Everything you should know about Tax Benefits of OPC Registration

Everything you should know about Tax Benefits of OPC Registration

Choosing the right business structure is very important before you start running a business in India. Amongst various options available, One Person Company registration has become the popular option for the small businesses and startups in recent years after the introduction of Companies Act, 2013. OPC allows one single person to start his own company along with enjoying the benefits of limited liability. It helps the single person to register the company in his own name without having the needs of other business partners.

Apart from its various features including limited liability and separate legal existence, OPC registration also comes with various tax benefits that can help the business owner to reduce and save his/her tax liability ultimately reducing the financial burden. Also, OPC brings various other benefits like lower cost of compliances, exemptions from different taxes and eligibility to opt for multiple government schemes.

What is OPC Company?

An OPC is a type of Private Limited Company which has one single shareholder only who is eligible for having all its profits and shareholding. OPC full form is One Person Company. OPC is defined under Section 2 of Companies Act, 2013. As it is a type of private limited company, its shares also cannot be transferred or sold on stock exchange or issued to the general public at large.

OPC Registration can provide the benefits to its sole entrepreneur like limited liability protection, perpetual succession and being a separate legal entity.

Tax Benefits of OPC Registration

OPC is a desirable option for the entrepreneurs due its numerous tax benefits which it offers. Indian Government has provide these benefits to encourage single owned businesses and for boosting economic growth in the country.

• Lower rate of Corporate Tax

In comparison to proprietorship, OPC has lower rate of corporate tax. Under the new corporate tax regime, OPC’s are taxed at a flat rate of 22% which is quite lower than the proprietorship whose tax rates can go up to 30%. OPC Registration helps to reduce the overall tax liability of business owners.

• No Requirement of Dividend Distribution Tax (DDT)

Since OPC has only one single owner, all the profits earned are directly available to that particular owner avoiding double taxation. Hence, OPC’s are not required to pay DDT on profits which are distributed to the owner. However, the owner will be liable to pay tax on dividends as per his/her individual income tax rate.

• Tax Deduction on Business Expenses and Depreciation

The OPC can claim higher depreciation rates on its assets like office equipment, machinery and vehicles. Also it can deduct a wide range of business expenses from its taxable income, such as salaries, rent, utilities, office and travel expenses, marketing and advertisement costs, etc. These deductions help in reducing the overall tax burden.

• Easy Conversion to Other Business Structures

If the OPC grows and wishes to convert to a Private Limited Company, it can easily do so without facing heavy tax penalties, allowing for more flexibility in business expansion.

• Exemption from Minimum Alternate Tax (MAT)

Under certain conditions, OPC can highly benefit from MAT exemptions. The rate of MAT is generally 15% on book profits on the companies which are largely taxed. But in small and startup companies including OPC’s, they may qualify for MAT exemptions in the first few years of their operations helping them reduce their tax liability. Even if OPC is required to pay MAT, it can carry forward it up to 15 years which allows offsetting future tax burdens.

• Startup exemptions available under the Startup India Scheme

If an OPC qualifies for Startup India initiative, it can avail additional tax benefits like 100% Tax exemption on profits for 3 consecutive years and exemption from angel tax if any funding is received by angel investors. It is to be noted that if OPC wants to avail these exemptions, it needs to be registered as a startup by the Department for Promotion of Industry and Internal Trade (DPIIT).

• Less Burden of GST Compliances

Small OPC’s that do not cross the threshold limit as mentioned under GST can reduce their tax burden. They can claim input tax credit and can also opt for Composition scheme which allows them to pay a lower GST rate and file quarterly GST returns instead of monthly returns.

• Carry Forward of Losses

OPCs can carry forward business losses for eight years and set them off against future profits, thus reducing taxable income in the future.

Do you need assistance filing taxes and registering OPC? Reach out to us

Legal Window has experienced professionals for hassle-free OPC registration, tax filing, and compliance management.

Advantages of Compliance over Other Business Structures

Final Thoughts

Registering as a One Person Company (OPC) invites considerable tax benefits for business owners like less corporate tax rates, no dividend distribution tax. Apart from this, OPC attracts advantages related to depreciation, exemptions for startups, and benefits under the Goods and Services Tax (GST). OPCs have less compliance as compared to Private Limited Companies and also have more tax incentives than sole proprietorships. Hence, OPC registration in India is an advantageous option for startups and small businesses which can help them improve and grow their profit along with reducing tax liabilities. OPC Registration process is also quite easy without any complications. Legal Window advises entrepreneurs to thoroughly assess their business requirements, financial objectives, and tax consequences before deciding between multiple business structures. For more information, you can reach out to us.