Analyzing Various Entities from Tax Planning Point of View
A new business can be set up under any of the following forms:
Sole proprietorshipHUFAOP/ BOIPartnership firm/LLPCompany
Depending upon the taxable status and level of tax liability of the owners, a selection can be made from the various forms available for setting up a new unit.
Sole Proprietorship:
In the case of a sole proprietorship concern, one of the important tax disadvantages would be that no allowance or relief would be available to the tax payer in computing his income from business in respect of even a reasonable amount of remuneration attributable to the services rendered by him for carrying on the As a result, the taxable income arrived at would be a larger amount than what it would have been if it had been the case of, say, a private company in which the individual himself is the Managing Director. Under sole proprietorship, the entire income of a business unit gets assessed in the hands of the same person along with other income, while the entire loss and other allowances shall be available for set off in his hands against other income. This may have some advantages in the initial years, after which the possibility of converting it into company/ firm may be considered; on such conversion, the questions of possible capital gains tax, etc., will have to be considered.
Tax Planning Considerations for Salary IncomeSet off and carry forward of losses under the Income taxOffences and Prosecutions under the Income Tax ActTax Planning for Salaried IndividualDepreciation Rate Chart As Per Companies Act 2013
Hindu Undivided Family:
The income of the family is computed and first taxed in the hands of the family at the rates applicable to The income of the family may, thereafter, be divided among the members of the family and the members & in such cases do not attract any liability to tax in view of the specific exemption granted under section 10(2) of the Income Tax Act, 1961. Thus, if a business is carried on by a Hindu Undivided Family, the advantages which are available in the case of a company could be fully availed of and in addition, the members of the family would not become liable to tax when they receive any portion of the family‘s income.
Partnership Firm/LLP:
All firms and LLPs will be taxed at a flat rate of 30%. There will be no initial exemption and the entire income will be taxed. In computing the taxable income of a firm, certain prescribed deductions in respect of interest and remuneration have to be The share income of a firm in the hands of the partners of the firm is fully exempt.
Company:
Ordinarily the form of a limited company is Within the company form of organization, however, several alternatives do exist. On the basis of the ownership and control, a company can either be organized as a widely held company or a closely held company.
