Characteristics of Private Limited Company

Income Tax Return

An Income Tax Return is a document submitted to the Income Tax Department to report your income, deductions, and tax payments for a financial year. There are seven types of ITR forms, including ITR-1, ITR-2, ITR-3, ITR-4, ITR-5, and ITR-6, each applicable to different taxpayers. Filing ITR before the due date is essential to avoid penalties and legal issues.

Applicable ITR Forms for Companies

The type of ITR for a company depends on its structure and income classification. Different business entities must file specific ITR forms to comply with tax regulations:

• ITR-4: Suitable for firms (excluding LLPs) with income up to ₹50 lakhs under Sections 44AD, 44ADA, and 44AE.
  
• ITR-5: Applicable for LLPs and partnership firms, except those required to file ITR-7.
  
• ITR-6: Used by companies that do not claim tax exemptions under Section 11 (income from property used for charitable or religious purposes).
  
• ITR-7: Mandatory for entities filing under Sections 139(4A), 139(4B), 139(4C), and 139(4D), such as trusts and political parties.
  

ITR-4 Form (Sugam) – For Firms Other Than LLPs

ITR-4 is designed for individuals, Hindu Undivided Families (HUFs), and partnership firms (excluding Limited Liability Partnerships) that opt for the presumptive taxation scheme under Sections 44AD, 44ADA, and 44AE. This scheme simplifies tax calculations for small businesses and professionals.

Applicability Criteria:

• Eligible Taxpayers: Individuals, HUFs, and firms (excluding  Limited Liability Partnership) with business or professional income.
  
• Residency Requirement: Only applicable to a resident other than not ordinarily resident.
  
• Income Sources:
  
  • Business income under Section 44AD (small businesses).
    
  • Professional income under Section 44ADA (specified professions).
    
  • Income from goods transportation under Section 44AE.
    

In certain cases, if your business meets specific conditions, you may also need to submit Form 3CA/3CB and Form 3CD for a tax audit.

ITR-5 – For LLPs and Partnerships

ITR-5 is an income tax return form applicable to Limited Liability Partnerships, partnership firms, and other non-individual entities such as Associations of Persons (AOPs), Bodies of Individuals (BOIs), artificial juridical persons, and investment funds.

These entities must file ITR-5 to report their income, deductions, and tax liabilities to the Income Tax Department. Filing this form ensures compliance with tax laws and helps avoid penalties. However, companies required to file ITR-7 cannot use ITR-5 for tax filing.

ITR-6 – For Companies That Are Not Claiming Exemption Under Section 11

ITR-6 is an income tax return form for companies that are not claiming exemptions under Section 11, which applies to income from property held for charitable or religious purposes.

• It is mandatory for private limited companies, public limited companies, and One Person Companies (OPCs).
  
• Not applicable to Limited Liability Partnerships, as they must file ITR-5.
  

Filing ITR-6 accurately is compulsory for all companies that do not qualify for exemptions under Section 11. Timely filing is essential to avoid penalties and ensure compliance.

ITR-7 – For Companies

ITR-7 is an income tax return form for companies, firms, trusts, and other entities required to file returns under Sections 139(4A), 139(4B), 139(4C), and 139(4D) of the Income Tax Act, 1961. It applies to organisations that do not qualify for other ITR categories but must still comply with tax regulations.

Entities Required to File ITR-7:

• Registered charitable or religious trusts
  
• Societies and other institutions for charitable purposes
  
• Educational institutions and universities
  
• Scientific research associations
  
• News agencies
  
• Political parties registered under Section 29A of the Representation of the People Act, 1951
  
• Bodies set up for religious or charitable purposes
  

Filing ITR-7 is essential for these entities to comply with tax laws, report income, and claim applicable exemptions.

Details Required in an ITR Form

The information required in an Income Tax Return form depends on the type of taxpayer and income sources. However, certain key details must be included in all ITR filings.

• Personal Information: Name, PAN, date of birth, contact details, and residential address and other personal details.
  
• Income Sources: Details of salary, business or profession, capital gains, rental income, interest, and other earnings.
  
• Deductions & Exemptions: Deductions and exemptions include the tax benefits you claim under different sections of the Income Tax Act, 1961.
  
