All you need to know about Tax Saving Tips for Private Limited Company

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In this article, we will be focusing on many points which is helpful for saving tax if we own a private limited company. This article will be very helpful for you to learn tax saving tips for private limited company. We have simple way to save tax i.e., give salary to founders or directors, we can share the salary instead of profit of dividend. These are few tips for saving tax in private limited company. It shows several legally permissible paths in which we can save a lot of tax. As we aware that company having separate legal entity being it is an artificial person that is created by law. It consists of many rights, obligations, powers, and duties prescribed by law. Let us know that how to save tax in private limited company.

What is a Private Limited Company?

A business organization held by a small group of people is known as a Private Limited Company. It’s owned by a group of members called shareholders. Startups and businesses with high growth aspirations mostly choose the private limited company as the appropriate business structure. The business entity is recognized as a company through registration under the Companies Act of 2013 in India. Ministry of Corporate Affairs is the governing body, widely known as the MCA.

All you need to know about Tax Saving Tips for Private Limited Company

What are the different types of taxes applicable on a Private Limited Company?

  • Corporate Tax : It has imposed a tax on the profit of a business.
  • Income Tax : It is that tax which imposes by Governments on financial income produce by all entities within their jurisdiction, including individuals and businesses.
  • Capital Gains Tax : These are imposed on capital gains made by businesses from the sale of particular assets including stocks, agreements.
  • Property Tax : It is paid by the owner of the property. This is calculated as per the value of the land.
  • Inheritance Tax : It is paid by the owner of the property. This is calculated as per the value of the land.
  • Sales Tax : This is a consumption tax imposed by the government on the sale of goods and services. It can take in the form of a Value Added Tax (VAT) and Goods and Services Tax (GST), a state sales tax, or an excise tax.

Different tax rates applicable on Private Limited Company:

  • Tax rate for Domestic Company if Turnover > Rs. 400 Crore.
Income Slab% of TaxSurcharge
Upto 1 Crore30%Nil
Above 1 Crore but upto 10 Crore3,00,000 + 30%7%
Above 10 Crore3,00,00,000 + 30%12%

Health & Education Cess is fixed @4% on all income slab.

  • Tax rate for Domestic Company if Turnover < Rs. 400 Crore.
Income Slab% of TaxSurcharge
Upto 1 Crore25%Nil
Above 1 Crore but upto 10 Crore2,50,000 + 25%7%
Above 10 Crore2,50,00,000 + 30%12%

Health & Education Cess is fixed @4% on all income slab.

Tax rate for Foreign Company is @ 40% fixed and Cess @ 4% on total income tax + surcharge.

How to Save Tax in the Private Limited Company?

Following are the different methods through which a Private Limited Company can save tax :

  • Salary to founder or directors: For any person who is the founder or director of the company then the motive of that person is to earn maximum profit. Profit amount is to be taken by the founder of directors in the profit-sharing ratio which is pre-decided as a dividend.
    For the purpose of saving tax, directors can receive profit as salary instead of dividend. Salary to founder or directors is an expense of the private limited company.
  • Sitting fees to the director: A company may pay fees to the director for attending meetings on the board. Director’s sitting fees should not more than Rs. 1,00,000/- and it is decided by BOD.
    It may be claimed as the expense and in hands of the director, it is exempted to the limit provided.
  • Preliminary expenses: These are incorporation expenses that are raised before and after the incorporation of the private limited company. These are to be paid by the founder or director of the company in the form of professional charges for the creation of AOA and MOA, fees paid to the registrar, stamp duty, etc.
    We can save tax with these expenses if we have proper documentation.
  • Rent expenses: The registered address of the company is on rent on the name of the director or name of a relative then this rent may be booked in the books.
    So, we can book rent expenses and can take tax benefits freely.
  • Capitalizing capital asset and depreciation: If a assets purchase for the company and it’s going to give benefits in creating revenue for more than a year. It is showing as an expense instead of capitalized. After all, it must be shown in the balance sheet instead of the profit & loss statement.
    Asset showing in the balance sheet should be depreciated due to its useful life. Hence we can take tax benefits to the ultimate years.
  • Payment of Tax in Advance: Advance Tax refers to that it will be paying a part of tax before the end of financial year. It is known as “pay-as-you-earn” scheme, it is income tax payable amount if tax liability is exceed Rs. 10,000/- in a financial year.

Advance Tax payment of Private Limited Company

Due Date of InstallmentAmount Payable
On or before 15th JuneNot less than 15% of the advance tax liability
On or before 15th SeptemberNot less than 45% of the advance tax liability
On or before 15th DecemberNot less than 75% of the advance tax liability
On or before 15th March100% of the advance tax liability
  • Salary of family members: Family members or relatives help in doing business works free of cost. As a good tax planner, such expenses must be recorded in the books of the company.
    Indirectly the gain has gone into your hands with the exemption of that expense from the taxable income of the company.
  • Entertainment expenses: These are general and exciting expenses incurred in celebrating business success with family or partners.
    It must be recorded properly in the books of accounts to get a flat 30% discount and save tax at the same rate.
  • Director’s vehicle expense: The vehicle is used in the business for traveling and meetings. Not only fuel but also repair and maintenance of the vehicle is charges as business expenses.
    For tax benefits required proper documentation and planning then we can save tax 22% to 30%.
  • Donation given to charitable trust: We can take exemption of donation in u/s 80G. Donations should be given to only those which is registered in income tax act. We can give donation to private or government trusts both. There are four types of categories for tax benefits that is 100% in category A, 50% in category B, 100% in category C, 50% in category D. Categories of tax benefits are explain below table:
Category A – 100% Category B – 50% Category C – 100% Category D – 50%
  • National
  • State
  • Chief Minister
  • Prime Minister except PM drought relief fund.
  • Swachh Bharat Kosh
  • Clean Ganga Fund
  • Jawaharlal Nehru Memorial Fund
  • Indira Gandhi Memorial Fund
  • Rajiv Gandhi Foundation
  • Prime Minister’s Drought Relief Fund
  • Donations to the Government or any approved local authority, institution or association to be utilized for the purpose of promoting family planning
  • donation to the Indian Olympic Association or to any other notified association or institution established in India for the development of infrastructure for sports and games in India, or to sponsorship of sports and games in India
  • Government or any local authority, to be utilized for any charitable purpose other than the purpose of promoting family planning. Any authority constituted in India for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns, villages or both.
  • Any corporation referred to in Section 10(26BB) for promoting the interest of the minority community. For repairs or renovation of any notified temple, mosque, gurudwara, church or other places.

Conclusion

We hope this article is helpful for learning of how to save tax in the private limited company. Tax planning as a practice is not limited to only filing returns and paying taxes. This is a process under which larger financial plan should be taken into account after accounting for the above factors. We can do tax planning for many benefits instead of avoid the tax payment. We have not suggested you avoid the tax payment, but we have explained you some tax saving and planning tips which will be helpful for you to run your Private Company in a smooth manner.

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