INTRODUCTION

The Tax Structure in India is quite strong and follows the financial year. The taxation under the tax structure in India is applicable for any kind of income pertaining to a person working as an employee under the public sector units, private sector units, foreign companies in India, Departments of the State Governments of India, and Departments of the Central Government of India or self employed individuals engaged in commercial activities which is legal in nature. he several corporations engaged in commercial activities also come under the taxation. The public bodies, state governments and central government have clear demarcation of their functioning. The central government imposes tax on all kinds of income such as central excise, customs duties, and service tax apart from income pertaining to agriculture. The State Governments of India is responsible for imposing tax pertaining to Value Added Tax (VAT), sales tax, income from agriculture, state excise duty, stamp duty, professional tax, land revenue, etc. Taxes imposed by the local bodies are pertaining to octroi tax, water supply utilities, drainage and sewage utilities, property tax, etc. Different taxes levied under tax structure in India:

Direct Taxes Personal Income Tax Tax on Corporate Income Tax Incentives Capital Gains Tax Indirect Taxes Securities Transaction Tax Service Tax Excise Duty Customs Duty Taxes Levied by State Governments and Local Bodies Other Taxes Sales Tax or Value Added Tax

Financing Decision
Financing decision is the important function to be performed by the financial manager. It must be decide when, where and how to acquire funds to meet the firms investment needs. The central issue before him or her is to determine the proportion of equity and debt. The mix of debt and equity is known as the firms capital structure. The financial manager must strive to obtain the best financing mix or the optimum capital structure for his or her firm. The firms capital structure is considered to be optimum when the market value of shares is maximized. The use of debt affects the return and risk of shareholders; it may increase the return on equity funds but it always increases risk. A proper balance will have to be struck between return and risk. When the shareholders return is maximized with minimum risk, the market value per share will be maximized and the firms capital structure would be considered optimum. Once the financial manager is able to determine the best combination of debt and equity, he or she must raise the appropriate amount through the best available sources. In practice, a firm considers many other factors such as control, flexibility loan convenience, legal aspects etc. in deciding its capital structure.

Taxation of corporations
Corporations may be taxed on their incomes, property, or existence by various jurisdictions. Many jurisdictions impose a tax based on the existence or equity structure of the corporation. For example, Maryland imposes a tax on corporations organized in that state based on the number of shares of capital stock issued and outstanding. Many jurisdictions instead impose a tax based on stated or computed capital, often including retained profits. Most jurisdictions tax corporations on their income. Generally, this tax is imposed at a specific rate or range of rates on taxable income as defined within the system. Some systems have a separate body of law or separate provisions relating to corporate taxation. In such cases, the law may apply only to entities and not to individuals operating a trade. Such laws may differentiate between broad types of income earned by corporations and tax such types of income differently. Generally, however, most such systems tax all income of a corporation in the same manner. Some systems (e.g., Canada and the United States) tax corporations under the same framework of tax law as individuals. In such systems, there are normally taxation differences related to differences between the inherent natures of corporations and individuals or unincorporated entities. For example, individuals are not formed, amalgamated, or acquired, and corporations do not generally incur medical expenses except by way of compensating individuals. Many systems allow tax credits for specific items. Such direct reductions of tax are commonly allowed for foreign taxes on the same income and for withholding tax. Often these credits are the same as those available to individuals or for members of flow through entities such as partnerships. Most systems tax both domestic and foreign corporations. Often, domestic corporations are taxed on worldwide income while foreign corporations are taxed only on income from sources within the jurisdiction. Many jurisdictions imposing an income tax impose such tax income from a permanent establishment within the jurisdiction. Corporations are also subject to property tax, payroll tax, withholding tax, excise tax, customs duties, value added tax, and other common taxes, generally in the same manner as other taxpayers. These, however, are rarely referred to as corporate tax.