• Tax Payments: Information on the taxes you have already paid, such as advance tax, self-assessment tax, and Tax Deducted at Source (TDS).
  
• Foreign Assets & Income: If applicable, disclosure of overseas bank accounts, investments, and earnings.
  

Filing an ITR with correct details ensures timely processing and avoids unnecessary scrutiny from tax authorities.

Important Deadlines for Filing Company ITR

Due Dates for Filing ITR-6

• If audit is required under the Income Tax Act – 31st October of the assessment year.
  
• If a report in Form No. 3CEB (for international transactions) is required – 30th November of the assessment year.
  
• If audit is not required – 31st July of the assessment year.

Due Dates for Filing ITR-7

• For entities not requiring an audit – 31st July of the assessment year.
  
• For entities requiring an audit – 30th September of the assessment year.
  

It is important to note that ITR filing deadlines may change based on updates or extensions announced by the Income Tax Department. You should stay informed about official notifications to avoid missing any revised due dates.

As per Section 234F, a late filing fee of ₹5,000 is applicable if the return is filed after the due date under Section 139(1). However, if the total income is ₹5 lakh or less, the penalty is reduced to ₹1,000.

Common Mistakes to Avoid While Filing Company ITR

Incorrect Form Selection

Selecting the wrong ITR form is one of the most frequent mistakes companies make. The type of ITR form a company must file depends on its structure and nature of operations. ITR-5 is applicable for LLP and partnership firms, whereas ITR-6 is meant for most companies except those claiming exemptions under Section 11. ITR-7 is required for entities like trusts and NGOs. Filing the incorrect form can lead to rejection or discrepancies in tax assessment.

Incomplete Financial Disclosures

A company is required to disclose all sources of income, deductions, and financial transactions in its ITR. Failing to provide complete details of revenue, expenses, capital gains, investments, liabilities, and foreign assets can result in tax penalties or audits. Accurate disclosure ensures that tax authorities have a clear understanding of the company’s financial position.

Missing Audit Report Submission

Companies that meet specific turnover or income thresholds are required to undergo a tax audit as per the Income Tax Act. If a tax audit is applicable, the company must submit the audit report before filing the ITR. Missing this step can lead to legal consequences, penalties, or delays in return processing. It is important to verify whether the company falls under the audit requirement and ensure timely submission of audit reports.

Frequently Asked Questions

What is the Nature of a One Person Company in India?

As per the definition provided in the Companies Act 2013, an OPC is a private limited company with only one member. The sole shareholder of the OPC holds 100% of the company's shares and is entitled to all the profits generated by the business. The full form of OPC is "One Person Company," emphasising its single-member structure.

The importance of OPC lies in its ability to provide a formal corporate structure to sole proprietors and small business owners. By registering as an OPC, entrepreneurs can enjoy the benefits of a separate legal entity while maintaining complete control over their business operations. This unique combination of sole ownership and corporate features makes OPC an attractive choice for many budding entrepreneurs in India.

Benefits of OPC Company

Next up, let us understand why an OPC company will be right for you:

1. Benefits of Being Small Scale Industries

One of the key advantages of a one person company is its eligibility to be registered as a Micro, Small or Medium Enterprise (MSME). By obtaining MSME registration, OPCs can avail various benefits provided by the government, such as:

• Priority sector lending from banks
• Collateral-free loans up to ₹10 lakhs
• Subsidy on patent registration
• Reimbursement of ISO certification expenses
• Concession on electricity bills
• Exemption from excise duties

These MSME benefits can significantly reduce the financial burden on small businesses and help them grow faster.

2. Single Owner

Unlike partnership firms or private limited companies, an OPC has only one owner who holds all the shares and has complete control over the company's decision-making process. This streamlined ownership structure offers several benefits for OPC company, such as:

• Faster decision-making without the need for consensus among multiple partners or directors
• Flexibility to adapt quickly to changing market conditions
• Ability to maintain confidentiality of business strategies and plans
• Elimination of potential conflicts among partners or shareholders

3. Credit Rating

OPCs find it easier to obtain loans and credit facilities from banks and financial institutions than sole proprietorships. This is because OPCs have a separate legal identity and their financial statements are available in the public domain, allowing lenders to assess their creditworthiness more accurately. A good credit rating can help OPCs secure funding at competitive interest rates, providing a significant advantage over unregistered businesses.

