DEPARTMENT OF BUSINESS

ADMINISTRATION

TERM PAPER

OF

CORPORATE TAX PLANNING

On

CORPORATE TAX PLANNING FOR

VARIOUS TYPE OF BUSSINESS
ENTITIES

SUBMITTED TO
SUBMITTED BY
MOHD.ANISH SIR ABHINAV PANDEY
MBA 3nd Sem(Fin.)

PAGE No. 1
 CONTENT

TYPE PF BUSSINESS ENTITY

SOLE PROPRITRSHIP

ADVANTAGE

DISADVANTAGE

PARTNERSHIP BUSSINESS

LIMITED LIABILITY PARTNERSHIP (LLP)

IN INDIA

PROCESS OF STARTING A LLP

DIFERENCE BETWEEN PARTNERSHIP AND LLP

HINDU UNDIVIDED FAMILY (HUF)

KEY ASPECTS

HUF AS PARTNER IN PARTNERSHIP FIRM

POSITION OF BANKER IN EXTENDING CREDIT

COMPANY

LEGAL FORMATION

ARTIFICIAL PERSON

SEPARATE LEGAL ENTITY

COMMON SEAL

PAGE No. 2
CONTENT (Cont…)
PERPITUAL EXITANCE

LIMITED LIABILITY

DEMOCRATIC MANAGEMENT

SPECIAL CHARACTERISTIC OF PRIVATE LIMITED COMPANIES

SPECIAL CHARACTERISTIC OF PUBLIC LIMITED COMPANIES

CORRPORATE TAX RATES IN INDIA

PARTNERSHIP

COMPANY AND LLP

DOMESTIC COMPANY

FPREIGN COMPANY

DOMESTIC COMPANY AND LLP TAX RATES

FOREIGN COMPANY AND INCOME TAX RATES

WEALTH TAX

COMPENSATION

TAX SAVING BY HUF

PAGE No. 3
 TYPE OF BUSSINESS
ENTITIES

Sole proprietorship
A sole proprietorship also known as a sole trader, or simply
proprietorship is a type of business entity which is owned and run by one
individual and where there is no legal distinction between the owner and the
business. All profits and all losses accrue to the owner (subject to taxation).
All assets of the business are owned by the proprietor and all debts of the
business are his debts and he must pay them from his personal resources.
This means that the owner has unlimited liability. It is a “sole”
proprietorship in the sense that the owner has no partners (partnership).

A sole proprietor may do business with a trade name other than his or her
legal name. This also allows the proprietor to open a business account with
banking institutions.

Advantages

The main advantages of a sole proprietorship are that they are easy to start
up, they are subject to fewer regulations relative to other types of businesses,
the owner has full autonomy with regard to business decisions, and they are
easy to discontinue. [1] Another advantage is that one takes all the profits of
the business. This is the main reason that most businesses are of this type. A
sole proprietorship is not a corporation; it does not pay corporate taxes, but
rather the person who organized the business pays self employment taxes on
the profits made, making accounting much simpler. A sole proprietorship
also does not have to be concerned with double taxation, as a corporate
entity would. A sole proprietor usually has a quick decision process and
doesn’t have any opposition when making a decision as he or she has total
control of his business. All profits and losses accrue to the owner.

PAGE No. 4
Disadvantages

A business organized as a sole trader will likely have a hard time raising
capital since he has to make up for all the business’s funds. The owner of the
business has unlimited liability as he is responsible for the business’s debts
because he has control over the business.

A disadvantage of a sole proprietorship is that as a business becomes

successful, the risks accompanying the business tend to grow. To minimize
those risks, a sole proprietor has the option of forming a corporation, or,
more recently, a Limited Liability Company.

PARTNERSHIP
According to section 4 of the Indian Partnership Act of 1932, “Partnership
is defined as the relation between two or more persons who have agreed to
share the profits and losses according to their ratio of business run by all or
any one of them acting for all”. This definition superseded the previous
definition given in section 239 of Indian Contract Act 1872 as - “Partnership
is the relation which subsists between persons who have agreed to combine
their property, labour, skill in some business, and to share the profits thereof
between them”. The 1932 definition added the concept of mutual
agency.Partnerships in Pakistan are also conducted under the same act i.e.
Partnership act of 1932, as Pakistan and India share the same constitutional
heritage left by the British.

