Calculate Your Optimal Compensation
Get Personalized Tax Planning Consultation
Our expert Company Secretary will review your specific situation and create a customized tax optimization strategy.
Frequently Asked Questions
Salary is paid from company revenue and is deductible as a business expense. You pay income tax on it, and both employer and employee contribute to provident fund (PF). Dividends are profits distributed after tax. They were subject to Dividend Distribution Tax (DDT) until FY 2021-22, after which you pay tax on the dividend as income. Dividends don't attract PF contributions, which can be advantageous for cash flow optimization.
Taking only dividends avoids PF contributions, but you lose out on PF corpus accumulation and the tax benefit of PF contributions (up to ₹5 lakh under Section 80C). However, if your company profit is lower than your CTC expectation, paying excess salary without PF is not permitted. The minimum salary should be reasonable and market-competitive to avoid income tax department scrutiny.
The income tax audit threshold is ₹1 crore turnover for general business and ₹10 crore for digital payments. However, even below these limits, if your salary appears disproportionate to business income, the tax department may question it. A salary benchmark study (based on company revenue and role) helps defend your salary structure in case of scrutiny.
HRA exemption is not available to self-employed or self-proprietor founders. However, if your company is a Private Ltd and you're an employee-director, you can claim HRA on the salary component (not on dividends). HRA exemption is the lower of: (1) 50% of salary (metro cities) or 40% (non-metro), or (2) Actual rent paid minus 10% of salary. Keep rent receipts and tenancy agreement for proof.
The new tax regime (effective from FY 2023-24) has lower tax rates but disallows most deductions. You cannot claim Section 80C (life insurance, PPF, mutual funds), 80D (health insurance), or HRA exemption. Only standard deduction (₹50,000) and a few specific deductions apply. The old regime remains beneficial if you have significant deductible expenses like PF, health insurance, and professional fees.
Professional tax varies by state. In Karnataka (where Sapna Malpani operates), salaried individuals pay ₹0-₹2,500 annually depending on income slab. Self-employed professionals pay ₹0-₹5,000 annually. Professional tax is not income tax-deductible in the new regime but is deductible in the old regime. Some states exempt founders of startups; check if your startup qualifies under your state's startup policy.