Tax Structures for a Private Limited Company

Entrepreneurs identify the relevant business organization based on several factors like

• Ease of commencing operation
• Compliance requirements and the costs involved
• Agreement with other members and the need to raise funds.

Each structure has its unique characteristics and attracts a certain tax liability and it is important to consider the tax implications before finalizing the formation. In this article, we list out the basic taxation for a private limited company.

In India, Private Limited Companies and LLP are most preferred business modes. Private Limited falls under two different categories: one is a domestic company like in which there is no forging investments and another is known as Foreign Company which means a company in which foreign investments is involved. Each company in India need to file its Income Tax return by the end of September, like for instance of FY 2020-21 , return need to be filed by  30 September 2021. The filing of Income tax return is compulsory, means irrespective of turnover , profit & loss ITR need to be filed and ROC compliances need to be carried out.

In Finance Budget taxation of Private Limited Company Corporate tax is divided into two category as Turnover above 400 Cr and Turnover below 400 Cr.  Income Tax rate on private Limited company is 25 % for midsize companies. Here are details of Corporate Income Tax Rate in India slab wise for FY 2020-21 AY 2021-22. Apart from income Tax there is also surcharge which applies on Private Limited companies.

Current Income Tax Rate for Private Limited Companies

Domestic Company with Turnover less than 400 cr

Domestic Company for Turnover more than 400 cr

For the Foreign Companies, the income tax rate is 40%.

Under the Income Tax Act , Limited Liability Partnership (LLP) are generally treated in a similar manner as the Partnership firms. On LLP Income Tax is levied at rate of 30% flat. Like in the case of individual the benefits of Income tax slabs such as 3 Lac , 5Lac is not available for tax computation of Limited Liability Partnership firm.  Whereas interest on capital and remuneration paid to partners is allowed as a deduction. However same is need to be calculated as per the provisions of Section 40(b) of Income Tax Act 1961.