PARTNERS ARE MUTUAL AGENTS –

The business of firm can be carried on by all or any of them for all.
Any partner has authority to bind the firm. Act of any one partner is
binding on all the partners. Thus, each partner is ‘agent’ of all the
remaining partners. Hence, partners are ‘mutual agents’.

ORAL OR WRITTEN AGREEMENT –

As per normal provision of contract, a ‘partnership’ agreement can
be either oral or written. - - Agreement in writing is necessary to get
the firm registered. Similarly, written agreement is required, if the firm
wants to be assessed as ‘partnership firm’ under Income Tax Act. A
written agreement is advisable to establish existence of partnership

PAGE No. 5
and to prove rights and liabilities of each partner, as it is difficult to
prove an oral agreement. - - However, written agreement is not
essential under Indian Partnership Act.

SHARING OF PROFIT NECESSARY –

The partners must come together to share profits. Thus, if one
member gets only fixed remuneration (irrespective of profits) or one
who gets only interest and no profit share at all, is not a ‘partner’. - -
Similarly, sharing of receipts or collections (without any relation to
profits earned) is not ‘sharing of profit’ and the association is not
‘partnership’. For example, agreement to share rents collected or
percentage of tickets sold is not ‘partnership’, as sharing of profits is
not involved. - - The share need not be in proportion to funds
contributed by each partner. - - Interestingly, though sharing of profit
is essential, sharing of losses is not an essential condition for
partnership . - - Similarly, contribution of capital is not essential to
become partner of a firm.

NUMBER OF PARTNERS –
Since partnership is ‘agreement’ there must be minimum
two partners. The Partnership Act does not put any
restrictions on maximum number of partners. However,
section 11 of Companies Act prohibits partnership consisting
of more than 20 members, unless it is registered as a
company or formed in pursuance of some other law.

LIMITED LIABILITY PARTNERSHIP

A corporate limited liability partnership
“business vehicle that enables professional expertise and entrepreneurial
initiative to combine and operate in flexible, innovative and efficient
manner, providing benefits of limited liability while allowing its members
the flexibility for organizing their internal structure as a partnership.”

A limited liability partnership (LLP) is a partnership in which some or all

partners (depending on the jurisdiction) have limited liability. It therefore

PAGE No. 6
exhibits elements of partnerships and corporations. [1] In an LLP one partner
is not responsible or liable for another partner’s misconduct or negligence.
This is an important difference from that of a limited partnership. In an LLP,
some partners have a form of limited liability similar to that of the
shareholders of a corporation.[2] In some countries, an LLP must also have at
least one “general partner” with unlimited liability. Unlike corporate
shareholders, the partners have the right to manage the business directly. As
opposed to that, corporate shareholders have to elect a board of directors
under the laws of various state charters. The board organizes itself (also
under the laws of the various state charters) and hires corporate officers who
then have as “corporate” individuals the legal responsibility to manage the
corporation in the corporation’s best interest. An LLP also contains a
different level of tax liability than a corporation.

Limited liability partnerships are distinct from limited partnerships in some

countries, which may allow all LLP partners to have limited liability, while a
limited partnership may require at least one unlimited partner and allow
others to assume the role of a passive and limited liability investor. As a
result, in these countries the LLP is more suited for businesses where all
investors wish to take an active role in management.

India
The Limited Liability Parternship Act 2008 was published in the official
Gazette of India on January 9, 2009 and has been notified with effect from
31 March 2009. However, the Act, has been notified with limited sections
only.[4]. The rules have been notified in the official gazette on April 1, 2009.
The Lok Sabha (Lower House) granted its assent to the Bill on December
12, 2008 which was earlier passed by the Rajya Sabha (Upper House) in
October 2008. The first LLP was incorporated in the first week of April
2009.

For Income Tax purposes, an LLP is treates as any other partnership firm.

The salient features of the LLP Act, 2008 are as under:-

1. The LLP has an alternative corporate business vehicle that would give the
benefits of limited liability but allows its members the flexibility of
organizing their internal structure as a partnership based on an agreement.

PAGE No. 7
2. The LLP Act does not restrict the benefit of LLP structure to certain
classes of professionals only and would be available for use by any
enterprise which fulfills the requirements of the Act.

