25% tax for private limited

25% tax for private limited

Consider a scenario where a joint family partnership firm has significant surplus cash lying in current accounts.

Say all the partners are already in 30% tax bracket.

Is it possible for them to start a private limited company which invests the surplus funds exclusively in liquid funds or fd and claim the benefit of 25% tax bracket considering turnover is less than 50 crores?

Even if that's possible can this private limited company lend interest free loans to the partnership firm mentioned earlier without any hassles?

Also wanted to know if and when the directors of the company want to liquidate some cash from the company, what are the ways to do so? Can they just transfer to their sb accounts without paying any taxes or do they only have to go through divided or remuneration route?

Thanks a lot for answering these questions. It would be of great help!

Asked 6 years ago in Income Tax

1. Yes, they can form a private limited company.

2. Yes company can pay provide interest free loan to partnership firm. I don't see any provision of income tax act is getting voilated from this. I am assuming this company will not borrow money from anyone. I don't know if ay restrictions are there from the perspective of companies act.

3. They can't do it directly. This has to be in the form of remuneration or dividend.

Please feel free to call/ revert in case you need more clarity.

Thanks and regards

Abhishek Dugar

CA CS B.Com

Abhishek Dugar

CA, Mumbai

3576 Answers

183 Consultations

4.8 on 5.0

Talk to Abhishek Dugar

As per the Income Tax Act, you can form such private limited company.

Yes, interest free loans can be provided by such company being formed.

The dividend or remuneration route can only be used.

Lakshita Bhandari

CA, Mumbai

5687 Answers

910 Consultations

5.0 on 5.0

Talk to Lakshita Bhandari

So, in the end there's no real benefit of doing this right?

5% income tax is being saved on one side but to get the funds out of the company one has to pay ddt or mention as salary in personal itr and pay 30% tax on that?

Can the company give interest free loans to its promoters perpetually instead?

Asked 6 years ago

This way won't help much in tax savings.

Though, there are other ways, discussing and explaining them here won't be easy for us. I would request you to contact one of our team members for a phone consultation. A one to one conversation would be better.

Lakshita Bhandari

CA, Mumbai

5687 Answers

910 Consultations

5.0 on 5.0