Maximizing Your Corporate Retained Earnings
Entrepreneurs set up Private Limited Companies in Maharashtra to isolate risk, scale effectively, and raise capital. However, many SMEs fall victim to inefficient tax planning, ending up paying entirely avoidable corporate taxes. CA Heena Pawaskar's team recommends these 5 strategies:
1. Leveraging Section 115BAA
Domestic companies can now opt for a highly reduced corporate tax rate of 22% (plus applicable surcharge and cess, making the effective rate roughly 25.17%). However, exercising this option means letting go of certain deductions. A precise comparative calculation is crucial.
2. Director Remuneration vs. Dividend Payouts
Extracting profits from your business must be done intelligently. Paying out salaries or remuneration to Directors is a deductible expense for the company (saving 25%), whereas dividends are taxed differently. Finding the golden ratio between the two is key to personal-corporate wealth maximization.
3. Strategic Depreciation under the IT Act
Manufacturing businesses should fully utilize Additional Depreciation on new plant and machinery (typically 20%). Timing capital expenditures toward the beginning of the financial year maximizes this benefit.
4. Start-up India Deductions (80-IAC)
If your Pvt Ltd is a DPIIT-recognized startup matching specific innovation criteria, you can claim a 100% tax holiday for 3 consecutive years out of your first 10 years!
5. Accurate Inventory Valuation
As highlighted by our Stock Audit teams, legally permissible valuation methods (e.g., valuing inventory at Cost or Net Realizable Value, whichever is lower) have a direct impact on reported profits and consequently, tax liabilities.