Private limited companies in India are subject to various taxes, with the primary one being the corporate income tax. Understanding the tax rates and compliances is crucial for entrepreneurs and business owners to manage their finances effectively. In this article, we will delve into the intricacies of the private limited company tax rate, along with other key aspects of taxation for these entities.
Table of Contents
Budget 2024 Latest Update on Corporate Tax Rate
Finance Minister Nirmala Sitharaman has proposed a reduction in the corporate tax rate for foreign companies, bringing it down from 40% to 35% in the 2024 budget.
Subdivisions of Direct Taxes
Direct taxes in India are categorized as follows:
- Personal Income Tax
- Paid by individual taxpayers based on their income.
- Taxed according to predefined slabs at different rates.
- Corporate Income Tax (CIT)
- Paid by domestic and foreign companies on their income earned in India.
- The CIT is levied at rates specified by the Income Tax Act, subject to annual revisions in the Union Budget.
What is Pvt. Ltd. Tax Rate?
The Pvt. Ltd. tax rate refers to the corporate income tax rate applicable to private limited companies in India. Under the Income Tax Act, 1961, domestic companies are generally taxed at 30% on their total taxable income, with variations based on turnover and certain conditions.
For companies with a turnover of less than ₹400 crore, the tax rates are as follows:
- Turnover up to ₹1 crore: Taxed at 25%.
- Turnover between ₹1 crore and ₹10 crore: Taxed at 25% on profits exceeding ₹25 lakh, plus an additional ₹25 lakh.
- Turnover above ₹10 crore: Taxed at 30%.
A 4% Health and Education Cess is levied on the total tax payable.
Companies may also opt for a reduced tax rate of 22% under Section 115BAA, provided they forgo certain exemptions and deductions. This option also includes the surcharge and 4% cess.
Additionally, new manufacturing companies incorporated after October 1, 2019, can avail a 15% tax rate (plus surcharge and cess) under Section 115BAB, subject to specific conditions.
Corporate Income Tax Rate for AY 2022-23
The Corporate Income Tax Rate for the Assessment Year 2022-23 varies based on the company's turnover and the applicability of surcharge and cess. Here's a table summarising the effective tax rates:
For Companies with Turnover Above ₹400 Crore
For Companies with Turnover Below ₹400 Crore
Key Budget 2022 Updates
1. No Changes in Tax Rates: The corporate tax structure remained unchanged.
2. Updated Surcharge Cap for Cooperatives: Surcharge capped at 7% for cooperatives with income between ₹1 crore and ₹10 crore.
3. Set-Off for Losses in Case of Start-ups: Extended incorporation date for start-ups to claim tax holiday under Section 80-IAC to 31 March 2023.
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Income Tax Rate for Domestic Manufacturing Companies for AY 2022-23
New manufacturing companies incorporated in India on or after October 1, 2019, and commencing production before March 31, 2023, can avail a concessional tax rate for private limited companies of 15% under Section 115BAB. However, this is subject to certain conditions, such as:
- The company should be engaged in the business of manufacture or production of any article or thing
- It should not be formed by splitting up or reconstruction of an existing business
- It should not use any plant or machinery previously used in India (with certain exceptions)
- The option to avail Section 115BAB must be exercised in the first year of operation
The applicable tax rates for domestic manufacturing companies for the assessment year 2022–23 are outlined below:
Education Cess for Companies
Private limited companies are required to pay an education cess at the rate of 4% on the total income tax, including the applicable surcharge. Below is a detailed explanation of the corporate income tax rates for FY 2021–22 or AY 2022–23:
For companies with a turnover of up to ₹400 crore:
- Income up to ₹1 crore is taxed at 25%.
- Income exceeding ₹1 crore but up to ₹10 crore is taxed at 25% plus ₹25,00,000. A 7% surcharge applies.
- Income above ₹10 crore is taxed at 25% plus ₹2,50,00,000, with a 12% surcharge.
For companies with a turnover exceeding ₹400 crore:
- Income up to ₹1 crore is taxed at 30%.
- Income exceeding ₹1 crore but up to ₹10 crore is taxed at 30% plus ₹3,00,000. A 7% surcharge applies.
- Income above ₹10 crore is taxed at 30% plus ₹3,00,00,000, with a 12% surcharge.
The education cess of 4% is uniformly applicable to the total tax payable, including any surcharge, regardless of turnover.
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Income Tax Rate for Foreign Company
Foreign companies, i.e., those incorporated outside India but earning income from Indian sources, are taxed at a basic rate of 40% (plus applicable surcharge and cess). The surcharge is levied at 2% on income between ₹1 crore to ₹10 crores and 5% on income exceeding ₹10 crores.
It is important to note that foreign companies can avail beneficial provisions under the Double Taxation Avoidance Agreement (DTAA) between India and their country of residence to minimize their tax liability.