3. While the LLP has a separate legal entity, liable to the full extent of its
assets, the liability of the partners would be limited to their agreed
contribution in the LLP. Further, no partner would be liable on account of
the independent or un-authorized actions of other partners, thus allowing
individual partners to be shielded from joint liability created by another
partner’s wrongful business decisions or misconduct.

4. LLP shall be a body corporate and a legal entity separate from its partners.
It will have perpetual succession. Indian Partnership Act, 1932 shall not be
applicable to LLPs and there shall not be any upper limit on number of
partners in an LLP unlike an ordinary partnership firm where the maximum
number of partners can not exceed 20, LLP Act makes a mandatory
statement where one of the partner to the LLP should be an Indian.

5. Provisions have been made for corporate actions like mergers,

amalgamations etc.

6. While enabling provisions in respect of winding up and dissolutions of

LLPs have been made, detailed provisions in this regard would be provided
by way of rules under the Act.

7. The Act also provides for conversion of existing partnership firm, private
limited company and unlisted public company into a LLP by registering the
same with the Registrar of Companies (ROC)

8. Nothing Contained in the Partnership Act 1932 shall effect an LLP.

9. The Registrar of Companies (Roc) shall register and control LLPs also.

10. The governance of LLPs shall be in electronic mode based on the

successful model of the present Ministry of Corporate Affairs Portal. Visit
LLP Portal to register a new LLP.

PAGE No. 8
Process to Start LLP
DIFERENCE OF PARTNERSHIP AND LLP
Traditional Partnership
Unlimited personal liability of
each partner for dues of the
partnership firm. Personal assets
of each partner also liable.
Partnership is registered under
partnership Act. Registration
is not mandatory.
Not a legal entity separate from
its partners.
PAGE No. 9
Limited Liability Partnership
Limited liability. No person - 9
-al liability of partner, except in
case
of fraud.
LLP is incorporated under LLP
Bill. Incorporation is
mandatory.
It is a legal entity separate from
its partners.
‘Incorporation Document’ is

Partnership deed is executed.
Minimum 2 and maximum 20
partners
Documents are required to be
filed with registrar of firms (of
respective states)
required to be executed. LLP
Agreement is required in almost
all cases, though it is not
mandatory.
Minimum 2 and no limit on
maximum number of partners.

All partners are liable for statutory ROC is the administrating

compliances. authority.

Partner can not enter into Only Designated Partners are

business with firm. liable for statutory compliances.

Partner of LLP can enter into

Every partner of firm is agent of business with LLP.
firm and also of otherpartners
Every partner of LLP is only agent
of firm.

Hindu undivided family (HUF)

A Hindu Joint Family or Hindu undivided family (HUF) or a Joint
Family is an extended family arrangement prevalent among Hindus of the
Indian subcontinent, consisting of many generations living under the same
roof. All the male members are blood relatives and all the women are either
mothers, wives, unmarried daughters, or widowed relatives, all bound by the
common sapinda relationship. The joint family status being the result of
birth, possession of joint cord that knits the members of the family together
is not property but the relationship. The family is headed by a patriarch,
usually the oldest male, who makes decisions on economic and social
matters on behalf of the entire family. The patriarch’s wife generally exerts
control over the kitchen, child rearing and minor religious practices. All
money goes to the common pool and all property is held jointly.

PAGE No. 10
 There are several schools of Hindu Law, such Mitakshara, the Dayabhaga,
the Murumakkattayam, the Aliyasanthana etc. Broadly, Mitakshara and
Dayabhaga systems of laws are very common. Family ties are given more
importance than marital ties. The arrangement provides a kind of social
security in a familial atmosphere.

Due to the development of Indian Legal System, of late, the female members
are also given the right of share to the property in the HUF. In CIT vs
Veerappa Chettiar, 76 ITR 467 (SC), Supreme Court had occasion to decide
on an issue whether after the death of all the male members in a HUF, the
HUF would still exist.

Six key aspects of Joint Family are:-

• all members live under one roof
• share the same kitchen
• three generations living together (though often two or more brothers live
together, or father and son live together or all the descendants of male live
together)
• income and expenditure in a common pool- property held together.
• a common place of worship
• all decisions are made by the male head of the family- patrilineal,
patriarchal.

