A private company is a type of business entity that is owned and operated by a group of individuals or by a single entity. On the other hand, an OPC or One Person Company is a new concept introduced under the Companies Act, 2013. An OPC is a type of business entity that can be incorporated with just one person as a member. Converting your private company to an OPC has certain tax implications that you should be aware of before making the switch.
Here are some of the tax implications that you should consider when converting your private company to an OPC
Income Tax
One of the main advantages of converting your private company to an OPC is that it can help you reduce your income tax liability. As per the income tax laws, a private company is taxed at a higher rate compared to an OPC. In the case of a private company, the tax rate is 30% for domestic companies, while in the case of an OPC, the tax rate is 25% for companies with an annual turnover of up to Rs. 400 crores. Hence, if your private company has an annual turnover of less than Rs. 400 crores, converting it to an OPC can help you save on your income tax liability.
Capital Gains Tax
If you convert your private company to an OPC, you may be liable to pay capital gains tax. Capital gains tax is a tax that is levied on the profits earned from the sale of a capital asset, such as shares, property, or securities. In the case of a private company, if you sell your shares, you may be liable to pay capital gains tax. However, in the case of an OPC, the ownership of the company is vested in a single person, and hence there is no question of selling shares. Therefore, the capital gains tax liability is reduced when you convert your private company to an OPC.
Dividend Distribution Tax
When you convert your private company to an OPC, you will no longer be liable to pay Dividend Distribution Tax (DDT). DDT is a tax that is levied on the dividends paid to the shareholders of a company. In the case of a private company, the DDT rate is 15%, and it is levied on the dividends distributed by the company. However, in the case of an OPC, since there is only one shareholder, there is no question of distributing dividends, and hence there is no DDT liability.
Minimum Alternate Tax
Minimum Alternate Tax (MAT) is a tax that is levied on companies that have reported profits but have paid little or no income tax due to the availability of various deductions and exemptions under the income tax laws. In the case of a private company, if it reports profits but pays little or no income tax, it may be liable to pay MAT. However, in the case of an OPC, since there is only one shareholder, and the tax rate is lower, the question of paying MAT does not arise.
Stamp Duty
When you Conversion of Private Company into OPC, you will be required to pay stamp duty on the transfer of assets and liabilities from the private company to the OPC. Stamp duty is a tax that is levied on the transfer of assets and liabilities from one entity to another. The stamp duty rate varies from state to state, and it can be a significant amount. Hence, it is important to consider the stamp duty liability before making the switch.
In conclusion, converting your private company to an OPC can have several tax implications, both positive and negative. It is important to carefully consider these implications before making the switch. While it can help you save on your income tax liability, it may also result in the payment of capital gains tax and stamp duty. Hence, it is advisable to consult
