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November 19, 2021
Which is better- Private Limited Company, LLP or OPC- From the Taxation point of view
In this article, we have discussed taxation in Pvt Ltd Co., LLP. & OPC. We have given a few points that clarifies the advantages and disadvantages of these business structures from a taxation point of view.
There are various business structures like Private Limited Company, OPC, LLP, Sole proprietorship etc. Before starting a business and choosing a business structure, the entrepreneurs who wish to start their business need to think about all the pros and cons of selecting a particular business structure.
Each business structure has several factors which need to be thought upon, such as ease of commencing operations, compliance requirements and the costs involved, agreements with other members and needs to raise funds. Taxation is one of the basic elements that by default comes as a liability when you start a business.
Each structure attracts a certain tax liability and it is important to consider the tax implications before finalizing the formation.
Taxation in Limited Liability Partnership
- A firm is taxed as a separate legal entity.
- In computing, the taxable income of a firm any salary, bonus, commission, or remuneration that is due to or received by a partner is allowed as a deduction subject to certain restrictions.
- Where a firm pays interest to a partner, the firm can claim a deduction of such interest from its total income.
Taxation in Pvt Ltd Co.
- A company is a juristic person having a separate legal entity distinct from the members who constitute it hence taxed as a separate legal entity.
- A private limited company as a company having a minimum paid-up share capital and which by its articles
- Restricts the right to transfer its shares
- limits the number of members to 200
- Prohibits any invitation to the public to subscribe to any securities of the company
Register a private limited company
Taxation in One Person Company
- OPC is a company that has only one person as a member.
- Like a Private Limited Company, an OPC is a separate legal entity distinct from the member who constitutes it.
- It is a formal company structure without requiring a director/partner as is the case with a private company/ partnership.
Taxation Liability- Comparison table |
|||
Title |
Pvt Ltd Co. |
OPC |
LLP |
Income Tax Rate |
30% |
30% |
30% |
Surcharge |
7% when total income exceeds INR 1 cr but less than INR 10 cr.12% when total income exceeds INR 10 cr. |
7% when total income exceeds INR 1 cr but less than INR 10 cr.12% when total income exceeds INR 10 cr. |
12% when total income exceeds INR 1 cr |
Taxed as |
Domestic Company |
Domestic Company |
Partnership Firm |
salary |
Director’s salary is allowed as an expense |
Director’s salary is allowed as an expense |
Partner’s salary allowed as deduction |
Interest and Remuneration |
is taxable income |
is taxable income |
Allowed as deduction |
Loans |
Loans to the directors are taxable when repaid |
Loans to the director are taxable when repaid |
Loans to the partners are not taxable when repaid |
Tax burden |
moderate |
moderate |
low |
MAT |
Applies |
Applies |
AMT applies |
Distribution Dividend Tax |
Applies |
Applies |
Does not apply |
Must Read: How to save tax in a private limited company
Also, read – LLP and Private Limited Compared
File Income Tax Returns
Filing of Income Tax return is necessary if you have earned any income. File your ITR with EbizFiling
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