← Income Tax Strategy

Tax Engineering for
Growing Businesses

For businesses with ₹5 Cr - ₹100 Cr revenue, tax is a daily operational cost. We help optimize working capital, maximize depreciation, structure MSME compliance, and plan entity transitions.

Ideal for: Manufacturing, Trading, LLPs & Pvt Ltd Companies

The Growth Phase Tax Trap

As turnover crosses ₹10 Cr, scrutiny increases. Informal practices that worked earlier become major liabilities. The new 43B(h) MSME rule alone can trigger lakhs in unexpected tax.

CRITICAL: Section 43B(h) MSME Payment Trap (New in 2024)

If you owe MSME vendors for >45 days (or >15 days without agreement), you CANNOT DEDUCT that expense. You pay tax on amounts you haven't even paid yet.

Real Impact Example:

₹50L outstanding to MSME vendors at year-end (60 days old) → Added to taxable income → ₹15L additional tax demand (at 30% rate)

Depreciation Leakage

Failing to claim "Additional Depreciation" (20%) for new plant & machinery. Misclassifying assets at 15% when 40% applies. Not timing "put to use" optimally.

A ₹1 Cr machine can generate ₹20-35L first-year deduction with proper treatment. Most businesses claim only ₹15L.

Entity Structure Inertia

Started as Partnership for simplicity. Now at ₹20 Cr turnover, carrying liability risk, can't raise investment, founders paying 42% marginal rate on pass-through profits.

Converting to LLP or Pvt Ltd could save 10-15% in effective rate while enabling growth.

Our Business Tax Architecture

43B(h) Compliance Firewall

Vendor MSME status audit. Payment aging analysis. Automated 45-day alerts. Year-end compliance sweep.

Prevents: Disallowance surprises

Entity Conversion Planning

Modeling optimal timing for Partnership → LLP → Pvt Ltd. Tax-neutral conversion structuring. Capital gains management.

Saves: 5-15% effective rate

Depreciation Optimization

Asset register review. Classification correction. Additional depreciation claims. Intangible asset capture.

Unlocks: 40-60% more deduction

Working Capital Tax Integration

Advance tax modeling with business cycles. Vendor/customer term negotiation around tax dates. Treasury optimization.

Improves: Cash flow timing

TDS Management

Lower deduction certificates. Reconciliation systems. Quarterly compliance calendar. 26AS matching.

Eliminates: Penalties and demands

Capital vs Revenue Strategy

Expense classification policy. Repair vs improvement analysis. Consistent treatment documentation.

Avoids: Audit reclassification
Case Study

Manufacturing Company: 43B(h) Near-Miss + Restructuring

Client Profile

  • • Auto components manufacturer
  • • Annual turnover: ₹45 Cr
  • • Structure: Partnership (3 partners)
  • • 200+ MSME vendors in supply chain

Risks Identified

  • ₹1.8 Cr payable to MSMEs, 60+ days old (43B(h) exposure)
  • Partners paying 42% marginal rate on profit share
  • ₹3 Cr new machinery classified at 15% instead of 40%
  • No formal vendor MSME status tracking

Our Solution

1. Emergency MSME Payment

Prioritized ₹1.8 Cr payout before March 31. Prevented ₹54L disallowance.

2. Depreciation Correction

Reclassified machinery. First-year deduction increased by ₹75L.

3. LLP Conversion

Converted to LLP. Partners now draw salary (deductible) + share of profit at 30% flat.

₹54L
43B(h) Disallowance Prevented
₹75L
Additional Depreciation Claimed
12%
ETR Reduction (Post-LLP)
₹1.4 Cr
Year 1 Total Savings
Questions & Answers

Common Questions from Business Owners

Expert answers on 43B(h) compliance, depreciation, and entity structure

Section 43B(h) is a MAJOR compliance trap (Finance Act 2023). If you owe MSME-registered suppliers for more than 45 days (or 15 days without written agreement), that expense is DISALLOWED.

Real Impact Example:

₹50L outstanding to MSME vendors (60 days old) → Added to taxable income → ₹15L additional tax (at 30% rate)

Sami Tax solution: Track vendor MSME status, maintain aging analysis, automate 45-day alerts. We audit your payables and flag risks before year-end.

Conversion triggers depend on multiple factors:

  • 1.Liability Risk: LLP provides personal liability protection that Partnership doesn't
  • 2.Tax Efficiency: At ₹50L+ profits, LLP's 30% flat rate may beat Partnership's pass-through
  • 3.Raising Capital: Pvt Ltd is necessary for external investment (LLPs can't have equity investors)
  • 4.Exit Planning: Pvt Ltd is easier to sell or pass to next generation

Sami Tax models the tax impact of conversion, including capital gains implications, and recommends optimal timing.

Depreciation strategy has several levers:

Asset Classification

Same machine can be 15% or 40% depending on classification

Put-to-Use Timing

Even one day of use before March 31 counts

Additional Depreciation

New manufacturing P&M gets 20% extra in first year

Intangibles

Patents, copyrights, know-how get 25% depreciation

A ₹1 Cr machine can generate ₹35L first-year deduction with proper treatment. Most claim only ₹15L.

Companies with turnover under ₹400 Cr can opt for 25% tax rate. But there's a catch:

25% Rate

  • • Lower headline rate
  • • Lose 10AA SEZ deduction
  • • Some exemptions unavailable

115BAA (22% effective)

  • • Effective 25.17% with cess
  • • Forgo ALL exemptions
  • • Keep depreciation

Sami Tax models both scenarios annually. For companies with significant exemption claims, 30% may actually result in lower tax.

TDS is a major compliance burden. Key optimizations:

  • Lower TDS Certificates: Apply for Section 197 if you're paying more TDS than actual liability
  • MSME Vendors: Many are exempt from TDS under Section 194Q if turnover is below threshold
  • Quarterly Reconciliation: Match TDS deducted with Form 26AS monthly to catch mismatches early

Sami Tax provides: TDS compliance calendar and quarterly returns assistance.

Audit-ready documentation includes:

1.Related Party: Board resolution, arm's length pricing, loan agreements
2.Capital vs Revenue: Clear policy on capitalization, applied consistently
3.Provisions: Supporting calculations for warranty, bad debt, leave encashment
4.Cash Transactions: 269ST violations carry 100% penalty
5.MSME Compliance: Vendor status register, payment aging, 43B(h) summary

Sami Tax conducts: Annual documentation review before year-end to flag gaps.

Engineering Your Business Tax Strategy

Schedule a consultation. We'll audit your MSME exposure, review depreciation, and model entity optimization.