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TAXATION SLAB FOR COMPANIES AND MAT FOR A.Y.

- 2012-13

1.

Indian Corporates Domestic companies are taxable @ 30 percent

2. Foreign companys branch office or foreign companys project office (only for income generated through Indian operations) Rate @ 40 percent

Surcharge - Surcharge is applicable at the rates given below If net income does not exceed Rs. 1 crore If income exceeds Rs. 1 crore

Assessment year 2011-12 Domestic company Foreign company Nil Nil 7.5%* 2.5%*

Assessment year 2012-13 5%* 2%*

CESS Education cess - It is 2 per cent of income-tax and surcharge. Secondary and higher education cess - It is 1 per cent of income-tax and surcharge.
Provision of Marginal Relief.*

3. Common Note for both, Domestic and foreign companies (rate of atleast 18.5%):A Comparison between above rates and 18.5% is to be made - While calculating final tax liability , every company (domestic or foreign) has to compare their above stated tax liability versus MAT liability. Minimum Alternate Tax (MAT) is levied @ 18.5 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 (i.e. 30% or 40% stated above) is less than 18.5 % of the adjusted book profits. Generally this 18.5% rate happens in companies which enjoy special exemption like in Export zones etc. But every company has to be careful of this and has to calculate this 18.5% MAT and make comparison before filing its tax return.

o If in case your company is liable under MAT @ 18.5%, then its credit will be available for 10 years ** Education cess is applicable @ 3 percent on income-tax (inclusive of surcharge, if any). o In short, tax rate of atleast 18.5% of book profits is payable by companies, if tax liability @ 30% or @ 40% is less than this 18.5% of book profits.

A. Income without branch / project offices connection (I.e. without Permanent establishment in India) If the income is directly attributed / earned by foreign company and is earned without any help and without any connection with Indian branch or project office of this foreign company, then there will be no Permanent establishment of this foreign company in India. In that scenario, while making payments to your foreign company, the Indian customer will have to deduct a withholding tax rate called special rates as below (or its corresponding rate stated in respective double taxation treaty, whichever is more beneficial) :-

The following incomes in the case of non-resident are taxed at special rates on gross basis: Nature of Income Dividend {read note (b) below} Interest received on loans given in foreign currency to Indian concern or Government of India Income received in respect of units purchased in foreign currency of specified Mutual Funds / UTI Royalty or fees for technical Services For Agreements entered into: - After 31 May 1997 but before 1 June 2005 @ 20% - After 1 June 2005 @ 10% Interest on FCCB, FCEB (Exchangeable) / 10% 20% Rate(a) 20% 20%

Dividend on GDRs {read note (b) below} (a) These rates may further increase by surcharge and education cess (b) Other than dividends on which Dividend distribution tax 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. (2) Tax on non-resident sportsmen or sports association on specified income @ 10 percent plus applicable surcharge and education cess.

B. If non-resident entity is in below specific industries and their gross receipts do not exceed INR 6,000,000, then below stated rates are an option available to them :-

Business

Rate at which income is Presumed

Shipping(b) Exploration of mineral oil (b)(c) Operations of Aircraft (b) Turnkey power projects (b)(c) * FCCB & FCEB Similarities

7.5% of gross receipts 10% of gross receipts 5% of gross receipts 10% of gross receipts

Both are Issued by Indian Companies, Both are Foreign Currency Bonds, Both are issued to foreign investors, Both are converted In Equity shares on a later Date, Firstly interest and dividend are payable in foreign currency then after conversion in INR. Difference

FCEB FCCB

It can be converted into or exchanged for the shares of a group company. It can only be converted into shares of the issuing company.