Minimum alternative tax: MAT

According to this section, if the taxable income of a company computed under this Act, in respect of previous year 1996-97 and onwards is less than 30 % of its book profits, the total income of such company is chargeable to tax for the relevant previous year shall be deemed to an amount equal to 30 % of such book profits. A new tax credit scheme is introduced by which MAT paid can be carried forward for set-off against regular tax payable during the subsequent five year period subject to certain conditions, as under:

When a company pays tax under MAT, the tax credit earned by it shall be an amount which is the difference between the amount payable under MAT and the regular tax. Tegular tax in this case means the tax payable on the basis of normal computation of total income of the company. MAT credit will be allowed carry forward facility for a period of five assessment years immediately succeeding the assessment year in which MAT is paid. Unabsorbed MAT credit will be allowed to be accumulated subject to the five year carry forward limit. In the assessment year when regular tax becomes payable, the difference between the regular tax and the tax computed under MAT for that year will be set off against the MAT credit available. The credit allowed will not bear any interest. MAT credit will be allowed carry forward facility for a period of five assessment years immediately succeeding the assessment year in which MAT is paid. Unabsorbed MAT credit will be allowed to be accumulated subject to the five year carry forward limit. In the assessment year when regular tax becomes payable, the difference between the regular tax and the tax computed under MAT for that year will be set off against the MAT credit available.

Corporate Tax Rate in India

The corporate tax rate in India is at par with the tax rates of the other nations worldwide. The corporate tax rate in India depends on the origin of the company. If the company is domicile to India, the tax rate is flat at 30%. But for a foreign company, the tax rate depends on a number of factors and considerations. The companies that are domicile to India are taxed on the global income whereas the foreign companies in India are taxed on their income within the Indian territory. The incomes that are taxable in case of foreign companies are interest gained, royalties, income from the capital assets in India, income from sale of equity shares of the company, dividends earned, etc.
Domestic Corporate Income Taxes Rates:

For Domestic Corporations the effective tax rate is 30% and the tax rate with surcharge is 30% Attention must be given on the factor that if the taxable income is more than Rs. 1 million then a surcharge of 10% of the tax on income is levied Attention must also be given on the fact that all of the companies formed in India are regarded as Indian domestic companies, even in the case of ancillary units with mother companies in foreign countries Some of the tax rebates under corporate tax rate in India:

The gains pertaining to long term capital is subjected to low tax incidence The venture capital funds and venture capital companies has special tax provisions The Specula tax provisions are applicable for the non resident Indian's involved in activities in India Under the Finance Bill 1996, minimum alternative tax (MAT) on the corporate sector is levied

Foreign Companies income tax rates:

For dividends: - 20% for non-treaty foreign companies and 15% incase of companies under the treaty based in the United States For interest gains: - 20% for non-treaty foreign companies and 15% for companies under the treaty based in the United States For royalties: - 30% for non-treaty foreign companies and 20% for companies under the treaty based in the United States For the technology based services in case of non-treaty foreign companies & 20% for companies under the treaty based in the United States For all other kinds of income and gains: - 55% in case of non-treaty foreign companies and 55% for the companies under the treaty based in the United States Attention should be given on levying inter corporate rates in case holding is minimum Attention should be given on the fact that sanctions of the tax authorities on tax withholding Attention should be given on several of the tax treaties that India signed with other countries and also on the various encouraging tax rates

The Tax Implications of Financial Decisions

The Tax Implications of Financial Decisions
The Internal Revenue Code is a very complex, often confusing, and constantly changing set of rules. Individuals sometimes let tax issues cloud their decision-making. Here are three areas where some simple reminders can help you make wiser financial decisions.

The income tax rate structure

Our marginal tax rate structure generally means that income at lower levels is taxed at lower rates than income at higher levels. There are complex rules about how to calculate taxable income, taking into account deductions and exemptions. The 2001 Tax Law started to bring rates down and the 2003 Tax Law accelerated that reduction. The tax rates start at 10% and go up to 35%.

2010 Single Return Rate Schedule

Taxable income levels 0 to $8,375 $8,376 to $34,000 $34,401 to $82,400 $82,401 to $171,850 $171,581 to $373,650 Over $373,650 Tax rate 10% 15% 25% 28% 33% 35%

Impact Of Corporate Taxes for government

Taxes are designed as a means for government bodies to collect revenue to provide services and finance themselves. Furthermore, tax code is structured to redistribute wealth throughout the population. Business people monitor tax law and act accordingly to improve their bottom lines. Identification The government taxes business profits and capital gains from investments. Tax law is also written to provide tax breaks that reward investment within particular industries. Businesses respond by executing strategy that allows for tax savings and limiting transactions that are heavily taxed. Considerations Tax law is dynamic and heavily politicized. Views upon which industries should be rewarded or restricted by tax policy change over time, according to the economy. Remain politically active to stay up to date. Benefits Business decisions based upon thoughtful tax planning increase profits by reducing tax expense. Knowledge of tax law also minimizes the risks of undergoing time-consuming audits. Misconceptions Business tax deductions reduce taxable income by a set amount, before taxes are calculated upon the reduced taxable income. Tax credits generate more savings, because they decrease your tax bill upon a dollar for dollar basis. Warnings Businesses should prioritize making money, rather than strictly cutting tax expenses. Do not forgo profit opportunities simply to avoid paying taxes

