corporate taxation CORPORATE TAX by plybz18

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1. INTRODUCTION (2 HRS) Definitions, residential status, heads of income, computation of taxable income 2. TAXATION OF COMPANIES (7 HRS) Special provisions in computation of profit from business Deduction from gross total income Amalgamation of companies and fiscal incentives Minimum alternative tax on companies Special provisions relating to tax on distributed profits of domestic companies 3. TAX PLANNING (7 HRS) Concept relating to tax avoidance and tax evasion Tax planning with reference to; location of undertaking, types of activity, ownership pattern, dividend policy, Issue of bonus shares, Inter corporate dividends and transfer Tax planning relating to amalgamation and mergers of companies Tax considerations in respect of specific managerial decision like make or buy, own or lease, close or continue, sales in domestic markets or exports, capital budgeting decisions, managerial remuneration, foreign collaboration and joint ventures. 4. TAX MANAGEMENT (4 HRS) Filing of returns and assessments Penalties and prosecutions Appeals and revisions Advance tax, TDS, advance rulings Avoidance of double taxation agreements BASIC TEXTS Students’ Guide to Income Tax (by) Vinod Singhania & Monica Singhania (Taxmann) Corporate Tax – Planning and Management (by) Girish Ahuja & Ravi Gupta (Bharat’s)

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Income tax –Computation of total Income Taxation of companies Taxation of companies Taxation of companies Tax Planning Tax Planning Tax Planning Tax Management Tax Management











• Every Year a Budget is presented before the parliament (Normally 28th Feb ) by the Finance Minister. • One of the most important components of Budget is the Finance Bill, Which declares the financial proposals of the Central Government for the next Financial Year.

• The Finance Bill contains various amendments which are sought to be made in the area of direct and indirect taxes levied by the central Government. • The Finance Bill also mentions the rates of income tax and other taxes . • When the Finance Bill Approved by both the houses of parliament and receives the assent of the president , it becomes the Finance Act. The provisions of such finance Act are thereafter incorporated in the Income-Tax Act

• INCOME TAX LAW An understanding of the income –tax law requires the study of the following 1.The Income –tax Act,1961 (amended up to date) 2. The Income –tax Rules ,1962 (amended up to date) 3.Circulars clarifications issued by CBDT 4.Judicial decisions

• •

Every person , whose total Income of the previous year exceeds the maximum amount which is not chargeable to income tax , is an assessee and chargeable to income –tax in the relevant assessment year at the rate or rates prescribed in the Finance Act. However, this total income shall be determined on the basis of his residential status in India.

• • • • • • • • • • • An analysis of the above statement would reveal the following important concepts which are necessary for understanding the framework of the Income-Tax Act. 1.Person 2.Assessee 3.Assessment Year 4.Previous Year 5.Rate or rates of tax 6.Charges of income tax 7.Maximum amount which are not chargeable to income tax 8.Total Income 9.Residential Status 10.Finance Act

1.PERSON The following persons are liable to Income tax Person (Section 2(31)) : person Includes • 1.An individual; • 2.A Hindu Undivided Family (HUF) • 3.A company • 4.A Firm • 5.An Association of Persons(AOP) or a Body of Individuals (BOI) whether incorporated or not • 6. A Local Authority • 7. Every Artificial judicial Person not falling with any of the preceding sub-clauses.

• 1.Individual • Individual means a natural person ie a human being • It includes a male, female, minor child and a lunatic or idiot.

• 2. A Hindu Undivided Family (HUF) It is not defined under Income Tax Act However as per the Hindu law , it means a family which consists of all persons lineally descended from a common ancestor including their wives and daughters.

• It is an incorporated under companies Act which is an artificial judicial person, having an independent legal entity, with a perpetual succession, a common seal , a common capital consists of transferable shares and carrying limited liability.

A Firm refers to Partnership firm. As per partnership Act, it is relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. It is based on contract or agreement whether written Partnership deed or oral one.

Association of persons (AOP) • AOP means two or more persons who join for a common purpose with a view to earn income .It need not be on the basis of contract. Body of Individual(BOI) • BOI means a conglomeration of Individuals who carry on some activity with the objective of earning some income. • It would consists only of Individuals

• An AOP may consist of non –individuals but a BOI has to consist of Individuals only. • If two or more persons (like firm, company, HUF individual etc) join together it is called AOP .But if only individual join together it is BOI

Local Authority
It means • Panchayat • Municipality • Contonement Board Eg corporation of chennai

Artificial Judicial Person
• These are entities which are not natural persons but separate entities in the eyes of law. God, idols and deities are artificial judicial persons. • Similarly all other artificial persons with a juristic personality will also fall under this category, if they do not fall within any of the preceding categories of persons eg University of Madras.

• Assessee means: [Section 2(7)] Any person who is liable to pay any tax or any other sum under the Income Tax Act, 1961; and • Assessee includes• (a) Every person in respect of whom any proceedings has been taken for the assessment of His Income or Fringe Benefits or of the income of any other person Loss sustained by him or other person. Refund due to him or such other person • (b) Every person who is deemed to be an assessee under the Act • (c) Every person who is deemed to be an assessee in default under the Act. • Note: Individuals and HUF are not liable to Fringe Benefits Tax

• . Previous Year: • (a) Income of the Previous Year is chargeable to tax. • (b) Previous Year means Financial Year immediately preceding the Assessment Year. • (c) Example: The current previous year is 2009-2010 i.e. from 01/04/.2009 to 31.3.2010.

