Name: Harun Raaj & Associates
Address: Visakhapatnam, Andhra Pradesh, IN
Telephone: +919300897008

Question 1

Should I take salary or dividend from my own private limited company?

Accepted Answer

Both are taxable in your hands — the difference is timing and deductibility. Salary is a deductible expense at the company level (reduces corporate tax at 25.17% under Section 115BAA), and is taxable as income in your hands at slab rate. Dividend is paid from post-tax profits — not deductible at the company level — and is taxable in your hands as income from other sources at slab rate, with 10% TDS under Section 194 on amounts above ₹5,000. For most business owners with high slab rates, salary + NPS contribution (deductible under Section 80CCD(2) without ceiling) is more tax-efficient than dividend. The optimal split depends on profit levels, personal income needs, and NPS retirement objectives.

Question 2

What is the Section 40(b) limit on partner remuneration in an LLP?

Accepted Answer

Section 40(b) of the Income Tax Act limits how much remuneration a partnership or LLP can pay to its working partners and still claim it as a deductible expense. The deduction is limited to: ₹1,50,000 or 90% of the first ₹6 lakh of book profit (whichever is higher), plus 60% of the book profit above ₹6 lakh. Remuneration paid in excess of these limits is disallowed at the firm level — it is not deductible and is added back to the firm's taxable income. Partners still pay tax on the full remuneration received. This is one of the most consistently miscalculated areas in SME tax planning.

Question 3

Can I use an HUF for tax planning as a business owner?

Accepted Answer

Yes, if you are a Hindu, Jain, or Sikh individual who has family assets that can be pooled under an HUF. The HUF is a separate tax entity with its own PAN and its own basic exemption limit (currently ₹2.5 lakh under the old regime; ₹3 lakh under the new regime). Income earned from HUF property or HUF business is taxed in the HUF's hands — not yours. However, the HUF requires a distinct capital contribution (ancestral property or gifts from members) — salary income cannot be converted into HUF income. A CA can assess whether your family structure and asset base can support a legitimate HUF.

Question 4

How does NPS work for a business owner who does not have an employer?

Accepted Answer

Self-employed business owners can contribute to NPS under the self-employed category (not the corporate category). The deduction available is: (a) up to 20% of gross income under Section 80CCD(1), subject to the overall Section 80CCE ceiling of ₹1.5 lakh, plus (b) an additional ₹50,000 under Section 80CCD(1B) outside the ₹1.5 lakh ceiling. If the business is structured as a Pvt Ltd and the owner draws salary, the company can contribute 10% of salary to NPS under Section 80CCD(2) — this has NO upper ceiling and is fully deductible at the company level, making it significantly more tax-efficient than the self-employed NPS route.

Question 5

What is the tax treatment when I sell my business?

Accepted Answer

Depends on the structure: (1) Sole proprietorship or partnership — sale of individual assets triggers capital gains or business income depending on the nature of each asset. Section 50B applies if the slump sale is for a lump sum without item-wise values — net worth of the business is the "cost". (2) Private Limited Company — you are selling shares (not assets). STCG at 15% (Section 111A for listed) or slab rate for unlisted shares held less than 24 months; LTCG at 10% (Section 112A for listed) or 20% with indexation for unlisted held more than 24 months. Goodwill after Finance Act 2021 is no longer a depreciable asset — cannot claim depreciation on goodwill; historical depreciation claimed may be reversed on sale. We compute the full post-tax proceeds under each scenario before any deal structure is agreed.

Business Owner Financial Planning

Why Business Owner Planning Is Different

Salary vs. Dividend Decision Matrix

Entity Structure Tax Differential

What We Do

Related Services

Family Business Advisory & Succession Planning

Private Trust Setup & Taxation

Direct Tax Advisory

CA-Led Wealth Advisory — Full Overview