4. OPC Benefits under Income Tax Law

OPCs enjoy certain one person company tax benefits under the Income Tax Act, 1961. Some of these advantages include:

• Lower corporate tax rate of 25% for OPCs with an annual turnover of up to ₹250 crores.
• Exemption from Minimum Alternate Tax (MAT) for OPCs with an annual turnover of up to ₹5 crores.
• Ability to carry forward and set off losses for up to 8 years.
• Deduction of up to ₹1.5 lakhs under Section 80C for investments made by the OPC owner.

These tax benefits can help OPCs optimise their tax liabilities and retain more profits for reinvestment in the business.

Received Interest Rate on any Late Payment

Under the MSME Development Act, 2006, OPCs registered as MSMEs are entitled to receive interest on delayed payments from their buyers. If a buyer fails to make payment within 45 days of accepting the goods or services, the OPC can charge an interest rate of three times the bank rate notified by the Reserve Bank of India (RBI). This provision helps ensure timely payments and improves the cash flow situation for small businesses.

6. Increase in Trust and Status

By registering as an OPC, small businesses can enhance their credibility and reputation in the market. The formal corporate structure and public disclosure of financial statements instil greater trust among customers, suppliers and other stakeholders. This increased trust can lead to better business opportunities, higher customer loyalty and improved bargaining power in commercial transactions.

7. Easy Funding

Apart from institutional funding, OPCs can also raise capital from individual investors. The Companies Act allows OPCs to issue shares to up to 200 shareholders, providing an alternative route for raising funds. This option can be particularly useful for OPCs with high growth potential, as they can attract angel investors or venture capitalists to fund their expansion plans.

8. Limited Liability

One of the most significant benefits of OPC is the limited liability protection it offers to the owner. Unlike sole proprietorships, where the owner's personal assets are at risk in case of business liabilities, an OPC provides a corporate veil that separates the owner's personal assets from the company's obligations. In the event of any legal disputes or financial losses, the liability of the OPC owner is limited to the extent of their investment in the company.

9. One Person Company Tax Benefits

In addition to the income tax benefits mentioned earlier, OPCs also enjoy several other tax advantages. For instance, OPCs with an annual turnover of up to ₹2 crores can opt for the presumptive taxation scheme under Section 44AD of the Income Tax Act. Under this scheme, the OPC is required to pay tax on only 8% of its total turnover, reducing the compliance burden and tax liability significantly.

10. MSME Benefits

As discussed earlier, OPCs registered as MSMEs are eligible for various government schemes and subsidies. Some additional benefits include:

• Preference for government tenders
• Assistance in marketing and export promotion
• Subsidies for participating in international trade fairs
• Skill development and training programs for employees
• Access to credit guarantee schemes

These benefits can provide a much-needed boost to small businesses, helping them compete with larger players in the market.

11. Ease of Management

Managing an OPC is relatively simpler compared to other business structures. With a single owner and no board of directors, decision-making is faster and less complicated. 

Additionally, OPCs have fewer compliance requirements under the Companies Act. For instance, OPCs are not required to hold annual general meetings or prepare cash flow statements. This reduced compliance burden allows OPC owners to focus more on their core business activities.

Eligibility Criteria for OPC

To register as an OPC, the following eligibility criteria must be met:

• The OPC must have only one member who is an Indian citizen and resident. This ensures that the business is managed by someone who understands local regulations and market conditions.
• The sole member must be a natural person, not a company or an institution. This stipulation reinforces the OPC's structure as a personal enterprise.
• The member should not be a minor to ensure legal competency in business dealings.
• The member should be of sound mind and not be declared insolvent by any court. This criterion ensures that the individual can manage the company's affairs effectively.
• The member should not have been convicted of any offence related to company formation or management in the past five years, which helps maintain the integrity of business practices.
• The member should not be a nominee or shareholder in any other OPC.

