About the Authors: This guide was prepared by the Chartered Accountancy (CA) and corporate tax advisory team at Rudra Capital, specialists in corporate structuring, profit-optimization, and regulatory compliances for Private Limited companies registered across Delhi NCR.
Compliance Framework: All tax planning mechanisms and statutory references are strictly aligned with the Income-tax Act, 1961 and the Companies Act, 2013, incorporating the latest Central Board of Direct Taxes (CBDT) circulars, standard depreciation limits, and corporate concessional tax regimes (including Section 115BAA/Form 10-IC parameters) applicable for the current fiscal cycle.
Last Updated: May 2026
A Private Limited Company paying 22% corporate tax under Section 115BAA is paying India’s lowest mainstream corporate rate. But the effective tax rate most companies actually pay — before planning — is closer to 28–34%, because they are not using the deductions, exemptions, and structural advantages the Income Tax Act provides.
Tax planning is not about loopholes. It is about understanding the law well enough to arrange your business affairs in a way that legally minimises the tax payable. Every strategy in this article is explicitly permitted under the Income Tax Act 2025. None require aggressive or grey-area interpretations.
Here are the 10 most impactful legal tax planning strategies for Private Limited Companies operating in India in FY 2026-27.
Why Tax Planning Is Different From Tax Evasion — and Why This Distinction Matters
Tax evasion means hiding income or falsifying records to avoid tax. It is illegal and carries penalties of 100–300% of the tax evaded, plus prosecution under the Income Tax Act.
Tax planning means arranging transactions, expenses, timing, and structures within the law to reduce tax liability. The Supreme Court of India has consistently affirmed the right of every taxpayer to arrange their affairs to minimise tax — the foundational principle comes from the 1935 Duke of Westminster case and has been affirmed in multiple Indian judgements.
The General Anti Avoidance Rule (GAAR) introduced in India in 2017 draws a line between acceptable planning and aggressive avoidance. GAAR applies to transactions that lack commercial substance and are entered primarily for a tax benefit. All 10 strategies below have clear commercial substance and are well within GAAR’s permissible boundary.
Strategy 1 – Optimise the Director Salary vs Dividend Split
The planning opportunity: As a director-shareholder of a Private Limited Company, you have two ways to extract value from the business: salary (deductible expense for the company) or dividend (paid from post-tax profits, taxable in your hands at slab rate).
Many founder-directors default to dividends or minimal salary. This is often the wrong approach from a tax perspective.
Why salary is usually better:
- Salary paid to a director is a legitimate business expense, fully deductible while computing the company’s taxable profit. Every ₹10 lakh paid as salary reduces the company’s taxable income by ₹10 lakh, saving ₹2.2 lakh in corporate tax.
- The director pays income tax on salary at their applicable slab rate — but the combined tax outgo (company saving + director’s tax) is almost always lower than if the company had retained the profits and paid dividend.
- Additionally, salary allows the director to make personal tax-saving investments (NPS, etc.) that reduce their individual tax liability further.
Optimal structure: Draw enough salary to fully utilise your applicable income tax slab efficiently. Pay yourself within the lower slabs under the new regime (zero tax up to ₹12 lakh). Keep remaining profits in the company at the 22% corporate rate. Distribute only when needed.
Documentation required: Board resolution approving director remuneration, employment agreement or consultancy agreement with clear scope of services, and TDS deduction and deposit in monthly payroll.
Strategy 2 – Employer’s NPS Contribution Under Section 80CCD(2)
The planning opportunity: Section 80CCD(2) allows a company to contribute to the National Pension System (NPS) Tier-1 account of its employees and directors — and deduct up to 10% of the employee’s salary (basic + DA) as a business expense. The employee does not pay tax on this contribution as a perquisite.
This is one of the most under-utilised tax planning tools available to Private Limited Companies.
How it works:
- Company pays ₹1,00,000 as NPS employer contribution for a director drawing ₹12 lakh/year salary (₹1 lakh/month × 10% × 12 = max ₹1,20,000 deductible)
- Company’s taxable profit reduces by ₹1,00,000 → tax saving at 22% = ₹22,000
- Director does not pay income tax on this ₹1,00,000 — it is exempt under Section 80CCD(2)
- NPS grows tax-free and can be withdrawn at retirement (60% tax-free lump sum, 40% into annuity)
Crucially, Section 80CCD(2) is available even under the new tax regime — unlike most deductions which are blocked. This makes it one of the few planning tools that works regardless of which regime the director chooses personally.
For government employees, the limit is 14% of salary. For private sector employees (including Pvt Ltd directors), it is 10%.
Strategy 3 – Section 80JJAA: Deduction for New Employee Hiring
The planning opportunity: Section 80JJAA allows a company to claim a deduction of 30% of additional employee costs for 3 years — as a deduction over and above the actual salary expense already booked.
This means if you hire a new employee at ₹5 lakh/year, the company gets: ₹5 lakh salary as normal deduction PLUS ₹1.5 lakh additional deduction under 80JJAA. Effective deduction = ₹6.5 lakh for ₹5 lakh actually paid.
