1

Contents

1. Introduction to Corporate Taxes 1
2. History of Corporate Tax 4
3. Corporate Income Taxes and Tax Rates 8
4. Types of Taxation System in India 9
5. Tax Penalties
6. Corporate Taxes of India With Foreign Countries
7. Taxable Corporate Income
8. Deductions
9. Corporate Tax Planning
10. Contribution
11. Problems in calculation and collecting
12. Structure
13. Recommendation
14. Merits of Corporate taxes
15. Demerits of Corporate Taxes
16. Conclusion

2


Introduction to Corporate Tax

The tax collected from the companies is called company tax or corporate tax .
A company incorporated in India or having its entire control and management in
India is treated as a resident company and is taxed on its global income.
Corporate Tax Applies on Profits made by the companies or associations
IT comes under Income Tax Act 1961 and Income Tax rules 1962
Till now various amendments have been made in corporate tax
Corporate taxes are a significant item for revenue generation for the
Government of India
Income Tax Rates for Companies A.Y. 2014-15 (F.Y. 2013-14)
To know the income tax slab for companies first of all you should know about the
classification of companies.
There are two types of companies as given below
Domestic Company: The Company which is registered in India is called
domestic company. Domestic company is further classified as public company and
private company.
Foreign Company: The Company which is registered outside India is called
foreign company.
3

Which company is liable to pay tax?
All companies irrespective of the status and income is liable to pay tax according
to the income tax slab / rates applicable to particular assessment year. For
example the company will pay tax for the period 1-4-2013 to 31-3-2014 according
to income tax slab for A.Y.2014-15.
How to calculate taxable income of a company?
The same method will be applicable for calculation the taxable income of a
company as applicable to individuals. The income is computed separately under
each head and then aggregated to compute the gross total income. As for obvious
reason there is no need to mention that the company will not have salary income
as individuals.
What is income tax rates/ income tax slab for A.Y.2014-15 for a company?
Income tax rates on domestic company
The flat rate @ 30% will be taxed on total income of a domestic company
Surcharge @ 5% will be applicable for those domestic companies whose taxable
income is more than Rs. 1 Crore.
Education Cess @ 3% will be applicable on income tax. Education cess will be
livable on the amount of income tax and surcharge.
Income tax rates on foreign company
Income from royalty or fees for technical services from Government or an Indian
Concern (a) in pursuance of an agreement made on or before 31st March 1976
4

@ 50% (b) in pursuance of an agreement made on or after 1st April, 1976 but on
or before 31st May, 1997 @ 30% (c) in pursuance of an agreement made on or
after 1st June, 1997 but on or before 31st May, 2005 @ 10% (d) Any other
income will be taxed @ 40%.
Surcharge will be applicable @ 2% if income is more than Rs.1 Crore.
Surcharge will be applicable @ 5% if income is more than Rs.10 Crores.
Education cess will be levied at 3 % on income-tax and surcharge.











5

History

System of direct Taxation was in existence even during Hindu period, then during
British period 1860 act, amendments made in 1863, 1867, 1871, 1873 and 1878
continued till 1918. In 1920 it became a central subject , was overhauled in 1961
and amended from time to time , became effective from 1-4-1962; called income-
tax act 1961.
Area/Scope : Whole of India. It determines:
a. Taxable Income
b. Tax Liability
c. Procedure of Assessment
d. Appeals, Penalties and Prosecution
e. Powers & Duties of various I.T. authorities

Amendments are made annually in General Budget, presented by Finance
Minister, through Finance Bill in which proposals for next financialyear are made
for various types of assesses , which contains:
a. Rates of Income-Tax for assessment year
b. Rates of TDS for current financial year
c. Rates of TDS for salaried people
6

d. Rules for calculating net agricultural income
Taxable income of an assessee is taxable at two different rates:
1. Normal Rates: are fixed Annual Finance Act, presented by Finance
Minister every year
2. Special Rates : on Long & Short-Term Capital Gain, Lotteries, Cross word puzzle
etc. These rates are fixed under Income-Tax Act