OPC Registration Process

The OPC registration process involves the following steps:

The registration process for an OPC is streamlined and can be completed online through the Ministry of Corporate Affairs - MCA portal. Here are the essential steps involved:

1. Obtain a Digital Signature Certificate (DSC): The first step is to acquire a DSC for the sole member, which is necessary for signing electronic documents during the registration process.
2. Apply for Director Identification Number (DIN): Following the DSC, the next step is to apply for a DIN, which is required for the proposed director of the OPC.
3. Name Approval: The applicant must submit an application for name approval using Part A of the SPICe+ form on the MCA portal. It is advisable to propose at least two names to ensure one can be approved.
4. Prepare Necessary Documents: Essential documents include: 

• Memorandum of Association (MoA) and Articles of Association (AoA)
• Proof of registered office address
• Consent from the nominee
• KYC documents for both the member and nominee

5. File SPICe+ Form: Once all documents are prepared, submit Part B of the SPICe+ form along with all necessary attachments to complete the application for incorporation.
6. Payment of Fees: Pay the requisite registration fees online, which may vary based on the company's nominal share capital.
7. Certificate of Incorporation: If all details are accurate and compliant with regulations, the Registrar of Companies (ROC) will issue a Certificate of Incorporation, officially recognising the OPC as a legal entity.

This structured approach not only simplifies the registration process but also ensures that all legal requirements are met efficiently, making it easier for entrepreneurs to start their businesses as a One Person Company in India.

Conclusion

OPC offers a unique blend of sole ownership and corporate features, making them an attractive choice for solo entrepreneurs and small business owners in India. The benefits of an OPC company are numerous, ranging from limited liability protection and separate legal identity to tax advantages and easier access to credit. 

Additionally, the reduced compliance burden and simplified management structure make OPCs well-suited for individuals who want to focus on their core business activities without getting bogged down by excessive paperwork.

To register as an OPC, an individual must meet certain eligibility criteria and follow the prescribed registration process. Once incorporated, an OPC can enjoy various benefits available to MSMEs and small-scale industries, helping them compete effectively in the market.

In conclusion, the One Person Company is a progressive business structure that encourages solo entrepreneurship and facilitates the growth of small businesses in India. By providing a formal corporate framework with minimal compliance requirements, OPCs have opened up new avenues for aspiring entrepreneurs to turn their ideas into successful ventures.

Benefits of OPC - FAQs

What is Form MGT-8?

Form MGT-8 is a certification issued by a practising Company Secretary to validate that a company’s annual return complies with the provisions of the Companies Act of 2013. It assures that the company has accurately disclosed its financial and operational details, ensuring transparency and accountability.

The certificate covers aspects such as shareholding structure, board composition, meetings, and statutory records.

When Is Form MGT-8 Required?

Form MGT-8 is required in specific scenarios where companies exceed certain financial thresholds or have a specific status. It is mandatory for:

• Listed companies
  
• Companies with a paid-up share capital of ₹10 crores or more
  
• Companies with a turnover of ₹50 crores or more
  

Form MGT-8 Format

Essential Components of the Form

Form MGT-8 is a certification report that includes various essential components to ensure compliance with the Companies Act, 2013. These components typically include:

• Company Details – Name, registration number, and details of the company.
  
• Certificate of Compliance – A statement certifying the company's adherence to the Act’s provisions.
  
• Verification of Financial Records – Confirmation that financial statements have been audited and filed according to the law.
  
• Board and Shareholder Meeting Details – Confirmation of meetings held and compliance with relevant provisions.
  
• Transaction and Borrowing Details – Verification of loans, borrowings, and any changes in share capital.
  
• Auditor Details – Information related to the appointment and reappointment of auditors.
  

Structure and Key Sections

Form MGT-8 follows a structured format, typically divided into the following sections:

1. Part A: Company Overview
   
   • Includes company name, CIN (Corporate Identification Number), and registered address.
     
2. Part B: Compliance Statements
   
   • Lists the provisions of the Companies Act, 2013 under which the company is required to comply. It includes details on financial statements, board meetings, and share capital transactions.
     
3. Part C: Certification
   
   • The company secretary provides a certificate stating that the company has adhered to all the relevant provisions of the Act.
     
4. Part D: Signature and Date
   
   • The form ends with the signature of the certifying company secretary, along with the date of certification.
     

