Tax planning to save tax in Private Limited Company
Using Tax Planning, a Private Limited Company can reduce its taxable income. It outlines several legitimate avenues for minimising taxable income. If you need help sorting through the specifics, you can always consult with a tax expert or a business consultant.
What is a Private Limited Company?
A Private Limited Company is a legal business entity that provides its shareholders with limited liability or legal protection from personal responsibility but limits the shareholders’ ability to acquire additional ownership interests. A corporation is a legal fiction. There are many statutory protections, responsibilities, and authorities bestowed upon it. You can visit here to know about private limited company compliances.
Companies have a number of responsibilities, one of the most important of which is the payment of taxes in the form of a Private Limited Company. There is no way around paying taxes, and doing so would be unethical, but there are legal strategies that can be employed in order to minimise their impact on your finances without sacrificing any of the benefits you’d otherwise enjoy.
How to save tax in Private Limited Company?
Salary to Director
- A company’s directors are responsible for overseeing and managing operational aspects of the business.
- Paying their directors a salary is the simplest way to reduce their tax liability.
- The company’s founder may elect to receive a salary increase rather than a dividend distribution.
- The salary of the company’s employees is a tax-deductible business expense.
- With a profit of Rs. 4 lakh, for instance, a company can afford to pay its directors a salary of Rs. 2 lakh each.
{Read More: – Revenue Cycle Management }
Sitting fees to director
- A director may receive a sitting fee from the company in exchange for their attendance at board or committee meetings.
- Amounts not to exceed 1 Lakh per board or committee meeting, as determined by the board.
- That is deductible by the business as an “Expense” and exempt for the individual taxpayer up to the applicable threshold.
- The rate of 10% is subject to deduction from any compensation, fees, or commission, regardless of what it is called.
- In other words, if a person attended a company’s board meeting and the board decided per meeting fees of Rs. 80,000/-, the company would pay the individual Rs. 72,000/-, less TDS of Rs. 8,000/-.
Depreciation on assets
- Purchased assets are recorded as capital assets in a company’s financial statements.
- The transaction will be recorded as an acquisition on the Balance Sheet rather than an expense on the Income Statement.
- Full depreciation is counted on an asset if it is expected to generate revenue for the company for 180 days or more after purchase.
- In the long run, this will save you money on taxes.
Preliminary expenses
- Initial costs are those that must be paid before a business can officially begin operations.
- Many costs arise both before and after forming a private limited company.
- The founder of a Private Limited Company is responsible for paying these fees.
- Such costs are the fees professionals are paid to write the MOA and AOA. Amounts spent on printing, ROC fees, stamp duty, etc.
- People can benefit from such costs by recording them in their ledgers.
Rent expenses
- If the director or a relative of the director owns the property used as the company’s registered address, the rent can be easily accounted for as a business expense.
- Creating a rent agreement in the owner’s name, initiating the transfer of rent, and recording the expense in the company’s books are all that’s required.
Salary expenditure of a family member
- Whenever there is a family member working in the business, their salary must be recorded as an outgoing cost.
- In this way, you can reinvest your earnings at home.
Entertainment expenses
- Finally, there is one business expense that is the most exciting.
- A business’s achievements should be commemorated on a regular basis.
- And by properly recording the cost in the books of account, a 30% tax deduction is available.
Meeting expenses
- Expenses incurred while entertaining clients at a restaurant, a play, or a sporting event are entirely allowable.
- Additionally, when travelling for business, socialising and attending numerous meetings and events in different locations is necessary.
- All of these costs can be properly recorded in your books, allowing you to lower your taxable income.
Director’s vehicle expenses
- A director’s vehicle is typically used for company business such as meetings and travel.
- Since the cost of operating and maintaining such a vehicle is incurred solely for business purposes, it can be deducted from the company’s profits.
As a result of the aforementioned costs, businesses can reduce their taxable income by 22% to 30%. But this needs to be recorded accurately. If you put in the time and effort to plan carefully, you can reap the many rewards it has to offer.
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