Income Tax Rules 1962 (amended up to date) :These are notified in Indian
Gazette(Gazette of India). It gives powers to authorities to implement the Act
Role of CBDT (Sec. 119) : It sends circulars and clarification for the
implementation of I.T. Rule
Judicial Decisions : Decision given by Supreme Court becomes a law and binding
on all courts, Appellate Tribunals, Income-Tax authorities and on all assessees. In
case of contradictory ruling, matter is given to a larger bench. Decisions of High
Courts are also binding on all assessees as well as on the income tax authorities,
but such decisions cannot overrule Supreme Court rulings
Scheme of Taxation : Every person, whose total income of the previous year
exceeds the maximum limit (after deducting exemptions provided in Income Tax
Act) for different types of assesses is chargeable for tax on his income. However
total income will be determined on the basis of his residential status in India.
Income tax is levied in the following manner:
7

a. Every person is chargeable to Income-Tax if his income exceeds the maximum
exemption limit
b. I-Tax is charged on Previous Year;s income but is taxable in the next following
assessment year at the rate applicable to such year
c. I-Tax is charged at two rates viz. Normal rates and Special rates, stated as above
d. Tax is charged on total income, computed in accordance with the provisions of
the Act
e. Total income of a person is determined on the basis of his residential status in
India









8

CORPORATE INCOME TAXES AND TAX RATES
The taxes levied in India on income generated by the activities of a corporation
include corporate tax (national tax), corporate inhabitant tax (local tax), and
enterprise tax (local tax) (hereinafter collectively referred to as "corporate
taxes").
Except in instances requiring exceptional treatment, the scope of income subject
to corporate inhabitant tax and enterprise tax is determined, and the taxable
income calculated, in accordance with the provisions for corporate tax.
Corporate inhabitant taxes are levied not only on income but also on a per capita
basis using the corporation's capital and the number of its employees as the tax
base. Corporations having paid-in capital of more than 100 million yen are subject
to corporate enterprise tax on a pro forma basis.
The income calculated for each taxable year is used as the tax base for
determining these corporate taxes to be levied on a corporation's income. Other
corporate taxes include corporate taxes on liquidation income and corporate
taxes on reserves for retirement pensions, etc.

The tax rates for corporate tax, corporate inhabitant tax and enterprise tax on
income (tax burden on corporate income) and per capita levy on corporate
inhabitant tax for each taxable year are shown below (a small company in Tokyo
is used as an example). The rates for local taxes may vary somewhat depending
on the scale of the business and the local government under whose jurisdiction it
is located.
9

Types of Taxation System in India
India has a well-developed tax structure with clearly demarcated authority
between Central and State Governments and local bodies. Central Government
levies taxes on income (except tax on agricultural income, which the State
Governments can levy), customs duties, central excise and service tax.
Value Added Tax (VAT), (Sales tax in States where VAT is not yet in force), stamp
duty, State Excise, land revenue and tax on professions are levied by the State
Governments. Local bodies are empowered to levy tax on properties, octroi and
for utilities like water supply, drainage etc.
In last 10-15 years, Indian taxation system has undergone tremendous reforms.
The tax rates have been rationalized and tax laws have been simplified resulting in
better compliance, ease of tax payment and better enforcement. The process of
rationalization of tax administration is ongoing in India.

Since April 01, 2005, most of the State Governments in India have replaced sales
tax with VAT.
Tax, in general, is the imposition of financial charges upon an individual or a
company by the Government of India or their respective state or similar other
functional equivalents in a state. The computation and imposition of the varied
taxes prevalent in the country are carried on by the Ministry of Finances
Department of Revenue. During the last financial year of 2010 2011, the gross
collection of tax amounted to around INR. 7.92 trillion, where the direct tax has
got 56 % contribution and the indirect tax has got 44 % contribution.
10

Type of Taxes

Prevalence of various kinds of taxes is found in the nation. Taxes in this nation can
be either of direct or indirect ones. However, the types of taxes even depend on
whether a particular tax is being levied by the central or the state government or
any other municipalities. Following are some of the major Indian taxes, which are
categorized below:
Direct Taxes
This kind of tax is named so as such a tax is directly paid to the Union Government
of India. As per a survey, the Republic of India has witnessed a consistent rise in
the collection of such taxes over a period of the past years. The visible growth in
these tax collections as well as the rate of taxes reflects a healthy economical
growth of India. Besides that, it even portrays the compliance of high tax along
with better administration of taxation. To name a few of the direct taxes, which
are imposed by the India Government are:
Banking Cash Transaction Tax
Corporate Tax
Capital Gains Tax
Double Tax Avoidance Treaty
Fringe Benefit Tax
Securities Transaction Tax
Personal Income Tax
11

Tax Incentives

Indirect Taxes
As opposed to the direct taxes, such a tax in the nation is generally levied on
some specified services or some particular goods. An indirect tax is not levied on
any particular organization or an individual. Almost all the activities, which fall
within the periphery of the indirect taxation, are included in the range starting
from manufacturing goods and delivery of services to those that are meant for
consumption. Apart from these, the varied activities and services, which are
related to import, trading etc. are even included within this range. This wide
range results in the involvement as well as implementation of some or other
indirect tax in all lines of business.
Usually, the indirect taxation in the Indian Republic is a complex procedure that
involves laws and regulations, which are interconnected to each other. These
taxation regulations even include some laws that are specific to some of the
states of the country. The regime of indirect taxation encompasses different kinds
of taxes. The organizations offer services in all or most of the related fields, some
of which are as follows:
Anti Dumping Duty
Custom Duty
Excise Duty
Sales Tax
Service Tax
12

