Tax Benefits of an OPC in India: Salary, Rent, the 22% Rate — and the Presumptive-Tax Question

The short answer: an OPC is taxed exactly like any other domestic company — 22% if you opt for the concessional rate, 25% or 30% under the normal rates. The real tax benefit is not the rate. It is that you can pay yourself a salary and rent, and the company deducts both. At ₹40 lakh profit, that split saves about ₹1 lakh a year. Without it, the OPC route actually costs more than a proprietorship.

Most guides on OPC tax benefits stop at "22% corporate tax" and call it a day. That number is true, and it is also the least interesting part of the story. What matters is how money leaves the company and reaches you, because that is where the tax is actually decided.

What is an OPC for tax purposes?

A One Person Company is a private limited company with a single member, defined under Section 2(62) of the Companies Act, 2013. The tax law has no separate category for it. An OPC files ITR-6, the return for companies, pays tax at company rates, and needs a statutory audit every year no matter how small its turnover is. Its annual filings are AOC-4 and the simplified MGT-7A.

Think of the OPC as a separate kitchen in your house. You can be paid as the cook, the landlord and the lender — salary, rent and interest, three different taps from the same tank, each taxed differently. Dividend is the fourth tap, and it is the most expensive one. The whole game is choosing which taps to open, and in what order.

What is the tax rate for an OPC in India?

An OPC chooses between two ways of being taxed, and the choice is made when you file the return — for the concessional rate, by filing Form 10-IC before the return itself.

Two things founders usually miss. First, the 22% route gives up some deductions and exemptions, so it is not automatically the cheaper option — run both computations before you opt in, because the choice sticks. Second, there is no turnover restriction on the 22% rate, and since the 2021 amendment removed the old ₹50 lakh capital and ₹2 crore turnover limits, an OPC can stay an OPC at any size. It never has to convert because it grew.

Can I pay myself a salary from my OPC?

Yes — and this is the biggest lever an OPC owner has. As a director you can draw a salary, and the company deducts it as a business expense under Section 37, as long as it is wholly and exclusively for the business. The company deducts TDS on the salary under Section 192 of the 1961 Act (Section 392 of the 2025 Act), and the salary is taxed in your hands at the individual slab rates.

Here is the maths on a ₹40 lakh profit, under the new regime for FY 2025-26. As a sole proprietor, the whole ₹40 lakh is your income: the slabs work out to ₹7,80,000 of tax, plus 4% cess, which is ₹8,11,200 in total.

Now run the same ₹40 lakh through an OPC and pay yourself ₹12 lakh as salary. The company's profit falls to ₹28 lakh. At the 22% rate that is ₹6,16,000, plus 10% surcharge and 4% cess, which comes to ₹7,04,704. Your salary of ₹12 lakh, after the ₹75,000 standard deduction, is ₹11,25,000 of taxable income — and the Section 87A rebate wipes out the ₹52,500 of tax on it entirely, because your taxable income stays under ₹12 lakh. Total tax: ₹7,04,704. You save about ₹1,07,000, and the ₹12 lakh is in your bank account as salary, not locked inside the company.

Now the honest part. If you take no salary and no rent, the OPC pays tax on the full ₹40 lakh — ₹10,06,720 at the 22% effective rate. That is nearly ₹2 lakh more than the proprietor pays. The 22% rate alone does not save you anything at this level. The split does.

One guardrail: the salary has to be defensible for the work you actually do. Pay yourself ₹30 lakh for a business that makes ₹40 lakh and the assessing officer can disallow the excess as a payment to a related person. Keep the salary in line with what you would pay someone else to do your job, and keep a board resolution and a salary slip trail.

Can my OPC pay me rent for my own premises?

Yes, if the company genuinely operates from premises you own. The rent is deductible for the company, and it is taxed in your hands as income from house property, after the 30% standard deduction. The company must deduct TDS under Section 194-I once the annual rent crosses ₹2,40,000 — 10% for land or a building, 2% for plant and machinery. Under the 2025 Act, rent TDS sits in the table under Section 393.

But rent has a trap that salary does not: the ₹12 lakh rebate cliff. Go back to the example above. Add ₹25,000 a month of rent — ₹3 lakh a year — to the ₹12 lakh salary. The company saves ₹75,504 on that ₹3 lakh. Your taxable income, though, rises from ₹11,25,000 to ₹13,35,000, because only ₹2,10,000 of the rent survives the 30% deduction. You cross ₹12 lakh, the whole 87A rebate disappears, and your personal tax jumps by ₹83,460. The rent costs you more than it saves.

Rent only starts paying once your total income is already above ₹12 lakh. Draw ₹18 lakh of salary instead of ₹12 lakh and the same ₹3 lakh of rent saves about ₹32,000 net — the company's tax falls by ₹75,504 and your extra personal tax is about ₹43,680. So the order matters: set the salary first, check where your total income lands, and only then decide whether rent helps. Get the order wrong and a perfectly legal deduction quietly costs you money.

And keep it real: a written rent agreement, rent paid by bank transfer every month, and premises the company actually uses. A rent deed for a flat the company never occupied is the kind of thing that unravels in scrutiny.

Can I charge my OPC interest on money I lent it?

Yes. If you lent the company money from your own funds, the interest it pays you is deductible for the company, and taxable in your hands as income from other sources. The company deducts TDS under Section 194A — the threshold is ₹10,000 a year for payments to individuals other than banks. Document the loan with a board resolution and a loan agreement that states the rate, even if the rate is modest. A loan with no paper trail looks like capital, and capital does not earn a deduction.

