Title: Ten Tax Practices for a Private Limited Company — With the Entries

Updated for FY 2026-27 (AY 2027-28).

Ten things a small private limited company can do to pay less tax — and the entry each one needs in your books

Most private limited companies in India do not overpay tax because they missed an exotic exemption. They overpay because a deduction was never booked, TDS was deducted a quarter late, input credit sat unclaimed, or the director took money out in a way that cost the family more than it saved the company. Each of the ten practices below is ordinary, legal and boring — and each one only works if the journal entry exists in your ledger before the auditor arrives.

1. Fix the director's pay mix before the year starts, not in March

A salary to a working director is a deduction for the company. A dividend is not. For a small company where the owner is also the manager, the mix decides the total tax paid by company and family together.

Worked example. Alpha Components Pvt Ltd, turnover ₹2.4 crore, profit before director's pay ₹30,00,000. Turnover is under ₹400 crore, so the domestic company rate of 25% plus 4% cess applies.

• No salary: taxable profit ₹30,00,000 → tax ₹7,50,000 + cess ₹30,000 = ₹7,80,000.
• Director's salary ₹12,00,000: taxable profit ₹18,00,000 → tax ₹4,50,000 + cess ₹18,000 = ₹4,68,000.

The company saves ₹3,12,000. On the director's side, under the default new regime, salary ₹12,00,000 less the ₹75,000 standard deduction gives total income ₹11,25,000, which is within the ₹12,00,000 rebate limit under section 87A — tax nil. The salary must be authorised by the board and must be reasonable for the work actually done; your CA will want the resolution on file.

Book it monthly, not as one March entry:

Practice 2: employer NPS. A contribution by the company to the employee's NPS account under section 80CCD(2) stays deductible for the company and is still allowed in the new regime for the employee, unlike 80C or 80D. There is a percentage-of-salary cap — confirm the exact cap for your directors with your CA before you fix the amount.

2. Deduct TDS on the day you book the bill, not the day you pay

Expenses on which TDS was deductible but not deducted are disallowed in part when the assessment happens; the proportion and the route to claiming it back in a later year are things to confirm with your CA. The cheaper habit is simply to deduct at bill entry. The thresholds you will hit most often:

• 194J professional or technical fees — 10% (2% for technical) above ₹50,000 in the year
• 194C contractors — 1% individual/HUF, 2% others, above ₹30,000 for a single payment or ₹1,00,000 in aggregate
• 194I rent — 10% above ₹6,00,000 a year
• 194H commission — 2% above ₹20,000

A design consultant's bill of ₹80,000:

Practice 4: rent to a director or family member for premises the company actually uses. It is a deduction for the company and taxable in the owner's hands, often at a lower slab, and the house-property standard deduction applies there. Keep a rent agreement and pay by bank transfer. At ₹60,000 a month the yearly rent is ₹7,20,000, past the ₹6,00,000 line, so 194I applies:

File 24Q and 26Q each quarter. A late return is a penalty on money you had already deducted — the most avoidable cost in this list.

3. Claim every rupee of input credit that appears in GSTR-2B

Input tax credit only belongs to you if the supplier has filed and the invoice shows in your GSTR-2B. Credit you forgot to claim is pure cost; credit you claimed without a 2B entry is a notice waiting to happen. Do the comparison monthly, before the 20th.

A purchase of ₹1,00,000 plus 18% GST:

If the supplier has not filed, chase them that month, not in September. GSTR-1 is due by the 11th and GSTR-3B by the 20th of the following month; QRMP is available up to ₹5 crore turnover. There is more detail in our GST accounting guide.

4. Capitalise correctly, then actually run depreciation

Two mistakes cost money in opposite directions: expensing an asset (the auditor reverses it, profit jumps) and capitalising a repair (you lose the deduction this year). Keep a fixed asset register with date of purchase, invoice, put-to-use date and block. Then post depreciation every quarter at the rate your CA applies to that block, instead of discovering it during the audit.