HUF as a partner in a partnership firm

HUF is a joint family consists of all persons lineally descended from a

common ancestor. Hence, HUF is a group of members of the same family.

The “father”, or the “senior member” of the family called “Karta”, ordinarily
manages the property belonging to Joint Family. Hence, the status of HUF
cannot be termed as person.

The partnership is a relationship between persons who have agreed to share

the profits of a business carried on by all or any of them acting for all.
Hence, to become a partner in a partnership firm, the partner should be a
natural person or recognized as person by the law (Company - by virtue of
Companies Act 1956). Since, HUF is not a “person”, but only group of

PAGE No. 11
persons belonging to the same family and carrying on the family business,
HUF cannot be a partner in a partnership firm.

The above view is supported by a catena of judgments

The Supreme Court of India held (AIR-1930-PC-300 & AIR1956-SC-854) -

HUF is an association of persons is “not a person” within the meaning of
expression in the Partnership Act. “… it is now well settled that HUF cannot
enter into contract of partnership with another person or persons.”

Position of a Banker in extending credit facilities

A banker dealing with Hindu undivided families will have to be cautious

while extending credit facilities to HUF because certain laws and customers
relating to succession and transfer of rights among Hindus, put serious
obstacles in the way of the Banker’s providing financial accommodation on
the security of what is ordinarily considered to be normal and reliable bank
security.

HUF can be governed either by Mitakshara Laws or by Dayabhaga Laws.

All the HUF to the exception of West Bengal are governed by Mitakshara
Law. West Bengal follows the Dayabhaga system. Let us take an example of
a HUF governed by the Mitakshara law wherein all the members acquire a
right in the ancestral property by birth and the accrual of that right dates
from conception of the child who by legal fiction becomes the member of
HUF. So that there is always the danger of having transaction impugned by
even a person who at the date of the transaction was not born. In order to
charge a joint family estate, its is necessary that all the members of the
family should join the execution of the deed, or should give their consent, or
that the deed should be made by the head of the family in his capacity as
karta or manager.

PAGE No. 12
The powers of the karta are, however, limited and charge
created by him is binding on the family property, only if the loan
for which the charge is created, is taken for a purpose
necessary or beneficial to the family, or is in discharge of a
lawful antecedent debt due from the family. This is also called as
vyavaharika debt. [”Vyavahar” means conduct. In this context, it
means good conduct]. In the event of a suit being filed by a HUF
as a partner in a partnership firm

HUF is a joint family consists of all persons lineally descended from a

common ancestor. Hence, HUF is a group of members of the same family.

The “father”, or the “senior member” of the family called “Karta”, ordinarily
manages the property belonging to Joint Family. Hence, the status of HUF
cannot be termed as person.

The partnership is a relationship between persons who have agreed to share

the profits of a business carried on by all or any of them acting for all.
Hence, to become a partner in a partnership firm, the partner should be a
natural person or recognized as person by the law (Company - by virtue of
Companies Act 1956). Since, HUF is not a “person”, but only group of
persons belonging to the same family and carrying on the family business,
HUF cannot be a partner in a partnership firm.

The above view is supported by a catena of judgments

The Supreme Court of India held (AIR-1930-PC-300 & AIR1956-SC-854) -

HUF is an association of persons is “not a person” within the meaning of
expression in the Partnership Act. “… it is now well settled that HUF cannot
enter into contract of partnership with another person or persons.”

JOINT STOCK COMPANY

Company is a voluntary association of persons formed for the purpose of
doing business having a distinct name and limited liability. It is a juristic
person having a separate legal entity distinct from the members who
constitute it, capable of rights and duties of its own and endowed with the