Computation of book profit

In this Code, where the normal income-tax payable for a financial year by a company is less than the tax on book profit, the book profit shall be deemed to be the total income of the company for such financial year and it shall be liable to income-tax on such total income at the rate specified in Paragraph A of the Second Schedule. Subject to the provisions, the book profit formula A + B (C + D) Where, A = the net profit, as shown in the profit and loss account for the financial year prepared in accordance with the provisions of section 105 ; B = the aggregate of the following amounts (Expenses), if debited to the profit and loss account : (a) the amount of any tax paid or payable under this Code, and the provision therefore shall be computed in accordance with the

(b) the amount carried to any reserves, by whatever name called ; (c) the amount set aside as provision for meeting unascertained liabilities ; (d) the amount by way of provision for losses of subsidiary companies ; (e) the amount of dividends paid or proposed ; (f) the amount of depreciation ; (g) the amount of deferred tax and the provision therefore ; (h) the amount set aside as provision for diminution in the value of any asset ; (i) the amount of any expenditure referred to in clause (a) of sub-section (1) of section 18 ; C = the aggregate of the following amounts : (a) the amount of depreciation debited to the profit and loss account (excluding the depreciation on account of revaluation of assets) ; (b) the amount withdrawn from the revaluation reserve and credited to the profit and loss account, to the extent it does not exceed the amount of depreciation on account of revaluation of assets referred to in clause (a) ; (c) the amount withdrawn from any reserve or provision if any such amount is credited to the profit and loss account and such amount has been taken into account for computation of the book profit of any preceding financial year ; (d) the amount of profits of a sick industrial company for any financial year comprised in the period commencing from the financial year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the financial year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses ; (e) the amount of any income referred to in section 10 read with the Sixth Schedule, if credited to the profit and loss account ; (f) the amount of deferred tax, if any such amount is credited to the profit and loss account ; D = the amount of loss brought forward. (3) In sub-section (2), the loss brought forward shall be

(i) nil, if such loss brought forward (excluding depreciation) or unabsorbed depreciation as per books of account, as the case may be is nil ; or (ii) the amount of loss brought forward (excluding depreciation) or unabsorbed depreciation as per books of account, whichever is less, in any other case. (4) In sub-section (2), the amount of tax shall include (a) any interest charged or chargeable under this Code ; (b) any tax on distributed profits under section 109 ; (c) any tax on distributed income under section 110 ; (d) any tax paid on branch profits under section 111 ; and (e) any tax on wealth under section 112. (5) Every company to which this section applies shall obtain a report in such form as may be prescribed from an accountant certifying that the book profit has been computed in accordance with the provisions of this section.

***REMEMBER*** (a) "normal income-tax" means the income-tax payable for a financial year by a company on its total income in accordance with the provisions other than the provisions of this Chapter ; (b) "tax on book profit" means the amount of tax computed on book profit at a rate specified in Paragraph A of the Second Schedule. Clause 104 seeks to provide the method of computation of book profit in case of a company for the purposes of computation of the tax payable on such book profit. The said clause provides that notwithstanding of anything in this Code, where the normal income-tax payable for a financial year by a company is less than the tax on book profit, then the book profit shall be deemed to be the total income of the company for such financial year and it shall be liable to income-tax on such total income at the rate specified in Paragraph A of the Second Schedule. This is essentially the concept of a Minimum Alternate Tax. The terms "normal income-tax" and "tax on book profit" used in this sub-clause have been defined in sub-clause (6) of the said clause. Paragraph A of the Second Schedule provides for a rate of tax of twenty per cent. on such deemed total income.

The clause further provides a formula for the calculation of the book profit. The formulas starting point is the net profit of the company computed in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. The sub-clause provides for various adjustments to be made to the net profit to determine the book profit. The adjustments have the effect of both increasing and decreasing the net profit. The book profit would be higher than the net profit if the adjustments have a net positive impact and vice versa. The said clause also provides that every company, to which this clause applies, shall obtain a report in the prescribed form from an accountant certifying that the book profit has been computed in accordance with the provisions of this clause.

