is eligible to claim depreciation on cars which are used for business purposes by employees. If employees are using the cars for both business and personal purposes, an assessee need to separate out the portion of depreciation attributable to business use versus personal use. This can be done based on mileage logs or other records of vehicle usage.

5) Give remuneration instead of share in profits:

Generally, Directors or founders of a company take away their share of the profits in a predetermined ratio. For the purpose of saving tax, the profits can be transferred to the director as salary, rather than a dividend. Under section 36 salary is a deductible expense.

Author Name : Manjo B

Disclaimer:

“The information contained herein is only for informational purpose and should not be considered for any particular instance or individual or entity. We have obtained information from publicly available sources, there can be no guarantee that such information is accurate as of the date it is received, or it will continue to be accurate in future. No one should act on such information without obtaining professional advice after thorough examination of particular situation.”

Prepared On:
17/10/23



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