PAGE No. 13
potential of perpetual succession. The Companies Act, 1956, states that
‘company’ includes company formed and registered under the Act or an
existing company i.e. a company formed or registered under any of the
previous company laws.
Section 2(17) of the act defines company. The term company includes:

any Indian company

any corporate incorporated by or under the laws of country outside India
any institution, association or body which is or was assessable or was
assessed as a company for any assessment year under the 1922 Act or under
the 1961 act any institution, association or body, whether incorporated or not
and whether Indian or non Indian, which is declared by general or special
order of the board to be a company only for such assessment year or
assessment years
The companies in India are governed by the Indian Companies Act,
1956. The Act defines a company as an artificial person created by law,
having a separate legal entity, with perpetual succession and a common
seal.
What this means is that, the company “is different” from the
investors. The investors put in money and capital is raised. But the
company is treated as a virtual person. The company is treated as a
person who is different from it’s investors. The company has an identity
of it’s own. If some one sues the company, he does not sue the investors,
he sues the virtual person that is the company.
To understand the concept of joint stock (private and public limited)
companies, consider the following characteristics:
Legal formation:
No single individual or a group of individuals can start a business and call it
a joint stock company. A joint stock company can come into existence only
when it has been registered after completion of all the legal formalities
required by the Indian Companies Act, 1956.
Artificial person:

PAGE No. 14
Just like an individual takes birth, grows, enters into relationships and dies, a
joint stock company takes birth, grows, enters into relationships and dies.
However, it is called an artificial person as it’s birth, existence and death are
regulated by law.
Separate legal entity:

Being an artificial person, a joint stock company has its own separate
existence independent of it’s investors. This means that a joint stock
company can own property, enter into contracts and conduct any lawful
business in it’s “own” name. It can sue and can be sued by others in the
court of law. The shareholders are “not” the owners of the property owned
by the company. Also, the shareholders cannot be held responsible for any of
the acts of the company.
Common seal:
A joint stock company has a “seal”, which is used while dealing with others
or entering into contracts with outsiders. It is called a common seal as it can
be used by any officer at any level of the organization working on behalf of
the company. Any document, on which the company’s seal is put and is duly
signed by any official of the company, becomes binding on the company.
Perpetual existence:
A joint stock company continues to exist as long as it fulfills the
requirements of law. It is not affected by the death, lunacy, insolvency or
retirement of any of it’s investors. For example, in case of a private limited
company having four members, if all of them die in an accident, the
company will “not” be closed. It will continue to exist. The shares of the
company will be transferred to the legal heirs of the members.
Limited liability:
In a joint stock company, the liability of a member is limited to the amount
he has invested. While repaying debts, for example, if a person has invested
only Rs.10,000 then only this amount that he has invested can be used for
the payment of debts. That is, even if there is liquidation of the company, the

PAGE No. 15
personal property of the investor can not be used to pay the debts and he will
lose his investment worth Rs.10,000.
Democratic management:
Joint stock companies have democratic management and control. Since in
joint stock companies there are thousands and thousands of investors, all of
them cannot participate in the affairs of management of the company.
Normally, the investors elect representatives from among themselves known
as ‘Directors’ to manage the affairs of the company

Special charecerestics of Private Limited

Comapnies

These companies can be formed by at least two individuals having

minimum paid-up capital of not less than Rupees 1 lakh.
As per the Companies Act, 1956 the total membership of these companies
cannot exceed 50.
The shares allotted to it’s members are also not freely transferable between
them.
These companies are not allowed to raise money from the public through
open invitation.

They are required to use “Private Limited” after their names.

The examples of such companies are Combined Marketing Services
Private Limited, Indian Publishers and Distributors Private Limited etc.

Special charectersetics of Public Lmited

Companies

A minimum of seven members are required to form a public limited

company.

It must have minimum paid-up capital of Rs 5 lakhs.

There is no restriction on maximum number of members.

PAGE No. 16
The shares allotted to the members are freely transferable.
These companies can raise funds from general public through open
invitations by selling its shares or accepting fixed deposits.
These companies are required to write either ‘public limited’ or ‘limited’
after their names.

DOMESTIC COMPANY
Domestic company means an Indian company, or any other company
which, in respect of its income liable to tax under this Act, has made the
prescribed arrangements for the declaration and payment, within India, of
the dividends (including dividends on preference shares) payable out of such
income ;]
4
[(22AA) document includes an electronic record as defined in clause (t)5 of sub-
section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000);

PAGE No. 17
 Corporate Tax Rate in India
PARTNERSHIP
The partnership uses Schedule K-1 to report a partner’s share of the
partnership’s income, deductions, credits, etc. The partner must only keep
Schedule K-1 for his records, but not file it with his tax return. The
partnership must file a copy of Schedule K-1 for each partner with the IRS.