Eligibility conditions:
- The business must be subject to a tax audit (turnover above ₹1 crore for business, ₹50 lakh for professionals)
- The new employee must be employed for at least 240 days in the year (150 days for apparel/footwear/leather manufacturing)
- The new employee’s monthly salary must be below ₹25,000
- The employee must make PF contributions (EPF deduction at source)
- The deduction cannot exceed 30% of total employee benefit expense in that year
For a Pvt Ltd company growing its workforce with junior and mid-level hires, this deduction can add up to a significant annual tax saving. A company with 10 new eligible employees each earning ₹20,000/month saves approximately ₹7.2 lakh in tax over 3 years on those hires alone.
Strategy 4 – Accelerated Depreciation on Assets and Equipment
The planning opportunity: The Income Tax Act provides depreciation rates significantly higher than accounting depreciation under Ind AS/Companies Act. By timing asset purchases and using the higher tax depreciation rates, companies can reduce taxable income substantially in the year of acquisition.
Key depreciation rates under Income Tax Act (block method, WDV):
- Computers and servers: 40%
- Intangible assets (software, patents, trademarks): 25%
- Motor cars used for business: 15%
- Air conditioning units: 15%
- General plant and machinery: 15%
- New manufacturing plant (select categories): 40% or higher with specific conditions
For assets put to use for less than 180 days in the year of purchase, only 50% of the first-year depreciation is allowed.
Planning insight: Purchase large capital assets in the first half of the financial year (before September 30) to claim the full year’s depreciation. An ₹80 lakh server purchase in April qualifies for ₹32 lakh depreciation (40%) in the first year, saving ₹7.04 lakh in tax. The same purchase in January saves only ₹16 lakh depreciation.
Strategy 5 – Weighted R&D Deduction Under Section 35(2AB)
The planning opportunity: Section 35(2AB) provides a 100% deduction for expenditure incurred on in-house R&D by companies engaged in the business of manufacture. For approved scientific research, the company can deduct 100% of both revenue and capital expenditure on R&D (excluding land and building).
This deduction is in addition to the normal deduction for R&D expenses as business expenditure.
Who can use this:
- Manufacturing companies with in-house R&D approved by the Department of Scientific and Industrial Research (DSIR)
- Technology companies developing new products, processes, or software improvements
- Pharmaceutical, chemicals, and biotech companies
Process: Apply for DSIR approval, maintain a separate R&D cost centre, and file Form 3CK with your IT return. The approval process takes 3–6 months but is worth pursuing for manufacturing companies spending ₹50 lakh+ per year on product development.
Strategy 6 – Employee Benefit Structuring to Reduce Taxable Perquisites
The planning opportunity: Certain employee benefits can be provided by the company as tax-free perquisites, reducing the employee’s taxable income while remaining fully deductible business expenses for the company.
Key benefits that are tax-free for employees under the new Act:
- Employer’s contribution to approved gratuity fund — fully deductible for company, not taxable as perquisite
- Group health insurance premium — paid by company for employees, deductible for company, not taxable as perquisite for employee
- Mobile and telephone bills — for business use, deductible for company, not taxable for employee
- Professional development expenses — courses, certifications, conferences directly related to job — deductible for company, not taxable for employee
- Meal coupons/food vouchers — up to ₹50 per meal for meals provided during working hours
For director-level employees earning ₹30–50 lakh, restructuring a significant portion of compensation into these tax-free benefits can reduce the personal income tax burden substantially while keeping total cost to company the same.
Strategy 7 – Carry Forward of Business Losses and Unabsorbed Depreciation
The planning opportunity: A Private Limited Company can carry forward business losses for 8 assessment years. Unabsorbed depreciation can be carried forward indefinitely. Both can be set off against future profits, reducing future tax liability.
Critical condition for loss carry-forward: For a Pvt Ltd company to carry forward its losses from previous years, it must maintain at least 51% continuity of shareholding from the year in which the loss was incurred to the year in which it is set off (Section 79). This is a significant planning consideration during fundraising — diluting existing shareholders below 51% can forfeit previously accumulated losses.
Planning implication for startups and growing companies:
- If your company has been loss-making in early years, those accumulated losses are a valuable tax asset
- Preserve them by maintaining the required shareholding continuity
- Document the losses properly in each year’s ITR-6
- When the company turns profitable, these losses will offset taxable income before any tax is paid
Strategy 8 – Set-Off of Capital Losses Against Capital Gains
The planning opportunity: A company that has capital gains (from selling investments, property, or shares) can offset these against capital losses from other transactions in the same year or from previous years (carried forward up to 8 years for STCL; up to 8 years for LTCL with the restriction that LTCL can only offset LTCG).
Tax-loss harvesting: Before year-end (March 31), review all investments. If the company holds securities currently at a loss, selling them before March 31 creates a capital loss that can offset existing capital gains in that year. This is legal, widely practised, and explicitly permitted under the Income Tax Act.
Example: Company has ₹20 lakh LTCG on equity shares sold in November 2025. Company also holds unlisted shares worth ₹8 lakh that have been sitting at a loss for 3 years with a cost of ₹15 lakh. Selling those shares before March 31 2026 generates ₹7 lakh LTCL that can be set off against the ₹20 lakh LTCG, reducing the taxable capital gain to ₹13 lakh and saving approximately ₹1.625 lakh in tax.
