Private limited companies in India are governed under taxation by the laws of the Income Tax Act of 1961. The private limited companies are regarded as separate legal entities, and the income earned by them is taxed separately from the income of their shareholders. The taxation policy for private companies is designed to maintain compliance, transparency, and equitable contribution to the national exchequer. Private companies must compute their taxable income using the total revenue minus allowable business expenditure, depreciation, and other approved deductions.
Domestic private limited companies are presently taxed at a uniform rate of 22% (plus applicable cess and surcharges), unless they fall under certain exemptions or incentives under the Act. As per section 115BAB, new manufacturing companies incorporated after October 1, 2019, and starting production before March 31, 2024, can be eligible for a lower tax rate of 15% (surcharge and cess). Businesses with revenues less than ₹400 crore can be taxed at a rate of 25% under the old tax regime.
In addition to income tax, private businesses are also subject to other forms of taxes such as Goods and Services Tax (GST), dividend distribution tax (which has since been abolished), and corresponding state taxes, depending on the activities and transactions of their businesses.
What is a Private Company?
A private company is a kind of business entity owned and run privately, incorporated in India under the Companies Act, 2013. It is legally identified as a separate entity from its owners, which allows it to own property, contract debts, and do business in its name. A private corporation is usually formed by a limited number of people—usually family members, friends, or business partners, with the primary function of making profit.
Section 2(68) of the Companies Act, 2013 defines a private company as one whose shares are not transferable, membership is restricted to 200 persons (excluding past and present employees), and no public subscription to its securities is allowed.
Private companies are mandated to have at least two directors and two shareholders. They are also required to have the name “Private Limited” (Pvt. Ltd.) in their title. Unlike public companies, private companies are not allowed to attract capital from the public at large through the offering of shares or debentures.
Tax Returns for Private Companies in India
In India, private limited companies are required to file annual income tax returns under the Income Tax Act, 1961, regardless of whether they have posted profits or losses in the financial year. Filing tax returns is a statutory requirement that has to be complied with for the company to carry on its business. In India, the financial year runs from April 1 to March 31 and the assessment year follows immediately after it.
The filing of tax returns is an integral part of legal and financial compliance by private businesses in India. Accurate reporting, on-time submission, and compliance with applicable laws are vital for the smooth operation and long-term sustainability of the company.
The private limited companies have to submit their income tax return in Form ITR-6, which is used by the non-exempt companies under Section 11 (which deals with charitable or religious trusts). The return should include detailed information like income from business or profession, capital gains, income from other sources (e.g., interest), deductions and exemptions allowed, tax deducted at source (TDS), and details of tax paid, including advance tax and self-assessment.
The ITR should be filed in electronic form with a digital signature of the company’s authorized signatory (generally a director).
For the companies that do not need to get their accounts audited, the date is July 31 of the assessment year.
The date of submission for companies subject to audit under section 44AB is October 31 of every assessment year.
The date of submission for enterprises entering into international or specified domestic transactions has been brought forward to November 30 due to the requirement of transfer pricing reports.
If the turnover of a private company reaches the specified threshold (₹1 crore for business or ₹50 lakh for profession, as the case may be), it requires a tax audit to be done by a Chartered Accountant. The Tax Audit Report is filed in Forms 3CA/3CB and 3CD and is obligatory for presenting the ITR.
Apart from the income tax return, private companies also need to file quarterly TDS returns (where tax has been deducted on salaries, payments to contractors, rent, etc.) on Forms 24Q, 26Q, or 27Q. Advance tax has to be paid in quarterly installments if the aggregate tax liability is more than ₹10,000 a year. Financial statements, i.e., the balance sheet, profit and loss account, and cash flow statement, should be drawn up based on accurate accounting records.
Not filing income tax returns within time can entail a late filing fee under section 234F (₹5,000 to ₹10,000 based on the date and income). More penalties and interest may be charged under sections 234A, 234B, and 234C. Prosecution for failure to pay tax could be the consequence of serious tax evasion.
Timely filing of tax returns assures:
- Compliance with statutory requirements and penalty avoidance
- Eligibility to claim refunds or offset business losses,
- Increased credit rating for loans or issuing shares,
- Maintenance of legal status with regulatory authorities like MCA, banks, and investors.
Tips for Private Companies to File Tax Returns
Adopting a proactive and systematic approach not only helps in evading penalties but also improves the financial and legal position of the company, making it easy to raise funds, secure loans, and gain investors’ trust.
