OPC Taxation

OPC is not yet recognised in the Income Tax Act, 1961. For opc taxation, One Person Company is counted in the bracket of private limited company, provisions of MAT, DDT are applicable.

 

Overview

Unlike in sole proprietorship, as per the Companies Act, 2013, One Person Company has a separate legal entity from its owner. Being a separate entity the income of the company is taxable like other business entity.

The new concept of OPC does not find in the existing Income Tax Act, 1961. To solve the taxation issue of the company, OPC is covered under the same bracket of the private company. In that case the earning of the OPC taxable subject to the same rate of tax which is 30% plus 3% cess plus 5% surcharge, if applicable. When it comes to taxation aspect OPC would be disadvantageous as compared to the sole proprietorship.

 

One Person Company Taxation Rate

  • The income of the One person company is taxable at the flat rate of 30%
  • If the turnover of the company is Rs. 1 crore or more then surcharge will be levied on the tax paid by the company at the rate of 5%
  • Cess is also applicable, 2% education cess and 1% secondary higher education cess i.e. 3% effective rate of cess
  • Global earning of the company is taxable

 

Specific Tax Provisions in OPC

  • Remuneration paid to directors as per the provisions of the Companies Act will be allowed as deduction while paying the tax on the income of the company.
  • A benefit of presumptive taxation is available subject to the income tax act.
  • Provision of MAT (Minimum Alternative Tax) is applicable on OPC. MAT is a minimum tax which has to be paid by the company on books profit irrespective of the tax paid on income or not.
  • The provision of DDT (Dividend Distribution Tax) is also applicable on OPC, distribution of dividend attract the dividend distribution tax.

 


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