Smart Tax-Saving Moves SMEs Should Make Before March 31

As March 31 approaches, the focus for SMEs should shift from routine operations to strategic tax planning. The year-end is not just a compliance deadline. It is the last structured opportunity to improve cash flow, protect margins, and avoid unnecessary tax leakage.

A disciplined review of financial statements, eligible deductions, capital expenditure, inventory valuation, and outstanding statutory obligations can materially influence the final tax position. Timely action, backed by accurate documentation and informed choices on tax regimes, depreciation claims, and allowable expenses, ensures the business closes the year both compliant and optimised.

Tax saving tips for SMEs

Here are some suggestions you may follow before March 31 to lower your tax liability:

Choose a tax regime

If you are a domestic company, compare the concessional 22% tax regime under Section 115BAA carefully with the old tax regime. Under the old regime, you can claim various deductions, exemptions and incentives. It is important to note that once you opt for Section 115BAA, you cannot revert to the old regime.

To opt for Section 115BAA, file Form 10-IC electronically on the income tax portal. Submit it on or before the due date outlined under Section 139(1). Verify the form using a digital signature or electronic verification code (EVC).

Consider presumptive taxation

If your total business turnover in a financial year is up to ₹2 crore, you can opt for the presumptive taxation scheme under Section 44AD of the Income Tax Act. You can also choose this scheme if your turnover is up to ₹3 crore, as long as your cash receipts do not exceed 5% of your total turnover or gross receipts.

Under this scheme, you do not need to maintain detailed books of accounts or get a tax audit (subject to conditions). Instead of calculating your actual profit, the government assumes your profit at a fixed percentage of your turnover:

• 8% of turnover is treated as your income (for non-digital receipts).
• 6% of turnover is treated as your income for the amount received through digital modes, such as UPI, debit/credit cards, Net banking, NEFT/RTGS/IMPS, digital wallets and cheques credited to your bank account.

Note: This scheme is available only to eligible resident individuals, Hindu Undivided Families (HUFs) and partnership firms (not limited liability partnerships).

GST reconciliation

Before you claim ITC in your GSTR-3B return, make sure:

• Suppliers must upload their outward invoices in GSTR-1 or the Invoice Furnishing Facility (IFF) on time. Only then will those invoices reflect in your auto-drafted GSTR-2B statement.
• GSTR-2B, generated around the 14th of each month, lists all inward supplies eligible for ITC. Reconcile it against your purchase register and books of accounts.

Note: As per Section 16(4) of the CGST Act, 2017, the deadline to claim ITC for any invoice or debit note from a particular financial year is the earlier of:

• 30th November of the following financial year, or
• The date on which the annual return (GSTR-9) for that financial year is filed.

Hire new employees

Section 80JJAA of the Income Tax Act allows eligible businesses to claim a 30% deduction on additional employee costs when they create new jobs in the formal sector. This deduction applies for three consecutive assessment years, starting from the year in which the new employees are hired.

The 'additional employee cost' includes:

• Salary and allowances paid to eligible new employees
• Costs related to provident fund (PF) and other statutory benefits linked to salaries
• Employer’s contribution to the pension or provident fund is not included for deduction purposes

To be eligible for Section 80JJAA:

• Your business must be subject to a tax audit under Section 44AB.
• The business must not be formed by splitting or reorganising another business.
• New employees must increase the total workforce compared to last year.
• Each new employee must have been employed for at least 240 days in the financial year (or 150 days for apparel, leather or footwear manufacturers).
• Monthly salary must not exceed ₹25,000.
• Employees must be part of a recognised Provident Fund scheme.

Claim R&D incentives

Under Section 35 of the Income Tax Act, 1961, you can claim tax deductions for expenditure on scientific research related to your business. Here are some key conditions:

• If you incur expenses on research directly inside your organisation, you can claim a 100% deduction for both revenue and capital expenses (other than land and buildings) in the year they are incurred, provided certain conditions are met.
• You can claim a 100 % deduction for sums paid to approved bodies such as:
• Research associations, universities, colleges and other institutions used for scientific research
• Approved Indian companies whose main object is scientific research and development
• National laboratories, Indian Institutes of Technology and other specified institutions or entities 

These deductions are allowed whether the research is related to your business or not.

• For companies with an approved in-house R&D facility, you can also claim a deduction under Section 35(2AB). Earlier, there was a weighted deduction (more than the actual expense), but from April 1, 2021 (Assessment Year 2022-23 onwards), the deduction under this clause is equal to 100% of the expenditure incurred. This applies to companies engaged in biotechnology, the manufacturing or production of any article or thing (excluding items in the Eleventh Schedule)

Utilise capital expenditure

Purchasing eligible business assets and incurring genuine business expenses before March 31 can help lower your taxable profit for the financial year. Here’s what you may be able to claim:

• You can claim depreciation under Section 32 of the Income Tax Act on the written down value (WDV) of a block of assets. Rates vary by asset class, such as buildings, plant & machinery, furniture, computers, etc.

• If you are engaged in manufacturing or production, or in the business of generation or transmission of power, and you purchase new plant and machinery, you can generally claim additional depreciation. This is an extra first-year allowance, usually equal to 20% of the asset's actual cost, in addition to normal depreciation. However, this benefit is not available for second-hand assets, transport vehicles or certain specified installations.

• Special investment deduction for notified backward areas under Section 32AD is available if you set up a unit in certain notified backward areas in specified states. In such cases, you may claim a one-time deduction equal to 15% of the actual cost of new plant and machinery, provided your project satisfies the notified location and time-period conditions.

Note: Depreciation depends on the date the asset is put to use, not merely on the date it is purchased or invoiced. If an asset is put to use for less than 180 days during the financial year, only 50% of the normal depreciation rate is allowed for that year. If the asset is put to use for 180 days or more during the financial year, the full normal depreciation rate is allowed.

Conclusion

As March 31 approaches, avoid making last-minute decisions without proper review. Compare tax regimes, review eligibility for presumptive taxation, reconcile GST and maximise lawful deductions, including 80JJAA, Section 35 and depreciation benefits. Check cash flow before proceeding with capital purchases and ensure compliance with filing deadlines. Sit with your accountant, run the numbers, document everything properly and act before year-end to legally and efficiently reduce your tax bill.

Using reliable accounting software like TallyPrime can also make this process smoother by helping you reconcile GST, track depreciation, and generate accurate financial reports before finalisation.