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Corporate Taxation India

A guide for Corporate Taxation and the nuances of different corporate tax rates in India. Learn about
company’s income determination & tax liabilities.

Corporate tax is levied on the income earned by the companies, whether domestic or foreign. The Income
Tax Act, 1961 is liable for charging corporate tax in India. Worldwide income of the companies registered
in the country is taxed under this. Whereas in the case of foreign companies, only the income received or
accrued in India is taxed under corporate taxation.

What is the domestic company? Any business that has originated in India or any foreign company that
has control & management entirely situated in India is the domestic company. Originated in India means
registered under the Companies Act 1956.

What is the foreign company? Any business that hasn’t originated in India and has control & management
situated outside India.

Determination of tax liability: The residential status of a company identifies its tax liability on income
earned. A company is a resident in India if it's an Indian company or its control & management is situated
in India. All the income earned by a resident company is liable to tax under corporate tax law.

As a result of this, the issue of double taxation may occur. It refers to the taxing of the same income twice
by the company, because of the different tax laws of different countries. Section 90 & 91 of the I.T. Act
provides relief against double taxation.

Components of Income of a company: The total income of the business that is put to tax under corporate
taxation is inclusive of:

i. Profits and Gains from the Business & Profession;


ii. Capital Gains;
iii. Earnings from House Property;
iv. Earnings from other sources like interests, lotteries, etc.

The income calculated is adjusted as per section 79 set off and carried forward of losses in companies and
total gross income is ascertained. The deductions under Chapter VI-A are made from the total gross income
to arrive at the net income. The computed value of net income is exposed to tax.

Note: Salary Income is excluded from company’s income.

Dividend Distribution Tax (DDT): It is the tax charged on distributed income of the domestic company.
Section 115-O of the Income Tax Act governs the tax law related to it. DDT is levied in addition to the tax
on income. The current rate of DDT is 15%. Surcharge @ 12% and EC & SHEC @ 3% is also applicable
on DDT.
Note: As per the Budget Update 2016, if any shareholder whether individual or HUF, receives dividend
more than Rs. 10 Lakhs; then DDT will be charged at 10%.

Minimum Alternate Tax (MAT): MAT was made applicable because companies find a lot many ways to
escape tax payments. Through minimum alternate tax companies pay a token of tax. Section 115JA of
Income Tax Act imposes MAT on the companies. All the companies having tax payable on total income
less than 18.5% of their book profits (plus surcharge and SHEC) are liable to pay MAT. Subject to some
conditions, MAT can be carried forward and adjusted against regular tax. It can be carried forward for
subsequent ten years period. MAT is levied on all the companies, including foreign companies having
income sources in India. A few companies are exempt from its purview, viz. companies having life insurance
business (Sec 115B) and companies having shipping income (Sec 115V-O).

The applicable corporate tax rate in India is as under


a. Domestic Company

EC & SHEC [% on (tax +


Income range Tax rate Surcharge*
surcharge)]

Up to Rs. 1,00,00,000 30% Nil 3%

More than Rs. 1,00,00,000 but Less than Rs. 10,00,00,000 30% 7% 3%

More than Rs. 10,00,00,000 30% 12% 3%

Note-

i. The surcharge is levied on taxable income; subject to limited relief, i.e., income exceeds Rs. 1,00,00,000.
ii. * Income tax rate is 29% if turnover for the FY 2014-15 does not exceed Rs. 5,00,00,000.

b. Foreign Company

EC & SHEC [% on (tax +


Income range Tax rate Surcharge*
surcharge)]

Up to Rs. 1,00,00,000 40% Nil 3%

More than Rs. 1,00,00,000 but Less than Rs. 10,00,00,000 40% 2% 3%

More than Rs. 10,00,00,000 40% 5% 3%

Advance Tax in India


Know what advance tax means, the person liable, advance tax due dates, penalties for non-payment on
time, interest charged for deferment of advance tax.
Income tax paid in advance instead of lump sum payment at the year-end is termed as the Advance tax.
The advance tax payments are made in instalments as per the specified due dates by the income tax
department. The flowing receipt of advance tax helps the Government in managing the expenses.

The person liable to pay advance tax: If total tax payable in a financial year is Rs. 10000 or more, then
a person has to pay advance tax. All the tax payers are covered by the advance tax. For salaried people,
TDS deducted can take care of advance tax payment and hence, rarely any extra payment would arise.
Senior citizen (age of 60 years or more) who is not running a business is exempted.

Advance tax for the FY 2014-15 and FY 2015-16 is free for the taxpayers opting for presumptive taxation
scheme. However, starting from FY 2016-17, the advance tax has to be paid in one single instalment by
such taxpayers on or before 15th March.

