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CORPORATE TAXATION

 
    Computation of Business & Income     Minimum & Alternative Tax    |   Dividend Distribution Tax  
     
 

There is no independent code for corporate taxation in India. It is a part of the Income Tax Act itself. This part discusses the salient features applicable to companies. Most of the provisions would apply to individuals carrying on businesses as well.

Computation of Business Income:

Business income is normally based on the profit determined by the financial statements. The said profit is further adjusted for exempt income, non-deductible expenditure, special deductions, unabsorbed losses and depreciation.

There are various provisions governing non deductibility of expenses. They are summarised in the table below:

Nature of Expense Extent of Disallowance When Rectified / Reversed?
Personal Expenditure 100% Not Reversible
Capital Expenditure 100% Reversible by way of Depreciation if permitted
Expenses in Violation of any Law 100% Not Reversible
Specified Expenses without deduction/payment of tax at source 100% Reversible On Actual Payment
Expenditure to Related Parties Excess over Fair Value Not Reversible
Expenditure exceeding Rs. 20000/- otherwise than by account payee cheque 100% Not Reversible
Specified Duties unpaid beyond the due date of filing return 100% Reversible in the year of Actual Payment
 
 
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Depreciation is permitted on the concept of “block of assets” and not on individual assets. Accordingly, sale proceeds of assets sold within a block are straightaway reduced from WDV applicable to the block. Depreciation is generally permitted for the full year except in case of new assets used for less than 180 days (in which case depreciation is permitted at half the rates). The following table summarises the key rates of depreciation

Particulars Rates (%)
Buildings used for residential purpose 5
Buildings used for commercial purpose 10
Furniture & fittings including electrical fittings. 10
General plant and machinery 15
Motor Cars 15
Motor buses, motor lorries, and motor taxis used in business of running them on hire 30
Computers including computer software 60
Know-how, patents, copyrights, trademarks, licenses, franchises, etc. 25

 
 
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For smaller business, an optional presumptive tax system is prescribed as under

Nature of Business Income Deemed to be
Civil construction business 8% of gross receipts
Business of plying, hiring, or leasing of goods carriages Rs. 3500/- per month for HMV & Rs. 3150/- per month for other vehicles
Retail business 5% of gross receipts

 

 
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Minimum Alternative Tax (MAT)

If the income-tax payable on the total income of the company is less than 10%of its book profits, such companies are liable to pay minimum alternate tax @ 10% of the book profits.The tax so payable under the MAT shall be allowed as credit to be set off against the tax calculated under the normal provision of the Income-tax Act, for successive 7assessment years. However, no credit will be allowed in respect of MAT paid in any assessment year prior to 2006-07.

Dividend Distribution Tax

Companies declaring dividends have to consider an additional burden to the extent of 15% of the dividends distributed by them. Of course, once the DDT is paid, the dividends are exempt for shareholders. One should also consider the provisions of deemed dividend before granting any loan to a director / shareholder / related parties.

 
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