Applicability of Form MGT-8

As per Section 92(2) of the Companies (Management and Administration) Rules, 2014, certain companies must have their annual returns certified by a practising Company Secretary. This applies to:

• Listed companies
  
• Companies with a paid-up share capital of ₹10 crores or more
  
• Companies with a turnover of ₹50 crores or more
  

This certification ensures the company meets all statutory compliance requirements before submitting its annual return.

Related Read: LLP Form 11; Annual Return

Contents of Form MGT-8

Form MGT-8 contains several key elements that ensure a company is in compliance with the Companies Act of 2013. The contents include:

• Company details: Name, registration number, and principal business activities.
• Share capital structure: Details of shares issued and ownership distribution.
  
• Compliance confirmation: Verification of board meetings, statutory filings, and regulatory approvals.
  
• Certifications: Declaration by the practising Company Secretary affirming that the company has adhered to all relevant legal provisions.
  

Contents of the Form MGT-8 Report

The company secretary must certify that the annual return of the company is accurate and in compliance with the provisions of the Companies Act, 2013. The key points covered in the report include:

• Status of the Company – The company’s legal status under the Companies Act.
• Maintenance of Registers and Records – Ensuring records are updated within prescribed timelines.
  
• Filing of Forms and Returns – Confirmation that necessary filings were made to the appropriate authorities.
  
• Board Meetings – Verification that board and committee meetings were conducted correctly.
  
• Register of Members/Shareholders – Confirmation of compliance with closure and maintenance requirements.
  
• Loans to Directors – Adherence to provisions under Section 185 of the Companies Act for loans to directors.
  
• Changes in Share Capital – Details on share capital transactions (issue, transfer, buyback, etc.).
  
• Dividend Rights – Assurance that dividend-related processes have been followed.
  
• Investor Education and Protection Fund – Confirmation of amounts moved to this fund as per Section 125.
  
• Financial Statements – Certification that audited financial statements are signed and compliant with Section 134.
  
• Director & KMP Appointments – Verification of appointments, reappointments, and remuneration of directors and key managerial personnel.
  
• Auditor Appointments – Confirmation that auditor appointments comply with Section 139.
  
• Approval from Authorities – Ensuring necessary approvals have been obtained.
  
• Acceptance of Deposits – Compliance with the acceptance, renewal, and repayment of deposits.
  
• Borrowings and Charges – Details on borrowings and matters related to charges.
  
• Loans/Investments/Guarantees – Compliance with Section 186 for providing loans/investments to bodies corporate or individuals.
  
• Alteration of AoA/MoA – Confirmation of any changes to the Articles or Memorandum of Association.
  

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Compliance Aspects

The compliance aspects covered by Form MGT-8 include:

• Corporate Governance: Ensuring proper board structure and transparency in decision-making.
• Regulatory Filings: Confirmation that the company has submitted all required returns and documents.
  
• Financial Reporting: Validation of financial statements and records.
  
• Board Meetings & Resolutions: Verification of proper conduct of board meetings and resolutions.
  
• Loans & Related Party Transactions: Ensuring transactions comply with legal provisions.
  
• Approvals & Authorizations: Confirmation that necessary approvals from the Central Government or regulatory authorities are obtained where required.
  

Consequences of Non-Compliance

Failure to comply with the requirements of Form MGT-8 can result in serious consequences, including:

• Penalties and Fines: Companies and responsible officers may face monetary penalties for non-compliance.
• Legal Action: Regulatory authorities may initiate legal proceedings against defaulting companies.
  
• Reputation Damage: Non-compliance affects investor confidence and the company's credibility.
  
• Operational Restrictions: Companies may face restrictions in obtaining loans, tenders, and other business opportunities.
  

Conclusion

Form MGT-8 is a critical compliance document that ensures companies adhere to the Companies Act of 2013. It is mandatory for listed companies and those meeting specific financial thresholds.

By obtaining certification from a practising Company Secretary, companies can confirm their adherence to legal requirements, reducing regulatory risks. Understanding its applicability, format, and compliance aspects helps businesses maintain transparency and corporate governance.

Companies must meet the necessary compliance requirements to avoid penalties and safeguard their business interests.

Frequently Asked Questions