Although the partnership generally is not subject to income tax, every

partner is liable for tax on his share of the partnership income, whether or
not distributed.

Joint and several liability of partners for tax payable

by firm.
188A. Every person who was, during the previous year, a partner of a
firm, and the legal representative of any such person who is deceased, shall
be jointly and severally liable along with the firm for the amount of tax,
penalty or other sum payable by the firm for the assessment year to which
such previous year is relevant, and all the provisions of this Act, so far as
may be, shall apply to the assessment of such tax or imposition or levy of
such penalty or other sum.]

COMPANIES AND LLP

The corporate tax rate in India is at par with the tax rates of the other nations
worldwide. The corporate tax rate in India depends on the origin of the company.

For the purpose of taxation, companies are broadly

classified as:-

Domestic company [Section 2(22A)]:-

means an Indian company (i.e. a company formed and registered under
the Companies Act,1956) or any other company which, in respect of its

PAGE No. 18
 income liable to tax, under the Income Tax Act, has made the prescribed
arrangement for declaration and payments within India, of the dividends
payable out of such income. A domestic company may be a public company
or a private company.
Foreign company [Section 2(23A)] :
- means a company whose control and management are situated wholly
outside India, and which has not made the prescribed arrangements for
declaration and payment of dividends within India.
If the company is domicile to India, the tax rate is flat at 30%. But for a
foreign company, the tax rate depends on a number of factors and
considerations. The companies that are domicile to India are taxed on the
global income whereas the foreign companies in India are taxed on their
income within the Indian territory. The incomes that are taxable in case of
foreign companies are interest gained, royalties, income from the capital
assets in India, income from sale of equity shares of the company, dividends
earned, etc.

Domestic Corporate Income Taxes Rates:

• For Domestic Corporations the effective tax rate is 30% and the tax rate with
surcharge is 30% Attention must be given on the factor that if the taxable
income is more than Rs. 1 million then a surcharge of 10% of the tax on
income is levied
Attention must also be given on the fact that all of the companies formed
in India are regarded as Indian domestic companies, even in the case of
ancillary units with mother companies in foreign countries

Domestic Corporate & LLP Income Taxes Rates

Effective Tax Rate with

Tax Rate
surcharge & ed. cess

Domestic Corporations /
Private Limited 30% 33.99% 1
Companies
Domestic Corporations /
Public Limited 30% 33.99% 1
Companies

PAGE No. 19
Limited Liability
30% 30.9% 2
Partnership (LLP’s)

1. A surcharge of 10% of the income tax is levied, if the taxable income

exceeds Rs. 1 million. Educational cess is also added. 2. An Educational
Cess is added to the basic tax rates. Surcharge is not applicable to LLP.
Unlike LLP’s in the USA where they are pass-through entities for tax
purposes, in case of LLP’s in India, they are partially pass-through
entities for tax paurposes. In India tax an LLP is required to pay income
tax on 40% of its income; since an LLP is allowed to pay the balance of
60% as renumerations to it partners. Partners of an LLP are required to
pay tax on the amount paid to them. Besides, LLP’s are not required to
pay dividend distribution tax or Minimum Alternate Tax (MAT).

3. All companies incorporated in India are deemed as domestic Indian

companies for tax purposes, even if owned by foreign companies.

Contact us for Incorporating in India

Foreign Corporate Income Tax Rates

Withholding Tax Rates

Withholding Tax Rate for the USA Companies
for non-treaty foreign Doing Business in
companies India under the India
USA Tax Treaty

Dividends 20% 15% 1

Interest Income 20% 15% 2
Royalties 30% 20% 2
Technical Services 30% 20% 2
Other income 55% 55%

1. Inter-corporate rates where there is minimum holding. There tax rates

are applicable under the India USA Tax Treaty. For other countries the

PAGE No. 20
tax rates are different under the tax treaties between India and other
countries.
2. 10% or 15% in some cases.
3. Withholding tax is charged on estimated income, as approved by the
tax authorities.
4. There are other favorable tax rates under various tax treaties between
India and other countries..

