The year 2017 changed the definition of tax for both the experts and the taxpayers with the introduction of GST (Goods and Services Tax). It affected all the industries in the way they function and one of them is the food serving industry. Where some people found it beneficial for both the owners and the consumers, others struggled to understand its various aspects. One such aspect is the tax-saving practices that the restaurants can follow to enjoy maximum benefits. Where some restaurants already know these practices, others may find the information given below as useful for their business.
Things you should know and do, as a restaurant owner, for tax saving –
Things you need to know as a taxpayer
As a restaurant owner, one must understand the GST slab before following tax-saving practices. Under GST, restaurants have been divided into three categories; stand-alone restaurants, outdoor caterings, and restaurants with hotels.
Irrespective of their turnover, a four-tier income tax deductions structure of 5%, 12%, 18%, and 28% needs to be followed by every restaurant. The 5% GST applies to all types of restaurants, while other rates are applied depending upon the facility of air condition at the restaurant and if alcohol is served at the restaurant.
Also Read: Why Income Tax Return Filing Is Important
Practices that you can follow for maximum tax saving
Once you know the tax slab and tax structure, the following practices can help to save the tax.
Cost of goods sold
The restaurants need to purchase the raw material and some finished goods like packaged drinking water and juice and other drinks. This requires inventory management and the difference between the initial and ending inventory is called as cost of goods sold. This cost of goods sold is considered a type of expense and qualifies for the deduction from the gross income and hence saving tax. Things that can be included in this expense is the cost of products, the cost of raw material, the cost of freight, the cost of storing raw material and finished product, cost of labour and factory overheads.
Also Read: Top 5 Strategies To Save Tax At The Last Minute
Compensation of the employees
While hiring staff for the restaurants, recruiting people like disabled people and ex-members of the armed forces entitles the restaurant for tax benefits. Similarly, compensation, medical benefits, retirement plans provided to the employees, are all deducted from the total income of the business and thus save the tax.
Regular bookkeeping
Keeping a record of every purchase done for business helps quick and fair access f\to all the expenses that can be deducted from the income. It is usually advised to maintain both hard and soft copies of all the records to avoid discrepancies.
Also Read: 9 Common Tax Mistakes You Should Never Make
Managing the cost of equipment
A restaurant owner spends a good amount on various equipment required in the restaurant. This cost can be deducted at once in the year when the equipment was purchased or in smaller amounts in consecutive years as the value of the equipment reduces because of repetitive use.
Understand renting
Not all restaurant owners own the property. However, owning the property at the location with small footfall and low sales might not help the business. While having a place on rent at a location that has ample target customers, will not only help in business growth but the rent will also stand eligible for a tax deduction.
Also Read: Data Beyond Tax Returns: Time To Use Aggregator Platforms To Estimate SME’s Strength
Managing the transportation cost
For the restaurants that provide outdoor services or delivers food to the customers, the transportation cost accounts for a good amount of share in the expenses. It can be included as either the distance traveled or the cost incurred for traveling. The same option, of counting transportation in expenses, needs to be followed in a certain consecutive year. Only the restaurant owners understand that the business is not as fancy as it appears. However, following the above practices can help them to reduce their taxes.
Apply For Restaurant business loan
Your restaurant business has its own specific requirements. Be it marketing, hiring more staff, purchasing new equipment, setting up the restaurant, or just managing the daily expenses, without a steady flow of funds your business can severely suffer amid the growing competition. With the flexibility to choose your loan tenure and repayment schedule, your search for the best loan for the restaurant business in India is sure to end at Indifi. Apply online to know more about unsecured business loans for the restaurant business.
FAQs
What are the key income tax deductions available for restaurants in India?
Restaurants in India can avail various income tax deductions under Section 80C, 80D, and other relevant sections. Common deductions include expenses related to employee benefits, depreciation on assets, and investments in eligible financial instruments.
2. Can restaurant owners claim deductions on employee salaries and benefits?
Yes, restaurant owners can claim deductions on employee salaries and benefits under Section 80C. Contributions to Employee Provident Fund (EPF), gratuity payments, and other employee welfare expenses are eligible for deductions.
3. Are expenses related to the maintenance and renovation of the restaurant premises deductible for income tax purposes?
Yes, expenses related to the maintenance and renovation of the restaurant premises can be claimed as deductions. However, it’s essential to differentiate between revenue expenses (deductible) and capital expenses (to be capitalized and claimed through depreciation).
4. Can restaurants claim deductions for investments in technology and automation?
Yes, investments in technology and automation that enhance operational efficiency and productivity are eligible for deductions. This may include expenses on point-of-sale systems, inventory management software, and other technological upgrades.
5. Are marketing and advertising expenses deductible for restaurants?
Marketing and advertising expenses incurred for promoting the restaurant’s brand and services are generally considered deductible. These may include costs associated with social media campaigns, print advertisements, and other promotional activities.
6. Can restaurant owners claim deductions on health insurance premiums for employees?
Yes, restaurant owners can claim deductions on health insurance premiums for employees under Section 80D. Providing health insurance coverage to employees is not only a good practice but also allows for tax benefits.
7. Are there any specific deductions for eco-friendly initiatives and sustainable practices in restaurants?
While there may not be specific deductions for eco-friendly initiatives, certain capital expenditures for environmentally friendly equipment or practices may qualify for accelerated depreciation benefits.
8. Can restaurant owners claim deductions on interest paid for business loans?
Yes, interest paid on business loans is eligible for deduction under Section 24(b) of the Income Tax Act. However, it’s important to ensure that the loan is used for business purposes.
9. Are there any restrictions on the amount of deductions that can be claimed by restaurants?
Some sections, like Section 80C, have a maximum limit on the amount of deductions that can be claimed. It’s crucial for restaurant owners to be aware of these limits to optimize their tax-saving strategies.
10. How should restaurant owners maintain records to substantiate their claims for income tax deductions?
Restaurant owners should maintain detailed records of all expenses, invoices, and receipts related to deductions claimed. Keeping accurate financial records is essential for substantiating claims during tax assessments.