Practice 6: the put-to-use date matters. An asset bought in March but installed in April belongs to the next year's block. Note the date on the entry's narration so nobody has to reconstruct it later.

5. Book the expenses you have genuinely incurred before 31 March

Accrual accounting is not optional for a company, yet small companies routinely leave out audit fees, the March electricity bill, a consultant's unbilled work, or interest on a director's loan. Each omission inflates taxable profit at 25% plus cess.

Year-end accrual for audit fee of ₹50,000 — remember 194J here too:

Practice 8: stop losing reimbursements. Petrol, parking, courier, team lunch and small tools paid by a director's personal card are deductible if they are recorded and reimbursed with a bill attached. Run a petty cash book and settle it monthly.

Practice 9: pay statutory dues by their own due dates. PF, ESI, GST and TDS have their own payment deadlines, and allowability of the deduction depends on paying them in time. Diarise them.

6. Choose your corporate tax section with a calculation, not a hunch

A domestic company pays 25% where turnover is up to ₹400 crore, or 22% under section 115BAA if it gives up most exemptions and deductions, or 15% under section 115BAB for a qualifying new manufacturing company. Surcharge and the 4% cess sit on top in each case. If you carry forward losses or claim specified deductions, the 22% route may cost more than it saves. Ask your CA to run both on last year's actual numbers once, and record the decision in the board minutes — the choice is not freely reversible.

Practice 10: pay advance tax on schedule. Instalments are due on 15 June (15%), 15 September (45%), 15 December (75%) and 15 March (100%). Shortfalls attract interest under sections 234B and 234C, which is not a deduction — it is a straight loss. Post the payment as an asset, not an expense:

A company with ₹1 crore turnover is also in tax-audit territory (₹10 crore if cash receipts and payments are each 5% or less), so the books need to be closed monthly rather than rebuilt in October.

Doing this in FlipAccounts

Director's pay, NPS, rent and provisions are ordinary journals under Accounting → Journal Entries, and the TDS lines you post there roll into the TDS summary so you can see what is due each quarter. Bank statements from HDFC, IDFC FIRST and Aspire are read directly, and PDF, CSV or Excel work for other banks, with rules that learn how you categorise petrol, courier and professional fees — see the reconciliation guide. Petty cash has its own screen, so reimbursements stop living in a director's pocket. The GST section builds GSTR-1 and GSTR-3B summaries you can tally against GSTR-2B before the 20th, and the statements pack gives your CA the P&L, balance sheet, trial balance and general ledger, with Excel and Tally exports and a read-only auditor login. Core accounting is free, with no card and no limits — sign up here.

What to do this week

1. List every recurring vendor and mark the TDS section and rate against each name, then check that the last three months of bills were booked with the deduction.
2. Download GSTR-2B for the last two months and tick it against your purchase register; e-mail every supplier whose invoice is missing.
3. Put the four advance tax dates and the TDS return dates in a shared calendar, with the person responsible named against each.

Frequently asked questions

Is director's salary always better than dividend?

Not always, but usually for a working director in a small company, because salary is deductible for the company while dividend is paid from post-tax profit and then taxed again in the shareholder's hands. The right split depends on the director's other income and regime. Run both numbers with your CA before fixing the monthly amount.

We missed deducting TDS on a consultant's bill last year. What now?

Deduct and deposit it as soon as you notice, and tell your CA before the audit. There is usually interest for the delay; confirm the procedure and impact with them. Part of the expense may be disallowed for that year with relief available later; the exact treatment depends on when you deposit and the section involved, so get it confirmed rather than assumed.

Can we claim GST credit on an invoice that is not in GSTR-2B?

Credit must appear in GSTR-2B to be claimed. Keep the invoice, chase the supplier to file, and claim it in the month it shows up, within the time limit your CA confirms for that financial year.

Does switching to section 115BAA always reduce tax?

No. The 22% rate comes with giving up most exemptions and deductions, and companies carrying forward losses or claiming specified deductions can end up worse off. Compare both computations on your own figures, and remember the choice is not freely reversible once exercised.

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