Impact of Tax Rate Uncertainty on Financial Decisions

When the business case refers to a non taxpaying government or non-profit organization, the question of tax effects on the business case is non-issue. For tax-paying companies, however, it is an important question. Results of "before tax" and "after tax" business cases can look quite different. (For spreadsheet examples showing how tax effects enter business case cash flow calculations, see Financial Modeling Pro.) Here are some ways that taxes can impact the cash flow results of a business case.

Taxes lower overall gains

Where the business case shows gains or net cash inflows, taxes operate to lower overall gains because operating income and capital gains are normally taxed. If the total income tax rate is, say 30%, a $100 operating gain becomes a $70 net gain after taxes.

Taxes also reduce overall cost and expense impacts

Where the business case shows losses or net cash outflows, tax effects operate to reduce the overall loss. For a company that pays 30% taxes on income, a $100 operating loss (or net cost) also reduces the company's tax liability by $30. The net effect of the $100 loss on overall cash flow is thus $70.

When the Corporate case includes capital assets, tax savings from depreciation improve the bottom line

Where the business case includes the acquisition of capital assets (either through purchase or capital lease), tax savings from depreciation can operate to increase overall cash flow. Depreciation expenses themselves do not contribute to cash flow: they are an accounting convention that impacts reported income, but not a real cash outflow. However, because

depreciation expenses lower reported income, they also lower the tax liability, which does impact real cash flow. If a company claims $100 depreciation expense on an asset during the year, and if the company ordinarily pays a 30% tax rate on operating income, then the depreciation expense lowers taxes by $30 (that is, the net cash flow for the year is increased by $30). Should you build an "after tax" or a "before tax" version of the financial business case? Sometimes one version is more appropriate than the other; in other cases, both versions are called for. Here are some factors to consider:

What effect does adding or removing tax consequences have on business case results?

Tax effects can be especially important where different financing options are under consideration, as for instance in a "Lease vs. Buy" comparison, or when comparing a capital lease scenario with an operating lease scenario. In situations where before and after tax versions of the business case differ substantially where tax effects on overall results are largethen tax planning itself may be an important management concern, and both versions of the case should probably be in view.

Impact of Tax on Business Decisions

Tax can also impact business decisions in a number of ways. Since businesses can deduct expenses of running a business, the company may wish to make a purchase within a given year in order to get the tax benefit for that year. Businesses can also take depreciation on certain property, so this can impact how and when new items are purchased. The biggest impact on taxes on business decisions, however, normally focuses on how the business is structured. There are several major ways in which businesses can be structured, each of which have different tax impacts. A sole proprietor is taxed as an individual, and the individual normally files a personal tax return that includes business profits and losses. For partnerships and limited liability companies (LLCs) the individual members of the organization can also claim business profits and losses on personal tax returns. More complex business structures, however, have different tax structures. S-corporations and Ccorporations allow for different deductions and the business generally files taxes separately and then pays a salary to the business owners employees who declare profits on their personal tax returns. Incorporating a business can thus dramatically change your tax picture. To make this decision, you should speak with a tax professional who can help determine which business structure is right for you.

Conclusion Understanding the Impact

For most investors and small business people, taxes play a role in how business and investment decisions are made, but ultimately the most important thing is to determine which investments or business decisions will have the best affect on your personal or businesses value. As you gain more money and become a more sophisticated investor, the impact of tax on investment and business decisions becomes more important and getting help from a professional to reduce your tax liability is usually advisable. The current uncertainty over the tax rates after 2010 has created unusual planning situations for anybody holding stock or receiving compensation from stock options, restricted stock, or other types of equity awards. On year-end financial and tax planning. With a fog of uncertainty still shrouding the post-2010 tax landscape, year-end planning will be much harder than usual this year for employees, executives, and advisors who must make decisions about stock holdings and compensation received from stock options, restricted stock, restricted stock units, performance shares, employee stock purchase plans, and stock appreciation rights. Depending on whether tax rates will go up or down in 2011, they may want to accelerate income or capital gains into 2010 or defer these into the future.