Wealth Tax

Net Taxable Wealth Tax Rate

Over Not Over

0 Rs.1,500,000 0
Rs.1,500,000 above 1%

Wealth tax is levied on non-productive assets whose value exceeds Rs.1.5

million. Productive assets like shares, debentures, bank deposits and
investments in mutual funds are exempt from wealth tax. The non-
productive assets include residential houses, jewelry, bullion, motor cars,
aircraft, urban land, etc. Foreign nationals are exempt from wealth tax
on non-Indian assets. In arriving at the net taxable wealth, any debt
incurred in acquiring specified assets is deductible.

Gift Tax

Net Taxable Gift Tax Rate

Over Not Over

0 Rs.30,000 0
Rs.30,000 above 30%

PAGE No. 21
Gifts to dependent relatives at the time of marriage are exempt upto
Rs.100,000. Foreign nationals are exempt from gift tax on non-Indian
assets.

Tax on cash withdrawal from banks

Withdrawn in the 2008 Budget. [0.1% tax used to be levied on cash

withdrawals of over Rs 25,000 from banks on a day.

US$1=Indian Rs. 4 app.

All rates as per on the date of update.
For Updated Tax Rates and International Tax Treaties Contact us

Please Read Disclaimer .123479285 .

Corporate Income Tax in India

For companies, income is taxed at a flat rate of 30% for Indian companies.
Foreign companies pay 40%. An education cess of 3% (on the tax) are
payable, yielding effective tax rates of 33.99% for domestic companies and
41.2% for foreign companies.

From the tax year 2005-06, electronic filing of company returns is

mandatory.

Fringe Benefit Tax

Fringe Benefit Tax is a tax payable by companies against benefits that are
seen by employees but cannot be attributed to them individually. This tax is
paid as 33.99% of the benefit, which is only a percentage of the actual
amount paid.
Some fringe benefits and their taxable rates are mentioned:

PAGE No. 22
 Taxable Effective Tax
Fringe Benefit
percentage Rate
Medical reimbursements 20% 6.8%

Telephone bills 20% 6.8%

Employee Stock Options

(Difference between market value
100% 33.99%
and purchase price on vesting
date)
From April 1, 2007 , Employees Stock Option Plan (ESOP) or Sweat Equity
has also been brought within ambit of fringe benefit tax. Section
115WB(1)(d) specifies that any ESOP will attract Fringe Benefit Tax, and the
benefit is equal to the difference between the price paid and the fair market
value of the share, as determined by the Board. Tax is levied on the date of
vesting of such options. “Fair Market Value” is not yet defined by the Income
Tax Department.

COMPARISION BETWEEN VARIOUS

FORMS OF LEGAL ENTITIES OF
BUSSINESS UNITS
Sole proprietary Partnership firmCompany
concern
Taxed as an individual. Taxed as a partnership Taxed as a company.
firm. The profits from Dividend tax to be paid
Tax Slabs: partnership is not by the company.
included in the partner’s
Upto Rs. 1,10,000 : No (individual’s) tax return. Tax Slabs:
tax
Tax Slabs: Upto Rs. 1 crore: Taxed
Rs.1,10,000 to

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Rs.1,50,000: Taxed at Upto Rs. 1 crore: Taxed at 30% + cess
10% at 30% + cess
Above Rs. 1 crore: Taxed
Rs.1.5 lakhs to Rs.2.5 Above Rs. 1 crore: Taxed at 30% + surcharge +
lakhs: Taxed at 20% at 30% + surcharge + cess
cess
Rs.2.5 lakhs to Rs. 10
Lakhs: Taxed at 30%. No
surcharge

Above Rs. 10 Lakhs:

Taxed at 30% +
surcharge

TAX SAVING BY CREATING A HINDU

UNDIVIDED FAMILY
Mr Sharma has two sources of income:
1. Individual income of Rs 1,00,000 a year
2. Income of Rs 60,000 a year from ancestral property
Case A: No HUF. All income clubbed together.
Total income Rs 1, 60, 000
Tax on total income Rs 22, 000
Case B: Mr sharma creates an HUF and income from ancestral
property is treated as HUF income
HUF income Rs 60, 000
Tax (at HUF rates, which are same as those for
Rs 1, 000
individuals)
Individual income Rs 1, 00, 000
Tax Rs 9, 000
Total tax (Rs 1, 000+Rs 9, 000) Rs 10, 000

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