Strategy 9 – Section 115BAA: Choosing the Right Corporate Tax Regime
The planning opportunity: Under Section 115BAA, a domestic company can opt for a flat 22% corporate tax rate (effective rate ~25.17% with surcharge and cess). Under the standard regime, the rate is 30% for companies with turnover above ₹400 crore and 25% for those below.
The trade-off: Section 115BAA requires the company to forego several specified deductions and exemptions — including additional depreciation, deductions under Chapter VI-A like 80IC (for units in special economic zones or backward areas), and certain investment allowances.
When 115BAA makes sense:
- Company does not claim significant Chapter VI-A deductions
- Company is past the initial years of special incentives
- Effective tax rate under 115BAA (25.17%) is lower than effective rate under the standard regime after all deductions
When to stick with standard regime:
- Company claims substantial Chapter VI-A deductions (80IC, 80ID for hotels, 80IE for North-East)
- Company has significant additional depreciation claims
- Company has unabsorbed losses or depreciation that may be affected
Run a year-by-year comparison. The switch to 115BAA is irrevocable — once exercised, the company cannot return to the standard regime.
Strategy 10 – Timing of Income Recognition and Expenditure
The planning opportunity: The Income Tax Act generally follows the mercantile system (accrual basis) for companies. However, within this, there is legitimate scope to plan the timing of income recognition and expenditure to shift taxable income between financial years.
Legal timing strategies:
- Defer invoicing for services not yet completed until April — income accrues in FY 2026-27 instead of FY 2025-26
- Pre-pay certain expenses in March that are legitimately due — advance rent, insurance premium, maintenance contracts — creating current year deductions
- Accelerate asset purchases before March 31 to get the full year’s depreciation
- Pay bonuses and ex-gratia before March 31 to create current year salary deductions (subject to actual payment before ITR filing under Section 43B)
- Year-end provisioning for gratuity, leave encashment, and bad debts — ensure provisions are in accordance with actuarial valuations and meet the legal standards for deductibility
Important constraint (Section 43B): Certain payments — GST, PF/ESI, TDS, income tax, interest to banks — are only deductible when actually paid, not when accrued. Timing these payments before March 31 is both a tax planning strategy and a compliance obligation.
What GAAR Means for Your Tax Planning
The General Anti Avoidance Rule (GAAR) under Sections 95–102 of the Income Tax Act allows the tax department to disregard arrangements that:
- Lack commercial substance (entered only for tax benefit)
- Create rights or obligations that would not normally appear between parties dealing at arm’s length
- Misuse or abuse tax provisions
All 10 strategies above have genuine commercial substance — salary is paid for actual work, NPS contributions are genuine retirement planning, R&D expenses reflect real development activity. GAAR is not a concern for straightforward, well-documented planning.
Where GAAR risks arise: circular transactions, artificial loss creation through related-party deals, round-tripping of investments, and paper companies created purely to shift income.
How Rudra Capital Builds Your Tax Planning Strategy??
We work with Private Limited Companies across Delhi NCR to identify tax-saving opportunities that are specific to their industry, turnover band, and growth stage.
Our corporate tax planning service includes:
- Full FY advance tax computation with planning scenarios
- Director salary and NPS structuring
- Section 115BAA vs standard regime analysis with 3-year projection
- Depreciation schedule optimisation
- 80JJAA eligibility assessment for growing teams
- Year-end tax-loss harvesting review
- ITR-6 filing with all deductions correctly claimed
Book a free corporate tax planning consultation at +91-9953572838 or rudracap.com/contact.
FAQs – Corporate Tax Planning for Private Limited Companies
Q1: Is salary to a director tax deductible for the company? Yes. Director remuneration is a legitimate business expense, fully deductible from the company’s taxable income. It must be approved by the board, paid through proper payroll, and TDS must be deducted and deposited.
Q2: What is Section 115BAA and should my company opt for it? Section 115BAA offers a 22% flat corporate tax rate (effective ~25.17%) in exchange for foregoing select deductions and exemptions. Whether it makes sense depends on which deductions your company currently claims. Run a comparison before making the irrevocable election.
Q3: Can a company carry forward losses? Yes. Business losses can be carried forward for 8 assessment years. Unabsorbed depreciation carries forward indefinitely. The 51% shareholding continuity condition must be met for loss carry-forward.
Q4: Is the Section 80JJAA deduction available under Section 115BAA? No. Section 80JJAA is a Chapter VI-A deduction and is not available if the company has opted for Section 115BAA. This trade-off must be factored into the 115BAA decision, especially for companies actively hiring.
Q5: Can a Pvt Ltd company claim both Section 80CCD(2) NPS deduction and Section 115BAA rate? Yes. Section 80CCD(2) is an employer contribution and is separately deductible as a business expense — it is not a Chapter VI-A deduction subject to 115BAA restrictions.
Want a personalized corporate tax planning review for your company? Rudra Capital’s CA team analyses your full P&L and suggests specific, actionable tax savings. Call +91-9953572838 or book a free strategy call.