Minimum Alternate Tax for Company
The Minimum Alternate Tax (MAT) provisions apply to companies whose tax payable under the normal provisions of the Income Tax Act is less than 15% of their book profits. In such cases, MAT is levied at 15% (plus applicable surcharge and cess) of the book profits.
However, MAT is not applicable to companies opting for the concessional tax regimes under Section 115BAA and Section 115BAB. Further, the credit for MAT paid is allowed to be carried forward for 15 years to be set off against future tax liabilities.
H2 - How to Calculate Total Income for a Company?
To arrive at the taxable income for a private limited company, the following steps are involved:
The Corporate Income Tax Rate is then applied to this taxable income to determine the tax liability of the private limited company.
Returns Applicable for Domestic Company for AY 2022-23
Private limited companies are required to file their income tax returns annually. For the assessment year 2022-23, the following returns are applicable:
1. ITR-6: This return is applicable for companies other than those claiming exemption under Section 11 (income from property held for charitable or religious purposes).
2. ITR-7: This return is applicable for companies claiming exemption under Section 11.
The due date for filing the return is 31st October of the assessment year. However, for companies required to furnish a report in Form No. 3CEB under Section 92E (relating to international transactions), the due date is 30th November of the assessment year. Companies must also ensure timely compliance with advance tax payments, TDS/TCS obligations, and tax audit requirements (if applicable) to avoid penal consequences.
Domestic Company Tax Slab for AY 2024-25
For the Assessment Year (AY) 2024–25, the income tax rates for domestic companies depend on their turnover or gross receipts during the financial year (FY) 2020–21, as well as the tax provisions they choose to apply under specific sections of the Income Tax Act. The applicable rates are as follows:
- If the total turnover or gross receipts during FY 2020–21 do not exceed ₹400 crores:
- Tax rate: 25%
- If the company opts for Section 115BA:
- Tax rate: 25%
- If the company opts for Section 115BAA:
- Tax rate: 22%
- If the company opts for Section 115BAB:
- Tax rate: 15%
- For any other domestic company:
- Tax rate: 30%
These rates are exclusive of surcharge and cess, which will be applied additionally based on the applicable income slabs.
Frequently Asked Questions
Private Limited Company
(Pvt. Ltd.)
- Service-based businesses
- Businesses looking to issue shares
- Businesses seeking investment through equity-based funding
Limited Liability Partnership
(LLP)
- Professional services
- Firms seeking any capital contribution from Partners
- Firms sharing resources with limited liability
One Person Company
(OPC)
- Freelancers, Small-scale businesses
- Businesses looking for minimal compliance
- Businesses looking for single-ownership
Private Limited Company
(Pvt. Ltd.)
- Service-based businesses
- Businesses looking to issue shares
- Businesses seeking investment through equity-based funding
One Person Company
(OPC)
- Freelancers, Small-scale businesses
- Businesses looking for minimal compliance
- Businesses looking for single-ownership
Private Limited Company
(Pvt. Ltd.)
- Service-based businesses
- Businesses looking to issue shares
- Businesses seeking investment through equity-based funding
Limited Liability Partnership
(LLP)
- Professional services
- Firms seeking any capital contribution from Partners
- Firms sharing resources with limited liability
Frequently Asked Questions
How much tax does a private limited company pay?
The tax liability of a private limited company depends on various factors such as its residential status, income sources, turnover, etc. Domestic companies are taxed at a basic rate of 30% (with concessional rates of 25%, 22%, or 15% available subject to conditions) plus applicable surcharge and cess. Foreign companies are taxed at 40% (plus surcharge and cess) on their India-sourced income.
How can I avoid tax in a PVT Ltd company?
While tax planning is permissible, tax avoidance or evasion is illegal. Private limited companies can legitimately minimise their tax outgo by availing deductions, exemptions, and incentives provided under the Income Tax Act. For instance, companies can claim expenditures incurred wholly for business purposes, deductions for hiring new employees (Section 80JJAA), or for undertaking in-house R&D (Section 35(2AB)). Startups can avail a 100% tax holiday for three consecutive years out of their first ten years of operation.
What is 25% tax on a company?
Domestic companies with an annual turnover of up to ₹400 crores in the financial year 2021-22 are eligible for a concessional corporate tax rate of 25% (plus applicable surcharge and cess). This reduced rate aims to provide relief to smaller companies and promote their growth.
What are the tax benefits of Pvt Ltd?
Private limited companies can avail of several tax benefits under the Income Tax Act:
• Expenditure incurred wholly for business purposes is tax-deductible
• Deductions available for hiring new employees (Section 80JJAA), inter-corporate dividends (Section 80M), in-house R&D (Section 35(2AB)), etc.
• 100% profit-linked deductions for specified businesses like startups, affordable housing, agricultural extension, etc.
• Carry forward of business losses for eight years and unabsorbed depreciation indefinitely
• Deductions for CSR expenditure incurred on eligible activities
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