RULES REGARDING SALARY TO PARTNERS In all most all the partnership agreements ,provision for salary is included and amount of Partner remuneration is decided with mutual consent .However Income Tax act does not allow full amount of partner's salary as expense. A formula /% of book profit is allowed as partner's remuneration .There are some conditions also which are to be complied to claim deduction of salary as expense in P & L account of partnership firm.Partner's Salary is dealt under Section 40(b) of the Income Tax Act 1961. Conditions are defined in section 40(b) of the income tax act. 1. 2. 3. 4. Salary must be paid to working partner only. Salary must be written/authorized by the Partnership deed and must be quantified. Salary must be related to the period after the partnership deed date. Salary allowed under income tax act will be limited to of % of Book profit as given below .

Salary here means: salary ,commission ,remuneration (or any name whatever name called) Now detail of each condition.

1. Working partner: salary to sleeping partner is not allowed , and working partner definition has been given in explanation 4 of the section 40(b)

working partner means an individual who is actively engaged in conducting the affairs of the business or profession of the firm of which he is a partner

Working partner in general terms means the partner who is actively engaged in the business of the partnership firm and is not a partner for merely enjoying the profits/benefits of the partnership business. If a partner is not a working partner then remuneration to such partner will not be eligible for deduction as per section 40(b) of Income Tax Act 1961. 2.Salary must be written/authorised by the Partnership deed:To claim the expense of salary of partner in p& L salary should be authorised by the partnership deed and it should also be according to the conditions/terms defined in the partnership deed.

Clause in partnership should be clear and amount should be defined.

Board has issued a Circular : No. 739, dated 25-3-1996. also related to clause in partnership deed for salary to partners Whether for assessment years subsequent to assessment year 1996-97, no deduction under section 40(b)(v) will be admissible unless partnership deed either specifies amount of remuneration payable to each individual working partner or lays down manner of quantifying such remuneration 1. The Board have received representations seeking clarification regarding dis allowance of remuneration paid to the working partners as provided under section 40(b)(v) of the Income-tax Act. In particular, the representations have referred to two types of clauses which are generally incorporated in the partnership deeds. These are : (i) The partners have agreed that the remuneration to a working partner will be the amount of remuneration allowable under the provisions of section 40(b)(v) of the Income-tax Act; and (ii) The amount of remuneration to working partner will be as may be mutually agreed upon between partners at the end of the year. It has been represented that the Assessing Officers are not allowing deduction on the basis of these and similar clauses in the course of scrutiny assessments for the reason that they neither specify the amount of remuneration to each individual nor lay down the manner of quantifying such remuneration.

2. The Board have considered the representations. Since the amended provisions of section 40(b) have been introduced only with effect from the assessment year 1993-94 and these may not have been understood correctly the Board are of the view that liberal approach may be taken for the initial years. It has been decided that for the assessment years 1993-94 to 1996-97 deduction for remuneration to a working partner may be allowed on the basis of the clauses of the type mentioned at 1(i) above. 3. In cases where neither the amount has been quantified nor even the limit of total remuneration has been specified but the same has been left to be determined by the partners at the end of the accounting period, in such cases payment of remuneration to partners cannot be allowed as deduction in the computation of the firms income. 4. It is clarified that for the assessment years subsequent to the assessment year 199697, no deduction under section 40(b)(v) will be admissible unless the partnership deed either specifies the amount of remuneration payable to each individual working partner or lays down the manner of quantifying such remuneration.

The above circular is very clear so ,from ay 1996-97 onwards amount should be defined in the partnership deed. 3.Salary should be related to the period after the partnership deed date: The salary as per partnership deed should be after the partnership deed.If payment is related to period earlier than the date of partnership deed ,then it will be disallowed as expense.

4.Salary must be with in limit of % of Book profit.: As per section following % has been defined with in which salary can be claimed for partners.% chart is given below

Latest rates applicable for calculation of Partner's salary .


Common rate for both type of Firm whether covered under 44AA or not On the First three lakh of the Profit or In case of Loss: 150000 or 90 % of profit whichever is more On balance profit:60% of the profit

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