CORPORATE TAX

BY
BRINDHA K
PRABHAKARAN
ARUN KUMAR
 CORPORATE TAX
• Since 1960 – 61, corporations are being treated as single
entities.

• Corporate taxes are a significant item for revenue

generation of the central government.

• The government also gives tax sops to improve the

performance of company with a view to increase in
growth rates and net tax collections.

• It has also to keep in mind the shock sustaining capacity

of smaller companies and the opportunity for fair returns
to the share holders.
TERMINOLOGIES

– CORPORATE TAX
RESIDENCE
 A corporation is resident if its incorporated in India or wholly managed
or controlled by Indian Company.

BASIS FOR TAXATION

Residents are taxed on worldwide income.

Non – residents are taxed on Indian – source of income

only.

Foreign – source of income derived by resident

companies is taxable in the same way as Indian income.

A branch of foreign corporation is being taxed as a

foreign corporations.
 TERMINOLOGIES
 TAXABLE INCOME
– Cont.,
Corporation tax is imposed on company’s profits,
which consist of business/trading income, passive
income, & capital gains.

TAXATION OF DIVIDENDS
Dividends paid by a domestic company is taxable
under DIVIDEND DISTRIBUTION TAX @ 16.95%
(effective rate).

CAPITAL GAINS
The tax treatment depends upon whether the gains
for short or long term.
Long term gains – assets held more than 3 yrs –
taxed @ 20%
Short term gains – taxed @ 15.
A Surcharge and Cess is also applicable.
TERMINOLOGIES – Cont.,

• LOSSES
– Business losses and capital losses may be carried
forward for 8yrs.
– Short-term losses offsets capital gains of long & short
term assets.
– Long-term losses will offset only long term assets.

• FOREIGN TAX CREDIT

– Foreign tax paid may be credited against
the Indian tax on the same profits.
 DIFFERENT TAXES
For Firms [(including Limited Liability Partnership (LLP)]

Firms (including LLP) are taxable @ 30 percent

Surcharge is not applicable
Education cess is applicable @ 3 percent on income-tax.

For Domestic companies

Domestic companies are taxable @ 30 percent.
The rate of tax on profits from life insurance business is 12.5
percent
Surcharge is applicable @ 7.5 percent if total income is in
excess of INR 1,00,00,000.
Education cess is applicable @ 3 percent on income-tax
(inclusive of surcharge, if any).
 DIFFERENT TAXES
• For Foreign Companies
– Foreign companies are taxable @ 40 percent

– Surcharge is applicable @ 2.5 percent if total income is in

excess of INR 1,00,00,000.
– Education cess is applicable @ 3 percent on income-tax
(inclusive of surcharge, if any).

• Minimum Alternate Tax

– Minimum Alternate Tax (MAT) is levied @ 18 percent of

the adjusted book profits in the case of those companies
where income-tax payable on the taxable income
according to the normal provisions of the Income-tax Act,
1961 (the Act), is less than 18 percent of the adjusted
book profits
 DIFFERENT TAXES
• Minimum Alternate Tax

– MAT credit is available for 10 years

– Surcharge is applicable @ 7.5 percent in the
case of domestic companies if the adjusted
book profits are in excess of INR 1,00,00,000.
– Education cess is applicable @ 3 percent on
income-tax (inclusive of surcharge, if any).
SECURITIES TRANSACTION TAX
WEALTH TAX & SURCHARGE

• Wealth tax is imposed @ 1 percent on the value

of specified assets held by the taxpayer on the
valuation date (31 March) in excess of the basic
exemption of INR 30,00,000.

 SURCHARGE
– A 10% surcharge applies to domestic companies
– Foreign companies – 2.5%
– If the income exceeds INR 3 mn, a cess of 3% is applicable in
all cases.
DIVIDEND DISTRIBUTION TAX

• Dividend distributed by an Indian

Company is exempt from income-tax in
the hands of many shareholders.

• The Indian Company is liable to pay

Dividend Distribution Tax (DDT) @ 16.609
percent (i.e. inclusive of surcharge and
education cess) on such dividends
 WITHHOLDING TAX
• DIVIDENDS
– Dividends are not subject to withholding tax.
– However, the company distributing dividends are subject to
Dividend Distribution Tax (DDT).