• Assessment Year: • (a) The income of the previous year is chargeable to tax during the immediately following Assessment Year. • (b) Assessment Year means the period of twelve months commencing on the 1st day of April every year. • (c) It is the year for which tax is paid. • (d) Example: For the previous year 2009-10, Assessment Year is 2010-11. The income of the previous year 2009-10 i.e. from 1.4.2009 to 31.3.2010, is chargeable to tax during the Assessment Year 2010-11.

• Income Tax is chargeable at the rate or rates prescribed on the Finance Act. • The rates of Taxes for Individual, Company , Firm etc for the AY 2010-11 is as follows

1.INDIVIDUAL (other than woman, Senior citizen),HUF,AOP/BOI
Income Up to Rs 150000 Rate of Tax NIL

Rs 150001 to Rs 300000 Rs 300001 to Rs 500000
Above Rs 500000

10 % 20 %
30 %

2 INDIVIDUAL WOMEN For Woman ,resident
in India and below the age of 65 years at any time during the Previous Year

Income Up to Rs 180000 Rs 180001 to Rs 300000

Rate of Tax NIL 10 %

Rs 300001 to Rs 500000 Above Rs 500000

20 % 30 %

3. INDIVIDUAL SENIOR CITIZEN -For an individual (man & woman) ,resident in India who is of the age of 65 years at any time during the Previous Year


Rate of Tax

Up to Rs 225000
Rs 225001 to Rs 300000

10 %

Rs 300001 to Rs 500000 Above Rs 500000

20 % 30 %

• FLAT RATE @ 30% . • There is no basic exemption limit

RATES OF TAX • DOMESTIC COMPANIES 30% • FOREIGN COMPANIES 40% There is no basic exemption limit.

Income Up to Rs 10000 Rate of Tax 10 %

Rs 10001 to 20000 Above Rs 20000

20 % 30 %

PERSON Individual /HUF/BOI/AOP if total income exceeds Rs 1000000(ten lakhs) Firm/Companies if total income exceeds Rs 10000000(One crore) Co-operative societies/Local Authorities RATE 10 %



• For all assessees Education cess (EC)- 2% Secondary and higher education cess(SHEC)-1 % Shall be levied on the total tax (including surcharge if applicable)

Charge of Income –tax law
• No tax can be levied or collected in India excepts under the authority of law. • Section 4 of Income Tax Act , gives such authority for charging of income tax • The base for levy of Tax in any assessment year is normally the income of the previous year. • ( except for 1.shipping business of NRI,2.person leaving India,3.AOI or BOI for particular purpose, 4. person likely transfer property to avoid tax and 5.discontinued business)

Essential features of Charge of Income Tax
• • • • 1.Income Tax is an annual tax 2.Charge on person 3.Charge in respect of total income 4. Charge in respect of income of the previous year • 5.Exceptional Case of charge for the current year • 6.Each year is a self contained accounting period • 7.Authority for collection of tax by deduction of tax at source and advance payments

Total Income
• To understand Total income one must know the following 1.Definition of Income 2.Gross Total Income 3.Deduction permissible from Gross Total Income

Definition of Income
• • • • Income includes [Section 2(24)] 1. Profits or Gains of Business or Profession. 2. Dividend. 3. Voluntary Contribution received by a charitable or Religious Trust or Institution or University or Educational Institution or Hospital. • 4. Value of perquisite or profit in lieu of salary taxable u/s 17 and special allowance or benefit specifically granted either to meet personal expenses or for performance of duties of an office or an employment of profit.

Definition of Income (contd)
• 5. Export incentives like Duty Drawback, Cash Compensatory Support, Sale of licences etc. • 6. Interest, salary, bonus, commission or remuneration earned by a partner of a firm from such firm. • 7. Capital Gains chargeable u/s 45. • 8. Winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever.

Definition of Income (contd)
• 9. Deemed income u/s 41 or 59. • 10. Sums received by an assessee from his employees towards welfare fund contributions such as provident fund, superannuation fund etc. • 11.Amount received under Keyman Insurance Policy including bonus thereon. • 12.Amount received under agreement for (a) not carrying out activity in relation to any business or (b) not sharing any know-how, patent, copyright etc.

Definition of Income (contd)
• 13. Benefit or perquisite received from a Company, by a Director or a person holding substantial interest or a relative of the Director or such person. • 14. Gifts as defined u/s. 56. • 15. Profits of a Co-operative Society engaged in Banking Business.

As per section 14, all income shall for the purpose of Income tax and computation of total income , be classified in to five major heads of income.

• 1.Salaries • 2.Income from House Property • 3.Profits and Gains of Business or Profession • 4.Capital Gains • 5.Income from Other sources

Particulars Heads of Income
1.Salaries 2.Income from House Property 3.Profits and Gains of Business or Profession 4.Capital Gains 5.Income from Other sources
Add: Clubbing provisions xxx


Less: Set off & carry forward of Loss
Gross Total Income


Less: Deduction under chapter VI A of income Tax Act ie Deduction U/S 80C to 80U

xxx xxx

Total Income

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