Private Limited Company Tax Saving Tips
Tax saving for company is legal exercise carried out by a tax payer to meet his tax obligations in correct , systematic and orderly manner. Tax saving for company manes availing all permissible deductions to minimize taxes. Its not about having intension to deceit the legal spirit behind the law. Planning should not be done with an intent to defraud the revenue.
1. Salary to Directors
A Director is a person who looks after the performance of company or administers a particular area for a private limited company. Depending on the size of company directors do work in company and takes salary. It is simple method for tax saving for a private limited company directors may take appropriate salary. Taking profit after paying dividend tax may increase taxes. However while transferring salary to directors company need to take into consideration taxable salary income of director. ( Read about Income Tax slabs )
Example : ABC Company making profit of Rs. 5 Lac , Company can pay salary to directors say Rs. 2 Lac to director Mr. A and Rs. 2 Lac to Director Mr. B and minimize taxation.
2. Meeting Sitting Fees to directors
As per the Companies Act company need to conduct mandatory meetings during the year. And attending board meaning is compulsory for board of directors. As per section 197 of Companies Act 2013 company may pay board meeting sitting fees to directors.
(The total managerial remuneration payable by a public company, to its directors, including managing director and whole-time director, and its manager in respect of any financial year shall not exceed eleven per cent. of the net profits of that company for that financial year computed in the manner laid down in section 198 ) . However while paying board meeting sitting fees company need to deduct TDS from sitting fees at rate of 10 % under section 194 J of Income Tax Act 1961.)
Example : – Mr. A is attended board meeting for Company ABC Ltd and Board decided per meeting sitting fees is Rs. 50000/- then company shall pay Rs. 45000 to Mr. A and Rs. 5000 as TDS under section 194 J of Income Tax 1961.
3.Depreciation on Assets
When as need asset is purchased it is categorized as Capital asset in the balance sheet of company as per the accounting standards. This means the purchases item will appear in the Asset side of balance sheet and not in the profit and loss statement. Income Tax Act had defined rates for claiming depreciation on assets. If asset is put to use for 180 days or more in the year of purchase, then full depreciation Otherwise half depreciation If asset purchased and used on last day of the year,still half depreciation.
Example : ABC Ltd Purchases laptops of Rs. 1000,000/ in May 2018 where as depreciation rate is 60 % on Computer then , company can claim Rs. 60000/- as depreciation in Net Profit.
4. Pre incorporation Expenditure
Preliminary Expenses are expenses generally incurred by the promoter of company or partners of LLP before registration fo company or LLP. In simple term its expense which may give future benefits to company. Example for formation of a firm company expense ,
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- Preliminary consultation charges on formation of company
- Training to Employees
- Project report
Company need to record these expense in books of account and do correct accounting and tax treatment to take benefit in Income tax.
5. Pay Advance Tax
Its names suggest it’s a taxes paid in advance to the government treasury. It’s a taxes paid in parts during the year on estimated basis. Paying timely advance ensures that late payment interest is not payable on taxes paid after end of financial year.
|Due date of installment||Amount payable|
|On or before 15th June||Not less than 15% of the advance tax liability|
|On or before 15th September||Not less than 45% of the advance tax liability|
|On or before 15th December||Not less than 75% of the advance tax liability|
|On or before 15th March||100% of the advance tax liability|
6. Awareness about Recent Changes
Tax planning should not be done with an intent to defraud the revenue. Companies need to keep them updated about the recent changes in tax law , company law and other allied law to complete the compliances in time.
7. Salary to Family Members
In some of family run business , few family members were involved for management, assistance etc. In some of cases family members support in starting struggle phase of business , however in some cases there efforts were taken without paying salary to them. In such cases you should consider in paying them a appropriate salary which may adjust to your company profit in books of account. Family member need to file ITR in individual capacity.
Where a cases directors of company using their personal vehicle for purpose of company such as traveling for business meeting, business purposes etc. Since the expenditure is done for the company’s business purposes so same should be booked in books of the company.
Even repairs and maintenance for which exclusive vehicle uses for business purposes should be booked for company tax saving purpose.
For a business, purpose company takes there clients in restaurants for business meeting purpose. These expenses are generally tax deductible. The correct accounting of same with supporting invoices can be taken in books of account.