• INTEREST
– Interest paid is generally subject to a 20% withholding tax, plus
applicable surcharge and cess.

• ROYALTIES
– Royalties are subject to a 10% withholding tax.
SPECIAL TAX RATES FOR NRI
SPECIAL TAX RATES FOR NRI

• (a) These rates may further increase by

surcharge and education cess
• (b) Other than dividends on which DDT has been
paid
• (c) In case the non-resident has a Permanent
Establishment (PE) in India and the royalty/fees
for technical services paid is effectively
connected with such PE, the same could be
taxed @ 40 percent (plus surcharge and
education cess) on net basis
OTHER TAXES FOR CORPORATIONS

• PAYROLL TAX
– The employer is responsible for withholding the tax on salary
income imposed on employees.

• SOCIAL SECURITY
– Employers with at least 20 employees are required to contribute
12% (10% for certain industries) of gross salaries to the
Employees Provident Fund.
– The contributions are mandatory with regard to employees who
earn up to INR 6,500 per month, while employees who earn
more than INR 6,500 per month may opt not to contribute to
the scheme.
– A contribution of 0.5% is also made to the Employees Deposit
Linked Insurance Scheme.
 BUDGET 2010 – 11

• The Corporate tax rates remain unchanged for

both domestic and foreign companies.

• Rate of Minimum Alternate Tax (MAT) increased

from the current rate of 15 per cent to 18 per
cent of book profits

• Current surcharge of 10 per cent on domestic

companies reduced to 7.5 per cent
 BUDGET 2010 – 11

• In computing the taxable income of a non-life

insurance company, adjustment is to be made
for any gain or loss on the realization of
investments only if it is not credited or debited
to the Profit and Loss Account.

• Additionally, any provision for diminution in the

value of investments is to be added back in the
computation if it is debited to the Profit and Loss
Account
 BUDGET 2010 – 11

• The threshold limit for getting the accounts

audited in case of persons carrying on business
increased to INR 60,00,000 from INR 40,00,000
and in case of persons carrying on a profession
to INR 15,00,000 from INR 10,00,000.

• The penalty leviable for failure to get accounts

audited or to furnish audit report increased to
INR 1,50,000 from INR 1,00,000.
 BUDGET 2010 – 11

• The income of Approved Research Associations

undertaking research in social science or
statistical research are to be tax exempt

• The weighted deductions for scientific research

and development increased as under:
– For expenditure incurred by eligible company in the
recognized in-house research and development
facility, the weighted deduction increased to 200
percent from 150 percent
 BUDGET 2010 – 11
– For payments to the National Laboratory or a
University or an Indian Institute of Technology or a
Research Association or a specified person, the
weighted deduction has been increased to 175
percent from 125 percent .

– For payments to Approved Research Associations,

undertaking research in social science or statistical
research, the weighted deduction is to be allowed at
125 percent
 BUDGET 2010 – 11
• Conversion of a company into LLP
– The conversion of a private company or unlisted public
company (Company) into Limited Liability Partnership to
be exempt from tax, subject to the following:

• The total sales or turnover or gross receipts of the company

do not exceed INR 60,00,000 in any of the immediate three
preceding previous years
• All the assets and liabilities of the company before
conversion become those of the LLP
• All the shareholders of the company become partners of LLP
with their capital contribution and profit-sharing ratio
remaining same as their shareholding in the company
 BUDGET 2010 – 11
• Conversion of a company into LLP (cont.,)

• Apart from the above, the shareholders of the company do

not receive any other consideration or benefit, directly or
indirectly
• The aggregate profit sharing ratio of the shareholders of the
company in LLP to be minimum 50 percent in the subsequent
five years
• The partners do not draw any amount out of accumulated
profit on the date of conversion in the subsequent three years

– The accumulated loss and unabsorbed depreciation of the

company to be that of the LLP as stipulated
BUDGET 2010 – 11

• Conversion of a company into LLP (cont.,)

– The profits or gains on conversion and benefit of losses set

off by LLP to be taxable for LLP if the stipulated conditions
are not met

– The credit in respect of MAT paid by the company is not

available to the LLP

– The cost of acquisition of capital asset for the LLP is to be

the cost to the company plus the cost of improvement, if
any, by the LLP or the company