Starting a business as a One Person Company (OPC) has become a preferred choice for many solo entrepreneurs in India. It offers the benefit of limited liability, structured operations, and ease of compliance. However, what makes OPC even more appealing is the range of tax benefits it enjoys under Indian laws. If you are planning for One Person Company Registration, it is crucial to understand how it can help you save on taxes and improve profitability.
Income Tax Rate Applicability for OPC
A One Person Company is treated as a private limited company under the Income Tax Act. As such, it is taxed at a flat rate of 22% (plus applicable surcharge and cess) if it opts for the concessional tax regime under Section 115BAA. Without this regime, the standard tax rate applicable to companies is 25% for turnover up to ₹400 crore. This rate is still competitive when compared to individual tax rates at higher income slabs.
Presumptive Taxation Not Available for OPCs
Presumptive taxation schemes like those under Sections 44AD, 44ADA, and 44AE are designed for individuals, Hindu Undivided Families (HUFs), and partnership firms. These are not applicable to companies. Therefore, a One Person Company cannot take benefit of presumptive taxation and must maintain proper books of accounts, undergo audits (if applicable), and file regular income tax returns.
Tax Deductions and Allowable Expenses
Although presumptive taxation is not available, OPCs can claim a wide range of deductions and expenses from their gross income, effectively lowering the taxable income. These include:
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Rent paid for office premises
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Salaries paid to employees
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Depreciation on assets under Section 32
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Office utility bills like internet, electricity, telephone
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Professional and consultancy charges
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Travel and conveyance expenses related to business
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Repair and maintenance costs
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Interest on business loans
Such deductions allow OPCs to lower their net profits, reducing the amount of tax payable.
Startup Exemptions for Eligible OPCs
If your OPC qualifies as a “startup” under the Department for Promotion of Industry and Internal Trade (DPIIT), you can avail additional benefits. One key benefit is a three-year tax holiday under Section 80-IAC. Under this, eligible startups can claim a 100% deduction of profits for any three consecutive assessment years out of the first ten years of incorporation.
This benefit is subject to several conditions including DPIIT recognition, turnover threshold (₹100 crore), and incorporation date post-April 1, 2016. Therefore, if your One Person Company Registration aligns with startup norms, this exemption can be a huge boost.
Lower Effective Tax with MAT Credit
OPCs, like other companies, are liable to pay Minimum Alternate Tax (MAT) at 15% of book profits under Section 115JB. However, if you end up paying MAT despite being eligible for exemptions or deductions, you can carry forward the MAT credit for up to 15 years. This allows for future adjustment when regular tax liability is higher than MAT.
GST Input Tax Credit (ITC)
Although not a direct income tax benefit, OPCs registered under GST can avail Input Tax Credit (ITC) on purchases and business expenses. This helps reduce the net GST payable and overall tax burden. For service-based OPCs or those dealing in high GST-rate goods, this becomes a significant saving.
Professional Tax and State-Specific Benefits
Some states offer professional tax exemptions or rebates for newly incorporated companies or small businesses. Post One Person Company Registration, it’s advisable to check with your local authorities to explore any such regional tax reliefs or startup incentives.
TDS and Advance Tax Compliance
One major compliance aspect for OPCs is the need to deduct Tax Deducted at Source (TDS) on specified payments like professional fees, rent, and interest. Timely payment of TDS and filing returns ensures you avoid penalties and interest. Similarly, OPCs need to pay advance tax in four installments if the estimated tax liability exceeds ₹10,000 in a year. Following these practices helps avoid financial penalties and maintains credibility.
Conclusion
One Person Company Registration is not just about legal identity but also a smart tax decision. While OPCs are not eligible for presumptive taxation, they enjoy flat tax rates, multiple allowable deductions, startup exemptions, and GST credits. With proper financial planning and compliance, an OPC can significantly reduce its tax liability and reinvest those savings into business growth. Entrepreneurs looking for a solo business structure with limited liability and tax efficiency should definitely consider the OPC route.
