How to Save Tax in a Private Limited

Company
As you setup your company, sell your products and services, get appreciation from customers and having a
great go at business. There is one motivational factor – a good profit. And no matter what we think bottom
line is the lifeline for your business and catalyst for growth of your success ladder.

It’s a fact that one not just always works hard to achieve good sales figures in books of accounts. Also, no
matter how higher the sale are, higher your growth is. But down the line if profits are low or god forbids no
profits at all, it becomes is a negative factor for growth.
First comes sale, and then comes profit – that is the normal growth trajectory of any company. And then after
all efforts when we achieve this profit, which is supposed to be distributed among the partners or
shareholders, there comes taxes in tune of 30% to the government.

No doubt we cannot avoid this tax payment (and we should not, after all its for nation building), but yes certain
tax planning steps during the year can give you extra monetary benefits. Here are some tax planning tips
which can be adopted by every private limited company:

1. Salary to Director:

Salary to directors is an easiest way of saving tax in private limited company. As you are founder of the
company, end of the day you will surely be taking out the profit from company in the pre decided ratio, so
instead of taking that profit as dividend take that part as salary which is an allowable expense for private
limited.

A short example over same:

For example, Let us say XYZ private limited company is making a profit of 5 lacks which is to be shared
among the founder/director in equal ratio. So Instead of showing 2.5 lakhs as profit-sharing; one can show
salary of Rs. 2.5 lakhs to each director. The result of the same will be that taxation on XYZ Pvt Ltd will be nil
as there is no profit left and also no taxation on salary also as there is no tax up to income of Rs. 2.5 lac for
an individual.

2. Sitting fees to Director:

The new rules notified under section 197 of companies act 2013 said,”a company may pay sitting fee to a
director for attending meetings of board or committee thereof. Such sums as may be decided by the BOD
thereof which shall not be exceed 1 lakh per meeting of the board or committee thereof.” As per the clause
(1)(ba) in section 194j of income tax act,1961, any remuneration or fees or commission by whatever name
called shall be liable to be deducted @ 10%.
In a very simple words, you can also pick up your profit from company in form of this sitting fees, again the
impact of same will be dual as same will save tax in company and simultaneously exempt in hand of individual
under prescribed limit.

3. Startup expenses (Preliminary Expenses):

These are incurred for incorporation of a company. For e.g. professional charges paid for drafting of MOA
and AOA, Printing cost of documents, fees paid to ROC, stamp duty etc. There are several expenses that
people incur before and after private limited company incorporation, basically which is borne by the founder
of private limited company for its incorporation.
Usually most people forget to take the advantage of these expenses by book-keeping it in books of accounts.

4. Rent Expenses:

As you must have shown your registered address of company at some place. If the place is actually on rent
then it’s no deal, but if the same is in name of director or in name of any relative of director then you can
easily book the expense of rent in this case.
Just make a rent agreement in name of owner, start transferring rent and book rent expense in company’s
book which eventually has the same impact as discussed in previous points. Here also you can book dual
save of tax.

5. Capitalizing capital asset and depreciation:

An item is capitalised when it is recorded as an asset, rather than expense. This means that expenditure will
appear in the balance sheet, rather than the income statement. If an expenditure is expected to help the
company generate revenues for a long period of time, then you should recorded as a Fixed asset and then
depreciate it over its useful life, which agrees with the matching principle.
So, of you buy an equipment for the office like laptop, printer, furniture which usually has the life of more than
year, you should book them as fixed asset in book which ultimately gives you tax benefits in over the years.

6. Family member’s salary:

Whenever you start a business, you usually look for assistance and guidance from your family members and
friends. In fact some family member usually help you in your business throughout your struggle and they are
not doing it for any monetary benefits. But you should be good tax planner by book keeping their salary as
expense in books of company which is ultimately bringing your profit portion at your home again with dual
tax benefits.

7. Entertainment expenses:
Here comes a most beautiful expense of your business, after approx. each quarter , you must always
celebrate your success either by throwing an in house party or hang out with your partner. So again don’t just
let that expenses be free or unaccounted. Get at flat discount of 30% on your party bill by book keeping the
same in books and get tax save of 30%.

8. Meeting expenses:

These expenses include taking a client to dinner, to a theater show, or to a sporting event. These expenses
are usually tax- deductible. Also, as for your business purpose, you tend to socialize and have lot of meetings
and visits several places. Do not forget to book them in proper manner.

9. Director’s vehicle expenses:

Company usually does not own its own vehicle and normally one of director’s vehicle is used in the business
for travelling and meetings. Not just fuel but also repair maintenance of vehicle. Since the same expenditure
is exclusive for business, so same should be booked in books of the company.
Above expenses are easy ways for saving 30% tax of companies. But just booking the expenses won’t work
that way, the above expenses required proper documentation and planning to take a maximum and true
benefit of it but that is really worthy doing.

10. Travelling Expenses:

All the office travel related expenses can be considered in the books for financial and taxation purposes.

Different tax rates applicable on Private Limited Company:

 Tax rate for Domestic Company if Turnover > Rs. 400 Crore.
Income Slab % of Tax Surcharge
Upto 1 Crore 30% Nil
Above 1 Crore but upto 10 Crore 3,00,000 + 30% 7%
Above 10 Crore 3,00,00,000 + 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 Tax Surcharge
Upto 1 Crore 25% Nil
Above 1 Crore but upto 10 Crore 2,50,000 + 25% 7%
Above 10 Crore 2,50,00,000 + 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.

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.

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 Tax Surcharge
Upto 1 Crore 30% Nil
Above 1 Crore but upto 10 Crore 3,00,000 + 30% 7%
Above 10 Crore 3,00,00,000 + 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 Tax Surcharge
Upto 1 Crore 25% Nil
Above 1 Crore but upto 10 Crore 2,50,000 + 25% 7%
Above 10 Crore 2,50,00,000 + 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.

Advance Tax payment of Private Limited Company

Due Date of Installment Amount Payable
On or before 15th June Not less than 15% of the advance tax liability
On or before 15th September Not less than 45% of the advance tax liability
On or before 15th December Not less than 75% of the advance tax liability
On or before 15th March 100% of the advance tax liability