Private Limited Company Tax Slab [2019-20]

A company is considered a separate legal entity and hence is also considered a tax resident. The company is liable to pay income tax as per the Income tax act at a rate of 25% to 30%, and a surcharge of 5% is charged if the income of the company is more than 10 million.

Other than individuals common and popular form of the legal entity doing business are companies incorporated in India. There were more than 13 lakh companies registered in India in the year 2014 as per MCA report. Hence it is essential for all private companies to Understand the taxability. This involves knowing where you can get tax exemptions and reduce the outflow of cash from the company.

Tax Assessment (Slab Rate) for the year 2019 - 20

If the gross receipts in the previous year don't exceed INR 250 crore 25% of net profit
All other cases 30% of net profit
Surcharge: If income exceeds INR 1 crore 7%
Surcharge: if income exceeds INR 10 crore 12%
Health and Education Cess 4% on the aggregate of income tax and surcharge
Dividend Distribution tax 15%(plus surcharge and cess)

Private Limited Company Tax Benefits

Although the tax bracket for private limited companies is very high the tax structure for companies is far better than sole proprietorship and other companies model. The taxation for such companies is based on the individual tax slabs.

  • Minimum Alternate Tax (MAT) is made inapplicable for foreign private limited companies that have opted for presumptive taxation.
  • Transfer of assets is not considered as a transfer under Income tax under certain circumstances, such as if capital asset of the parent company is done to its Indian holding company.
  • A private company can declare expense in relation to expansion or setting up of business. The company can do so for five consecutive years from the year company was incorporated.

Tax benefits for Private limited company under Start-up India

Most start-ups in India are registered as private limited companies, and hence they should be aware of the tax exemptions that are provided to all the eligible start-ups:

  • Tax exemption on Long-term capital gains

With the amendment in the income tax act, new sections are incorporated that provides for a special exemption in case of long term gains under the limitation provided by the central government of India.

Note: For seeking exemptions the turnover of the company should not exceed 25 crores in any financial year.
  • Tax exemptions upon investments that are above Fair Market Value

The government to eligible start-ups provide a tax exemption on cases where investments are made by angel investors, family members or funds that are not provided by any registered venture capitalist.

Tax deduction tips for Private limited companies

Certain tax planning steps on the part of private limited company officials will help them during the financial year to give extra monetary benefits in the upcoming fiscal year like:

  • Deduction as Company Expenditure

Companies have the freedom to claim a deduction in taxes under expenditure from the following:

  1. Directors salary and sitting fee for attending meetings can be listed as an expenditure under the prescribed limit.
  2. Rent expense of the property if the property is rented.
  3. Entertainment expenses
  4. Salary of a family member is also deductible
  • Special reductions for Start-ups

Start-ups have the freedom to claim tax reduction in the case of preliminary costs incurred for setting up or an expansion of the business.

Pro Tip: Sitting fee for directors should not exceed 1 lakh per meeting to be claimed as expenditure.

Goods and Service Tax for Private Limited Companies

Private limited companies will have to register themselves under good and service tax as the indirect tax structure was unified in India and applies to all goods and services. The companies that have a turnover of more than 20 lakh per annum will have to file GST return.

Remember: GST Registration is necessary even if the turnover of the company is lower than 20 lakh.

Under GST certain goods and services are exempted and the supplier or manufacturer has authority to file NIL rated while demarking the goods and services being provided by them. Zero-rated supplies are that are exported will not be treated as supplies that are at NIL rate tax slab.

Composition Schemes for Private Limited Company

If the business turnover of the company is less than Rs. 75 lakh per annum and if the goods and services provided by you are not being sold outside the state your business is incorporated then your company will be eligible for composition schemes.

Related Articles