Taxation of Private Limited Companies in India by CA Ayushi Mittal

• May 12, 2025
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Private Limited Companies (Pvt Ltd Cos) are one of the most preferred forms of business entities in India, known for their separate legal identity, limited liability, and structured compliance. One of the key areas of importance for private companies is taxation.

This article presents a detailed overview of the taxation provisions applicable to Private Limited Companies under the Income Tax Act, 1961.

Applicable Tax Rates (FY 2024-25 / AY 2025-26)

Add:

- Surcharge:

• 7% if income exceeds ₹1 crore
• 12% if income exceeds ₹10 crore

However, the rate of surcharge in case of a company opting for taxability under Section 115BAA or Section 115BAB shall be 10% irrespective of amount of total income.

- Health & Education Cess: 4% on income tax + surcharge.

Key Features of Corporate Taxation

1. Minimum Alternate Tax (MAT)

- Applicable @15% (plus surcharge & cess) of book profits under Section 115JB.

- MAT is *not applicable* to companies opting for taxation under Sections 115BAA or 115BAB.

2. Dividend Distribution

• No Dividend Distribution Tax (DDT) post FY 2019-20.
• Dividend is taxable in the hands of shareholders at applicable slab rates.
• TDS @10% under Section 194 if the dividend exceeds ₹5,000.

3. Presumptive Taxation

• Not applicable to companies.

4. Set-off and Carry Forward of Losses

• Allowed as per provisions under Chapter VI of the Act.
• Business loss: Carry forward up to 8 years.
• Unabsorbed depreciation: No time limit.

Compliance Calendar

Common Deductions & Allowances

Private companies can claim various expenses and deductions:

• Depreciation on assets (as per Income Tax Act)
• Rent, salaries, consultancy, legal, and administrative expenses
• Interest on business loans
• Contribution to EPF, ESI, gratuity, etc.
• Donations (subject to 80G limits)
• R&D expenditure (as per Section 35)
• Startup benefits (if registered as DPIIT-recognized startup)

Audit & Reporting Requirements

• Statutory Audit under Companies Act is mandatory regardless of turnover.
• Tax Audit is applicable if turnover exceeds ₹1 crore (₹10 crore if cash transactions ≤5%).
• Transfer Pricing Audit (Form 3CEB) if international or specified domestic transactions are entered into.

Penalties for Non-Compliance

• Late filing fee under Section 234F (₹1,000 to ₹5,000)
• Interest under Sections 234A/B/C for delayed payments
• Penalty for underreporting or misreporting of income under Section 270A
• TDS default penalties

Tax Planning Considerations

• Choosing the right tax regime (normal vs concessional)
• Dividend planning to minimize shareholder tax burden
• Efficient utilization of losses and depreciation
• R&D and CSR expense planning
• Capital gains optimization

Conclusion

Taxation of Private Limited Companies in India is structured yet dynamic. With the introduction of optional tax regimes and removal of DDT, companies now have opportunities for better tax optimization and planning.

It is imperative for companies to stay updated with the latest amendments, comply with the statutory timelines, and seek professional guidance to ensure tax efficiency and avoid penal consequences.

At TKC, we specialize in corporate tax advisory, return filing, compliance, and planning strategies. Let us help you navigate the complexities of corporate taxation.