Is dividend the expensive way to take money out?

Usually, yes. Dividend distribution tax is gone since FY 2020-21, so dividends are taxed in your hands at your slab rates, and the company deducts 10% TDS once the dividend in a year crosses ₹10,000. The problem is the double layer: the company has already paid tax on the profit, and then you pay tax again on the same money as dividend.

On the same ₹40 lakh profit, taking ₹12 lakh as dividend instead of salary leaves the company paying tax on the full ₹40 lakh — ₹10,06,720. The salary route cost ₹7,04,704 all in. That is a difference of about ₹3 lakh, for the same ₹12 lakh reaching you. Salary first, rent second if the numbers work, dividend last. That order holds for most OPCs at this size.

Can an OPC use presumptive taxation under Section 44AD?

No. This is the question most guides get wrong, so here is the statute, plainly. Section 44AD is open only to an "eligible assessee" — a resident individual, a HUF, or a partnership firm other than an LLP. A company is not on that list, and a one person company is a company. The same applies to Section 44ADA for professionals. Under the Income-tax Act, 2025, the presumptive schemes for business, profession and goods carriages are consolidated in Section 58, and the eligibility stays the same.

Some guides still tell OPC owners they can declare 8% of turnover under 44AD. They cannot. What the OPC gets instead is the ordinary system: every genuine business expense is deductible — salary, rent, interest, depreciation, professional fees — so a company with real costs usually pays less than the 8% presumption would have charged anyway. What it loses is the simplicity: books of account, a statutory audit, and a tax audit once turnover crosses ₹1 crore (₹10 crore if cash receipts and payments are each under 5% of the total). And note the lock-in on the other side — a proprietor who opts out of 44AD cannot return to it for five years. An OPC never faces that choice, because the door was never open to it.

Can an OPC claim the Startup India tax holiday?

Honestly: the sources disagree, and you should not plan a tax holiday around an OPC until the position is settled on your own facts. Several practitioner guides say OPCs are not eligible for DPIIT recognition at all, because the 2019 notification lists private limited companies, LLPs and registered partnership firms — and OPCs are not named. Others point to the February 2026 notification, G.S.R. 108(E), which lists "private limited company (One Person Companies included)" among the entities that can be recognised, while the tax holiday itself is framed for companies and LLPs.

What is not in dispute: the holiday needs DPIIT recognition first, then a separate certificate from the Inter-Ministerial Board — recognition alone does not switch it on. If the startup story is real and the holiday matters to you, the workable route founders use is to convert the OPC into a private limited company first and then apply. Do not file for the holiday as an OPC and hope for the best.

OPC vs sole proprietorship: the tax maths at a glance

The OPC wins on the maths only when you use the salary and rent levers. Without them, the proprietor pays less tax and files less paperwork. That is the whole decision in one paragraph.

5 mistakes that cost OPC owners money

• Taking everything as dividend. Salary first, rent second if the numbers work, dividend last — the order is worth lakhs at a ₹40 lakh profit.
• Paying rent without paperwork. No agreement, no bank trail, no deduction — and the rent still gets taxed in your hands.
• Forgetting TDS. Salary, rent above ₹2,40,000 and interest above ₹10,000 all need TDS deducted and deposited. Miss it and the expense itself can be disallowed.
• Filing ITR-3 instead of ITR-6. An OPC is a company, not an individual. ITR-6 is the form, and for AY 2026-27 the audit-case due date is 21 November 2026 under CBDT Circular 07/2026.
• Assuming 44AD applies. It does not, and a return built on that assumption is a notice waiting to happen.

One last date for your diary: under MCA General Circular 05/2026, AOC-4 for FY 2025-26 can be filed up to 31 December 2026 and MGT-7A up to 31 January 2027 without additional fees. The annual general meeting dates have not moved — only the fee relief has.

If you are choosing between a proprietorship and an OPC, the tax question is not "which rate is lower" but "how will I take money out of it". Run the salary number first. If the split saves you money after the audit and filing costs, the OPC earns its keep. If it does not, the proprietorship is the cheaper structure, and there is no shame in that. A structure should fit the business you actually run, not the one you hope to run. If you want the maths done on your own figures, talk to us about registering or running your OPC — and if you are still deciding between structures, our OPC vs private limited guide for solo founders and the old-to-new section map for the Income-tax Act, 2025 will help. The income tax calculator is handy for checking the salary side of the split.

Frequently asked questions

Can an OPC claim deductions under Section 80C?
No — not as a company. Sections like 80C belong to individuals. But the salary your OPC pays you is your individual income, so you can claim 80C, 80D and the rest on your personal return against that salary, under the old regime, if you opt for it.

What happens if my OPC makes a loss?
The loss is the company's, not yours, and it can be carried forward and set off against future business profits for up to eight years, subject to filing the return on time. That is one more reason to file ITR-6 every year even when the OPC earned nothing.

Can an OPC take a loan from its director?
Yes, as long as the money is genuinely the director's own funds and the loan is documented with a board resolution and a loan agreement. Interest on it is deductible for the company, as explained above.

Does an OPC need a tax audit?
Not automatically. A statutory audit under the Companies Act is mandatory every year, but the tax audit under Section 44AB applies only when turnover crosses ₹1 crore — ₹10 crore if cash receipts and payments are each under 5% of the total.

Can I convert my OPC into a private limited company later?
Yes. Founders commonly do this before applying for DPIIT recognition or bringing in a co-founder, since the old mandatory-conversion thresholds were removed in 2021 and conversion is now a choice, not a deadline.