Tax saving is very simple provided you plan it properly and much ahead of a financial year. You can save tax by reducing your taxable income. And you can reduce your taxable income by claiming various deductions offered under the Indian Income Tax Act, 1961. Amount of tax deduction varies depending on the type of tax deduction you claim. You can claim tax deduction for spending in medical expenses and charitable contributions and investing in life insurance plans, retirement savings schemes, and national savings schemes etc.
Tax deductions can be claimed by both employees and employers/entrepreneurs. As reduced taxable income helps you save, successful entrepreneurs keep their eyes open for tax saving tips to save and maximize their profits. Here are a few tips any entrepreneur can follow and save tax.
Tip 1: Buying Keyman insurance
Buying keyman insurance for your employers will help you save tax. A keyman insurance policy is also known as key person insurance policy which an employer buys to compensate the financial loss caused by the death, sickness or injury of a key employee. It is a kind of term insurance policy wherein the beneficiary is the employer, and it covers the life of the employee within the term of the policy. A keyman insurance policy can cover directors of a company, key salesperson, key project managers, and employees with specific skills. A company/entrepreneur can claim tax deduction under section 37(1) of the Indian Income Tax Act, 1961, by buying keyman insurance policy for its employees.
Tip 2: Buying group health insurance for employees
An entrepreneur can save tax by buying group health insurance plans for his/her employees. Group insurance is a type of insurance that covers a group of people including the employee and his/her family members. Group health insurance policies help companies lessen the financial risks faced by their employees and their family members. Companies can claim tax deduction under section 80D of Indian Income Tax Act, 1961, for health insurance policies bought for employee and his/her dependents including spouse, children and dependent parents. Given the alarming growth in healthcare cost, it is very important that companies/ entrepreneurs take care of the healthcare expenses incurred to its employees.
Tip 3: Buying group term insurance
Group term insurance is another good option to avail income tax deduction and save tax by entrepreneurs. This is a type of insurance plan that covers a group of people. Also, such plans provide benefit to the beneficiaries if the covered individuals die during the covered period. Employer can claim tax deduction for paying premium towards group life insurance policies taken for employees and their dependents including spouse, children and dependent parents, under section 80C of Indian Income Tax Act, 1961. Group term life insurance plan is normally an integral part of many companies' employee benefit package.
Tip 4: Spending in employee gratuity.
Any entrepreneur can save tax by spending in employee gratuity plan. This is a lump sum amount companies/entrepreneurs provide to employees upon exit from employment and fulfilling the norms prescribed in the Payment for Gratuity Act, 1972. Not only such gratuity payments help entrepreneurs to get tax benefits, but they also help in retaining and attract talented employees. Gratuity is a statutory obligation that an entrepreneur/company needs to pay to its employees.
Tip 5: Investing in Employer-employee scheme
Entrepreneurs/companies can buy insurance policies to benefit their employees. In an employer-employee scheme, an employer agrees to pay the premiums on an insurance policy taken to protect the life of an employee. An employer can choose to insure all or a few of his/her employees in the policy. Such insurance policies increase employee's faithfulness towards the employer. Insurance policy bought under employer-employee scheme offers tax benefits both to the employer and the employee. Employers can claim tax deduction for the premiums paid on such insurance policies under section 37(1) of the Indian Income tax Act, 1961, upon fulfilling certain conditions prescribed in the act. The employee would not be able to get tax deduction during the conditional assignment period. The employee would be able to claim deduction only for the maturity benefits received from the policy under section 10 (10D) of the Indian Tax Act, 1961.
The above mentioned tips can really help an entrepreneur claim tax deductions and save more. Reduced taxable income not only helps you save tax, but also invest that money in other areas and maximize your returns.