Advance Tax payment due dates: For FY 2016-17, the due dates for Individuals and corporate taxpayers
are as below:

Advance Tax Due Dates Advance Tax Payable*

On or before 15th June 15%

On or before 15th September 45%

On or before 15th December 75%

On or before 15th March 100%

*Percentage of Advance Tax

Penalty and Interest: Penalty is imposed for non-payment of advance tax on the scheduled time
mentioned above. This penalty is paid along with the taxes due before income tax return filing.

Section 234B of Income Tax Act (Interest for non-payment of Advance Tax): If 90% of the tax due is not
paid by the financial year end, interest @ 1% is charged.

Section 234C of Income Tax Act (Interest for Deferred Payment of Advance Tax): If the tax is not paid as
per the schedule given above, interest @ 1% per month is charged.

Expat Tax Calculation & Rate of Taxation


Know all about expatriates’ taxation, residential status of expats, Tax deducted at source for expatriate
salaries and the applicable rates.
Who is Expat or Expatriate?
Expatriates are people who are staying in a country other than their country of origin, either temporarily or
permanently. They are those employees who are transferred to their foreign offices for work.
Expat Tax in India
In India, the income earned by foreign expatriates is deemed to be received in India for services rendered
by him as per section 9(1)(ii) of Income Tax Act. It is assessable under the Income head ‘salaries'. It is
clarified by the explanation to the said section that salary income payable for services provided in India is
considered as income earned in India.

The residential status won’t make a difference on the tax liability on the salary income earned by rendering
services in India. Rule 15 will be applicable for the conversion of salary income in Indian currency. The
telegraphic transfer buying rate on the last day of the month in which the salary is due or paid is taken as
conversion rate.

TDS will also apply to the income irrespective of the place where the wages are received. The salary is
converted into Indian currency in case paid in foreign currency, for calculating tax deduction. The
conversion is done at the telegraphic transfer buying rate adopted by SBI on the date of the tax deduction.
The above rule of conversion is only applicable for TDS determination.

The tax burden is borne by the company of the expatriates and not the employee. Hence the concept of
grossing up of income arises in the case of expatriate taxation. For instance, if salary is Rs. 1000 and tax
Rs. 200, then total amount to be paid to expatriate will be Rs. 1200. Tax is payable on Rs. 1200 and not on
Rs. 1000. Hence, the salary of expatriates is considered as net salary plus tax liability on it.

Rates of Taxation
The rates applicable for expat tax are the slab rates for non-residents as per the Income Tax Act prevailing
in the country.

Property Tax In India


Know all about Property Tax & its calculations in India. Read about the governing authorities, deductions
available, properties covered & properties exempted.

What is property tax? The surcharge on real estate projects including land levied by the Government is
called the property tax. It is a local tax imposed on the possessor. Property tax is also called house tax.

Governing Authorities: Property tax is different in different states. It is further delegated to the
municipalities by law. This delegation results in various property taxation ways between different
municipalities within the states. The power is given to local bodies so that public services can be maintained
properly. The liability to pay tax is with the owner of the property.
Rate of Property Tax: The rates vary from municipality to municipality. Rates also depend upon the use
of the property, i.e., industrial, commercial or residential.

Resources covered: The kinds of properties on which property tax is charged are:

 Factory building
 Residential house
 Office building
 Flats
 Shops
 Godowns

Exemption: Vacant lands without any building are exempted from property tax. Also, properties of Central
government are excluded from the ambit of property tax.

Property tax calculation: The Annual Rental Value (ARV) is taken as a base for property tax calculation.
It can be different for self-occupied and let out properties.

The annual value for let out property is ascertained to be the highest of the following:

i. Rent received
ii. Value by Municipality
iii. Fair rent determined by IT Department.

In the case of self-occupied property, if completely used for staying by the owner, then the value is zero.
The value is taken as zero also when it is kept vacant, i.e., the owner is neither staying nor letting it out. If
rented, then the annual value will be proportionately ascertained.

There are some other methods that are used for calculating, namely Capital Value System and Unit Area
System.

Deductions
The interest charged on the loan to buy, build and repair the let out property is allowed as deduction. Also,
30% of the net value is allowed as the deduction for repair & maintenance of the let out property.

Deduction is available for the owners of self-occupied properties in the form of loan interest for construction
or purchase of assets, subject to the maximum of Rs. 1,50,000 (credit is taken on or after 1st April 1999)
and Rs. 30,000 (credit is taken before 1st April 1999).