Business owners must report their business income on the ITR-3 form and pay taxes on it. They usually look for deductions and exemptions to reduce their tax liability because the tax amount might be a sizable amount. So, knowing the amount of the tax deduction and using it correctly will save a lot of money. Read below to learn about the important tax deductions that can greatly help business owners:

Business Expenses

Expenses that are directly associated with running a business are called business expenses. Section 37 of the Income Tax Act allows for the deduction of business expenses as long as they are used solely and exclusively for business purposes.


Depreciation is the gradual decrease in an asset’s value caused by use, wear and tear, and obsolescence. Depreciation is an allowable expense for businesses on assets, including computers, machinery, buildings, equipment, and cars used for company travel. Depending on the asset and the method selected, the depreciation amount and calculation technique change.

Costs Associated with Employees

Payroll costs include salaries, wages, commissions, bonuses, and other benefits that are given to staff members. It is also deductible to contribute to the Employee Provident Fund (EPF), Employee State Insurance (ESI), and other legal employee welfare programs. It’s important to make sure that the guidelines and restrictions outlined in the Income Tax Act are followed.

Interest on Business Loans

The interest paid on loans used for company might be deductible as a legitimate business expense. Interest on business loans, overdrafts, and other credit used for operating a firm are included in this. On the other hand, interest paid on personal loans or loans used for non-business purposes cannot be deductible.

Insurance Premiums

The premiums paid for business insurance policies that cover things like employee health insurance, professional indemnity insurance, and fire insurance are deductible. These premiums provide protection against various risks and liabilities associated with business operations.

Charitable Contributions

Under Section 80G of the Income Tax Act, donations made to recognized charity organizations are deductible. Subject to specified restrictions and criteria, businesses are permitted to deduct gifts made to qualified charitable organizations.

Presumptive Taxation (Section 44AE)

Section 44AE is applicable to taxpayers who own no more than ten goods carriages at any point in the year before and are engaged in the operating, hiring, or leasing of goods carriages. The projected rates shown below are used to determine income. All additional deductions are prohibited, with the exception of compensation and interest paid to partners.

Development and Research Costs

Businesses can deduct expenses for research and development (R&D) projects that are directly related to company operations. These costs are vital for increasing the competitiveness of the company and encouraging innovation and technical improvement in the sector.

Bad Debts

Section 36(1)(vii) of the Income Tax Act allows businesses to deduct bad debts. Bad debts arise when a company makes a good-faith effort but is unable to collect unpaid invoices from clients. The bad debt must be written down in the books of accounts as irrecoverable to be eligible for this deduction.

Startup Expenses

Section 35D of the Income Tax Act provides a specific period of time during which costs incurred prior to the start of business activities, including market research, feasibility studies, incorporation fees, and pre-operative expenses, are deducted. These costs form the groundwork for the company and are necessary for its founding and first phases of operation. These costs form the groundwork for the company and are necessary for its founding and first phases of operation.

Amortization of Initial Costs

A few preparatory costs are deductible under section 35D. Both resident non-corporate assessors and Indian firms are eligible for this deduction. Over the course of five consecutive years, starting in the year the business is established, the year the undertaking’s extension is finished, or the year the new unit starts producing or operating one-fifth of the qualifying cost is permitted as a deduction.

Final thoughts

Businesses can take advantage of the various tax advantages available to them and can significantly reduce their tax burden while increasing their profitability. Company owners must be updated with the most recent tax laws and regulations to benefit from these deductions. They should also get professional advice when necessary.

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