Tax Benefits and Deductions for Small Business Owners in the Financial Year 2024-25

Introduction

Small business owners play a vital role in the economy by contributing to job creation and economic growth. To support and incentivize their efforts, governments often provide various tax benefits and deductions. In the financial year 2024-25, the Indian government has introduced a range of provisions aimed at helping small business owners reduce their tax burdens and simplify their financial reporting. In this article, we will explore the list of benefits available to small business owners for the financial year 2024-25.

A. Presumptive Taxation Scheme (Section 44AD)

One of the key benefits available to small business owners is the Presumptive Taxation Scheme under Section 44AD. This scheme allows eligible businesses to calculate their income on a presumptive basis, subject to certain conditions. Here are the key provisions:

1. Presumptive Income Percentage: Small businesses with a turnover or gross receipts not exceeding Rs. 2 crore can calculate their presumptive income as 8% of their gross receipts or total turnover.
2. Electronic Payments: If the business receives payments through electronic modes like account payee cheques, drafts, or electronic clearing systems, the presumptive income rate is reduced to 6%.
3. Cash Transactions: If cash receipts during the previous year do not exceed 5% of the total turnover or gross receipts, the turnover threshold increases to Rs. 3 crore instead of Rs. 2 crore.
4. Goods Carriage Business: Small business owners engaged in the plying, hiring, or leasing of goods carriages and owning fewer than 10 goods carriages can benefit from Section 44AE. The monthly presumptive income for heavy goods vehicles is Rs. 1,000 per ton of gross vehicle weight, while other goods vehicles are set at Rs. 7,500 per month.

B. Deductions from Business Profits (Sections 30-37)

Small business owners can also claim deductions from their business profits to reduce their taxable income. Here are some key deductions available:

1. Rent, Rates, Taxes, and Repairs: Actual expenditure incurred for premises’ rent, rates, taxes, and repairs (excluding capital expenditure) can be claimed under Section 30.
2. Depreciation: Depreciation can be claimed for tangible and intangible assets. Special rules apply to taxpayers engaged in power generation and distribution.
3. Additional Depreciation: Small business owners investing in new plant and machinery can claim additional depreciation, subject to specific conditions.
4. Investment Allowance: Companies engaged in manufacturing or production can claim an investment allowance of 15% of the actual cost of new assets acquired and installed.
5. Insurance Premium: Deductions are available for insurance premiums covering various aspects, including damage or destruction of stocks, life of cattle, and employee health.
6. Contributions to Provident Funds and Pension Schemes: Employers’ contributions to recognized provident funds and approved superannuation funds are deductible, subject to limits and conditions.
7. Bad Debts: Deductions can be claimed for bad debts that have been written off as irrecoverable, even if they are not written off in the books of accounts.

C. Maintenance of Books of Accounts and Audit (Sections 44AA, 44AB)

Small businesses must adhere to specific requirements regarding the maintenance of books of accounts and audit. These requirements vary based on the nature of the business and income levels. Here are the key provisions:

1. Specified Profession: Persons carrying on specified professions must maintain prescribed books of accounts if their income exceeds certain thresholds.
2. Other Business or Profession: Businesses other than specified professions must maintain books of accounts if their total sales, turnover, or gross receipts exceed Rs. 10 lakh or if their income exceeds Rs. 1.2 lakh in the preceding three years.
3. Compulsory Audit: Businesses and professions crossing specified thresholds must undergo a compulsory audit as per Section 44AB. However, this section does not apply to those opting for the Presumptive Taxation Scheme under Section 44AD/44ADA.

D. Exemptions and Deductions (Sections 10, 36)

Several exemptions and deductions are available to small business owners to reduce their tax liability. Here are some notable ones:

1. Exemption for Individual Members from HUF: Income received by individual members from Hindu Undivided Families (HUFs) is entirely exempt from tax.
2. Share of Profit from Partnership Firms: Partners receive a complete exemption from tax on their share of profits from partnership firms.
3. Exemptions for Specific Transactions: Various exemptions exist for specific transactions, such as transactions with relatives, COVID-19-related medical expenses, and more.
4. Rent for Residential Accommodation: Tax exemptions are available for rent paid for furnished or unfurnished residential accommodation, subject to certain conditions.
5. Deduction for Employment of New Employees: Businesses can claim deductions for employing new staff, benefiting from a 30% deduction on additional employee costs.

E. Tax Deducted at Source (TDS) and Advance Tax (Sections 194, 193, 194C)

Small businesses often engage in transactions that require TDS. Understanding TDS provisions can help businesses manage their tax obligations more effectively. Some key TDS provisions include:

1. Lower TDS Rate: Payments to contractors or sub-contractors are subject to TDS if the sum exceeds specified thresholds. However, individual and HUF recipients are subject to a reduced TDS rate of 1%.
2. No TDS for Small Contractors: Small contractors with ten or fewer goods carriages can furnish a declaration along with their PAN to avoid TDS.
3. Interest on Debentures: Interest on debentures issued by companies in which the public is substantially interested is not subject to TDS if paid to individuals via account payee cheques.
4. No TDS for Resident Sellers: Small businesses purchasing goods from resident sellers do not have to deduct TDS if the aggregate value of goods purchased does not exceed Rs. 50 lakhs.

F. Basic Exemption Limits (Sections 1-5)

Small business owners should be aware of the basic exemption limits that determine the threshold at which income becomes taxable. These limits vary depending on factors like age and income type. Here are some essential thresholds:

1. Individuals and HUFs: The maximum amount of income not subject to income tax for individuals and Hindu Undivided Families (HUFs) is Rs. 2.5 lakh.
2. Senior Citizens: Resident senior citizens (aged 60 to 79) enjoy a higher exemption limit of Rs. 3 lakh.
3. Super Senior Citizens: Resident super senior citizens (aged 80 and above) benefit from an even higher exemption limit of Rs. 5 lakh.
4. Rebate for Resident Individuals: Resident individuals with a total income not exceeding Rs. 5 lakh can claim a rebate of up to Rs. 12,500.
5. Rebate for Resident Individuals Opting for New Tax Regime: Resident individuals opting for the new tax regime and earning less than Rs. 7 lakh can claim a rebate of up to Rs. 25,000.

Conclusion

Small business owners have access to a range of tax benefits and deductions in the financial year 2024-25. Leveraging these provisions effectively can help them optimize their tax liability and focus on growing their businesses. However, it’s crucial to stay updated with any changes in tax laws and consult with tax professionals to ensure compliance and maximize tax savings.

Please note that tax laws and regulations are subject to change, and it’s essential to consult with a qualified tax advisor or legal expert for the most up-to-date and accurate information regarding tax benefits and deductions for small business owners in the financial year 2024-25.