Filing tax returns of a private limited company in India is a crucial task that helps maintain compliance with legal standards and avert financial and legal consequences. The following are some detailed and practical suggestions that private companies need to follow while filing income tax returns in India:
1. Keep Accurate and Up-to-date Accounting Records
Before starting the return filing process, be sure that your business’s accounting records are comprehensive, accurate, and timely. These consist of the profit and loss account, balance sheet, and cash flow statement. General ledger and journal entries. These should be in accordance with Indian Accounting Standards (Ind AS) or other comparable standards.
2. Reconcile Bank Accounts and Financial Statements
It is important to match all accounts of the bank with accounting records to identify any discrepancies. Also, ensure that the profit and loss account and balance sheet match the details being reported in the ITR form.
3. Validate TDS Credits via Form 26AS
Cross-check the Tax Deducted at Source (TDS) reported by your company with the available entries in Form 26AS. Your company will only be considered for tax liability calculation based on the TDS reported in this form. Any discrepancy or error needs to be corrected immediately by reconciling with the deductors.
4. Compute Taxable Income Accurately
Taxable income must be computed after:
- Allowing all the deductible allowances and exemptions
- Adjusting for prohibited expenses under Income Tax regulations
- Accounting for depreciation under the Income Tax Act (separate from Companies Act depreciation)
Tread with caution while adjusting business losses, depreciation carry-forwards, and other set-offs.
5. Comply with Tax Audit Provisions
If sales from your business are above the stipulated limits (₹1 crore for businesses or ₹50 lakh for professions, subject to conditions of digital transactions), a tax audit is required under Section 44AB. In such a scenario, take the services of a Chartered Accountant to carry out the audit. File Form 3CA/3CB and Form 3CD online prior to filing the Income Tax Return (ITR).
Make sure the audit is done well before the due date of ITR filing.
6. File the Correct ITR form – ITR-6
Private limited companies (other than those exempted from filing under Section 11) have to file an income tax return using ITR-6 form. Filing through the wrong form could render the return invalid.
7. Use the Digital Signature Certificate (DSC)
Private limited companies have to file income tax returns in electronic form through a Digital Signature Certificate (Class 3 DSC) of the company’s authorized signatory, normally a director. Ensure that the DSC is genuine and enrolled with the Income Tax e-filing system.
8. Payment of Advance Tax On Time
If your business’s tax liability is more than ₹10,000 in a financial year, you are required to pay advance tax in four payments: June, September, December, and March. Sections 234B and 234C provide for interest for delay of payment.
9. File Other Related Returns
Apart from the ITR, make sure to file quarterly TDS returns (in Forms 24Q and 26Q). File GST returns (if yes). File annual ROCs with the Ministry of Corporate Affairs. These are interlinked filings, and discrepancies can result in a notice or an audit.
10. Carefully Verify the Return Before Filing
Prior to finalising the submission, carefully check all numbers, timetables, and tax computations. Ensure that all disclosures, such as related party transactions, director details, audit qualifications (where applicable), and investments are correctly disclosed.
11. See that All Supporting Documents are Easily Accessible
Keep a complete record of all supporting documents, like invoices, bills, tax challans, audit reports, loan documents, and investment proofs.
These documents can be demanded in case tax authorities opt to conduct an audit or verification.
12. Track Filing Acknowledgment (ITR-V)
Once submitted, an acknowledgement (ITR-V) is generated. While ITRs filed with a Digital Signature Certificate (DSC) do not require physical signatures, firms should keep the ITR-V as a point of reference for the future.
13. Plan Ahead and Do Not Leave It for the Last Minute
File early, well in advance of the deadline date. Last-minute rushing tends to result in errors, missed deductions, or delays, which result in penalties and interest charges.
14. Consider Professional Help
As corporate taxation is complicated, it is better to hire a Chartered Accountant or tax expert. They will help in proper calculations, planning, deductions, auditing, and compliance with the current legislative changes.
15. Be Aware of Tax Laws
Stay updated on changes to tax rates, deductions, corporate tax regime (like Sections 115BAA and 115BAB), surcharge and cess rates, and filing processes.
Conclusion
To provide legal compliance, avoid penalties, and ensure financial integrity, private businesses are compelled to file tax returns in a timely and accurate manner. Through correct recording, compliance with auditing standards, using the correct ITRs, and professional help, business entities can streamline their taxes and focus on long-term business expansion.
