Under the Companies Act of 2013, India offers seven different structures for establishing a business. Today, our focus will be on the tax benefits available for Private Limited Companies in India, often considered the most favoured corporate structure.
A Private Limited Company is an enterprise controlled by a small group of owners, registered under the Indian Companies Act of 2013 and overseen by the Ministry of Corporate Affairs.
The tax system in India
In India, corporate taxes are divided into two main categories as in virtually all countries: direct taxes and indirect taxes.
Some of the advantages of these companies include limited liability, ease of property transfer, and access to capital through equity shares. That said, their main advantage lies in the benefits of Limited Liability Company Taxation in India, as they can enjoy lower tax rates and tax-saving opportunities, including deductions for asset depreciation and business expenses. Moreover, Private Limited Companies are exempt from paying Dividend Distribution Tax (DDT), leading to increased earnings for their owners.
Furthermore, choosing to compensate directors and founders through salaries instead of dividends can result in substantial tax savings.