Business Owner Financial Planning

Salary paid to an owner-director is deductible for the company under Section 37(1) of ITA 1961 but taxed as income under the head Salaries in the owner's hands under Section 17. Dividends are not deductible for the company and are taxable in the shareholder's hands at applicable slab rates under Section 56(2)(i) since the DDT abolition in Finance Act 2020. The optimal mix depends on the company's effective tax rate (22% under Section 115BAA vs. the owner's marginal slab), provident fund obligations under the EPF Act 1952, and working capital needs — we model both scenarios for AY 2026-27 (ITA 1961) and TY 2026-27 (ITA 2025) before recommending.

Gifts of capital assets to specified relatives — spouse, children, siblings — are exempt from tax in the recipient's hands under the proviso to Section 56(2)(x) of ITA 1961, so no income tax arises on transfer. However, cost for the recipient is the original cost of the transferor under Section 49(1), so embedded capital gains follow the asset on eventual sale. For succession via a Will, no transfer occurs during the testator's lifetime and the heir takes over cost basis under Section 49(1)(ii). Partition of a Hindu Undivided Family is governed by Section 171 — the partition must be total, verified, and intimated to the Assessing Officer to be recognised.

Proprietors and partnerships in eligible businesses with turnover up to Rs 3 crore (where digital receipts exceed 95%) can declare 6% as deemed profit under Section 44AD of ITA 1961 (Section 58 ITA 2025) without maintaining books. Professionals in notified fields with gross receipts up to Rs 75 lakh can use Section 44ADA (Section 59 ITA 2025) at 50% deemed profit. If turnover exceeds the threshold or the assessee opts out, a tax audit under Section 44AB (Section 63 ITA 2025) is mandatory, with the audit report in Form 3CD due by September 30. Opting out of Section 44AD locks the assessee out of the scheme for five subsequent years.

A self-employed proprietor can contribute to the National Pension System under Section 80CCD(1) up to 20% of gross income — a higher cap than the 10% available to employees — with an additional Rs 50,000 deduction under Section 80CCD(1B), both under ITA 1961 applicable for AY 2026-27. For TY 2026-27 under ITA 2025, the default regime under Section 202 disallows Chapter VI-A deductions; owners with significant NPS contributions must evaluate whether the old regime produces a better net outcome. PPF contributions under the PPF Scheme 1968 qualify under Section 80C with a Rs 1.5 lakh annual cap and a 15-year lock-in.

Business owners with estimated tax liability exceeding Rs 10,000 in a financial year must pay advance tax in four instalments — 15%, 45%, 75%, and 100% of estimated liability by June 15, September 15, December 15, and March 15 respectively under Section 208 of ITA 1961. Under ITA 2025 the same obligation continues under Section 447. A shortfall in any instalment attracts interest at 1% per month under Section 234C of ITA 1961 (Section 448 ITA 2025); non-payment of advance tax attracts interest under Section 234B (Section 447 ITA 2025). Owners under Section 44AD who opted for presumptive taxation must pay the entire advance tax in one instalment by March 15.