Tax planning has a bad name because it gets confused with its criminal cousin. Evasion hides income; planning arranges legitimate affairs so the law's own concessions apply. The Income Tax Act is full of deliberate incentives — regimes, deductions, timings — that Parliament wants businesses to use. Most small businesses overpay not from honesty but from inattention. Here is the legitimate toolkit, arranged by the size of its impact.
Lever 1: The structure itself
- Proprietorship: business income at slab rates — efficient at modest profits, expensive past the top slab
- Partnership/LLP: 30% flat, but working-partner salary and interest (within 40(b) limits) shift income to partners' slabs — often the sweet spot for family businesses
- Private company: 22% (new regime, no exemptions) or 15% for new manufacturing companies — plus dividend tax at shareholder level; efficient where profits are reinvested
- Presumptive (44AD/44ADA): the simplest arbitrage when real margins beat deemed rates
Structure is the biggest single lever and the least revisited. A business that outgrew its proprietorship five years ago is donating the difference annually.
Lever 2: Pay yourself deliberately
How money leaves the business decides its tax. From a firm: partner salary (deductible to the firm, taxed at partner's slab) versus profit share (exempt in partner's hands, taxed in firm's). From a company: director salary with its deductions and perquisite structuring, versus dividends (taxed at your slab, non-deductible to company), versus rent for premises you own (deductible to company, taxed with 30% standard deduction to you). Family employment is legitimate where work is real and pay is reasonable — documented roles, actual duties, market salaries. Run the mix annually with your CA; the optimum moves with profits and slabs.
Lever 3: Deductions businesses routinely miss
- Home-office share of rent, electricity and internet for founders working from home — documented and reasonable
- Vehicle and phone expenses to business use proportion; depreciation on the business share
- Interest on business borrowings — including capital borrowed personally and lent into the firm (paper it properly)
- Additional depreciation (20%) for new manufacturing plant; the 180-day timing rule worked consciously
- Preliminary expenses (35D amortisation), bad debts actually written off, festival/staff-welfare expenses within reason
- Employer NPS contribution (80CCD(2)) — deductible to business, efficient for the owner-employee even in the new personal regime
A deduction without a paper trail is a future addition with interest. Agreements for family salaries and rents, logs for vehicle use, invoices for everything — planning is only as strong as its files.
Lever 4: Timing
Legitimate timing moves real money: commission capex before the 180-day midpoint; pay MSME suppliers within 43B(h)'s window (else the expense defers); clear statutory dues and even certain bonuses before return-filing dates (43B allows what's paid); book provable expenses in the right year rather than bunching; and where a lean year looms, weigh presumptive-versus-regular with the 44AD lock-in in mind. March should be the month you execute a plan made in November — not the month you discover the year.
The annual planning calendar
Tax planning is a rhythm, not a scramble: April–June — structure review, salary/rent resolutions, regime elections; September–December — mid-year projection, capex timing, advance-tax truing; January–February — the real planning window: final projections, 43B payments scheduled, documentation completed; March — execution only. Businesses that meet their CA thrice a year for planning routinely save multiples of the fees; businesses that meet only at filing pay retail.
How Aidwish helps
Aidwish runs structured tax planning alongside client CAs — structure benchmarking, owner-pay optimisation, the deduction sweep and the calendar — as part of its CFO-support retainers, keeping every rupee of saving on the right side of the law and the file.