Company IncorporationTaxation

How To Save Corporate Tax For A Private Limited Company?

If we operate a private limited business, we will cover many topics that may help us save money on corporate tax. Learn tax-saving ideas for private limited companies by reading this article. Give founders or directors a salary rather than profit or dividend, and you may save money on taxes by doing so.

In a private limited corporation, there are a few ways to save money on taxes. It outlines several legally permitted routes via which significant tax savings might be realised. 

Being a legally constituted artificial person, we know that a corporation has its legal entity. It comprises several legally mandated rights, duties, powers, and responsibilities. Please tell us how to save money on taxes by setting up a private limited liability corporation.

What Is A Private Limited Company? 

Companies Act, 2013 defines private limited companies as those that restrict the generalisability of shares and prohibit public subscriptions. This distinguishes little private firms from other forms of publicly traded corporations. Learn about the many business players in India & their legal terms as the country’s economy expands. This article defines a private company, the many kinds of limited private corporations, and how to form one.

Take into account the following details to answer the question, “What is a limited liability company?” Companies Act, 2013 Section 2 (68) defines a private company as a distinct legal entity owned by its owners and has limited liability. Like other publicly traded corporations, it does not continue giving away its stock to the public. In a private company, all business gains and penalties are owned by the firm, and the company’s stakeholders are not liable for the company’s obligations.

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Types of limited liability corporations

They range from sole proprietorships through partnerships to corporations.

  • Shareholders In A Private Limited Business

Based on the number of shareholders’ due money on their shares, a private corporation’s share capital is constrained in its capital. An MOA limits shareholders’ liability to the number of their claims or the amount still owed. There is no obligation on the firm’s shareholders to repay more than the amount they put into the company.

  • By Guarantee, A Private Limited Firm

Individual shareholders’ liability in a private company is capped to the amount they guarantee in their memorandum of association. Because of this, they can only be held responsible for the amount they have agreed to pay. Furthermore, customers may only rely on this assurance if the firm is permanently closed.

  • There Are Many Businesses

An unlimited business is distinct from a limited liability company. A complete company is one in which the members’ liability is unrestricted. All of the company’s debts fall under the responsibility of each member. Members’ assets may be used to pay off the business’s obligations.

The minimum number of directors for a private limited corporation is two, while the maximum is fifteen. In addition, a limited personal business may legally distribute shares to at least two owners. It is OK if there are up to two hundred stockholders.

On the other hand, a private limited corporation needs at least two members to run. They may own a stake in the business. Any limited company may well have a paid-up stock of 1 lakh rupees or more, as determined by the government, according to Chapter 2 (clause 68) of A Companies Act, 2013.

Various Aspects Of Saving Tax

An effective tax-saving investment is the first investment and only afterwards a tax saver. There are a variety of ways to lower your tax bill.

  • Rent Expenses

Excluding maintenance costs from the rent collected is a straightforward tax-saving approach. Some renters incorporate maintenance fees in their rent, which raises the total amount due. You’ll owe tax on the whole amount if you charge Rs 30,000 in rent and add Rs 5000 in maintenance costs. Deducting these expenditures from maintenance fees may save Rs 5000 on taxes. 

You need to include a single sentence in a rental agreement noting that the tenant may pay the social organisation directly for upkeep. With a family member that trusts (husband/wife/parents), you may save money on rental income taxes if you buy a home together. As a result, you may save taxes on rental income proportionate to the other family member in this situation.

Municipal fees like sewage and property taxes may be deducted from rent income tax. “However, property owners, not tenants, are responsible for paying all municipal taxes. As a result, these contributions will lower your taxable income and reduce your tax bill.

  • Loan For Education

Individuals may save money on taxes by taking out a student loan to pay for college for themselves rather than the children or their spouses, etc. Section 80E of the Internal Revenue Code permits taxpayers to deduct loan interest payments. They may claim as many deductions as they like, and there is no upper limit. Section 80E restricts the ability to deduct expenses to the individual taxpayer.

  • Equity And Funds Of Funds

Investing in stocks and mutual funds may help people avoid paying taxes. Investments in certain firms’ stock or mutual funds are eligible for a tax deduction under the Income Tax Act’s Section 80CCG, provided the taxpayer earns less than Rs.12 lakh per year. It is exclusively accessible to first-time investors under the Rajiv Gandhi Stock Savings Plan.

  • Certificate of Deposit

Under Section 80C of the Internal Revenue Code, investors may save money on their taxes by investing in savings bonds issued by the National Savings Certificates program. To purchase NSC certificates electronically, you’ll need an account with a bank or post office that offers online banking. 

  • Director’s Remuneration For Appearances

Sitting fees may be paid to directors who attend board or committee meetings, according to the new regulations specified in Section 197 of Corporations Act 2013.” There must be no expenditures over Rs. 1 lakh every board or committee meeting, which the BOD may determine.” According to subsection (1)(ba) of section 194j of the Income Tax Act, 1961, any compensation, fees, or commissions, regardless of their name, are subject to a deduction of 10%.

Conclusion 

If you don’t like the new tax structure, you may always stick with the old one; it’s still an option in Budget 2020-2021. There under Income Tax Act, several tax exemptions may be claimed by a taxpayer. Sections 80C, standard deduction, 80D deductions, and other popular tax-exemptions or deductions include home rent allowance, leave travel expenses, Section 80C deductions, etc. VakilSearch is there to assist you if you want to gain more information about corporate taxes for a private limited firm.

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