Value Added Tax or V. A. T.
Other Taxes in India
Besides the taxes, the names of which are mentioned earlier, the nation has got
the prevalence of many other taxes. Listed below are some of those Indian taxes:
Consumption Tax
Death Tax
Dividend Tax
Endowment Tax
Estate Tax
Flat Tax, which is even known as the Flat Rate Tax
Fuel Tax
Gift Tax
Inheritance Tax
Sales Tax (Solely on goods that do not include payment of sales tax on
services)
S. E. T. or Self Employment Tax
Social Security Tax
Transfer Tax
Payroll Tax
Poll Tax
Property Tax
Wealth Tax
Municipal or Local Taxes in India
13

The most known tax, which is levied by the local municipal jurisdictions on the
entry of goods, is known as the Entry Tax or the Octori Tax.
















14

TAX PENALTIES


"If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in
the course of any proceedings under this Act, is satisfied that any person-
(a) has failed to comply with a notice under sub-section (1) of section 142 or sub-
section (2) of section 143 or fails to comply with a direction issued under sub-
section (2A) of section 142, or
(b) has concealed the particulars of his income or furnished inaccurate particulars
of such income,he may direct that such person shall pay by way of penalty,-
(ii) in the cases referred to in clause (b), in addition to any tax payable by him, a
sum of ten thousand rupees for each such failure;
(iii) in the cases referred to in clause (c), in addition to any tax payable by him, a
sum which shall not be less than, but which shall not exceed three times, the
amount of tax sought to be evaded by reason of the concealment of particulars of
his income or the furnishing of inaccurate particulars of such income".


15


CORPORATE TAXES OF INDIA WITH FOREIGN COUNTRIES:


India's high rate of corporate taxes are a drag on the flow of foreign direct investments (FDI)
into the country as rival economies such as China, Spain, Singapore and Germany are likely to
reduce tax rates by next year, consultancy firm KPMG International said in a report.
Corporate taxes in India varies from 33.6 per cent for domestic companies to over 42 per cent
for foreign firms while it is 17.5 per cent in Hong Kong, 20 per cent in Singapore and 27 per cent
in Malaysia, the KPMG study pointed out.
In a survey covering 92 countries, the KPMG said the average rate of corporate tax in the EU
was 24.2 per cent, compared with 27.8 per cent in the OECD countries, 28 per cent in Latin
America and 30.1 per cent in Asia-Pacific.
Hong-Kong`s corporate tax at 17.5 per cent, Singapore`s 20 per cent and Malaysia`s 27 per
cent, these countries, which are also in the process of developing their economies and with
their lower corporate tax rates, can provide stiff competition to India for attracting FDI," KPMG
International said in its global corporate tax rate survey.

The study, however, said significant reductions in corporate tax rates are in pipeline in the UK,
Germany, Spain, Singapore and India.
"We believe that India should hasten the implementation of Kelker Committee
recommendation of reduction of corporate rates to 30 per cent." KPMG India`s national head
(tax and regulatory services) Sudhir Kapadia said,
16

Finance minister P Chidambaram in his budget 2007-08 had said that effective corporate tax
was 19.2 per cent. He has also said that FDI is expected to go up to $20 billion this fiscal.
While some countries have made significant cuts - such as Turkey`s reduction from 30 per cent
to 20 per cent and Bulgaria`s reduction by 5 per cent to 10 per cent - globally the reduction in
corporate tax rates from 2006 to 2007 has been very slight, from 27.2 per cent to 26.8 per cent,
much less than the year-on-year reductions of the 1980s and 1990s, KPMG said.
India can, however, take solace from the fact that indirect tax rates like value added tax (VAT)
at 12.5 per cent is much lower than in China (17 per cent) and its neighbours- Bangladesh (15
percent ) and Pakistan (15 per cent), the report said.












17


TAXABLE CORPORATE INCOME


CORPORATE SECTOR TAXES :
The taxability of a company's income depends on its domicile. Indian companies
are taxable in India on their worldwide income. Foreign companies are taxable on
income that arises out of their Indian operations, or, in certain cases, income that
is deemed to arise in India. Royalty, interst, gains from sale of capital assets
located in India [including gains from sale of shares in an Indian company]
dividends from Indian companies and fees for techincal services are all treated as
income arising in India.

Domestic Corporate Income Taxes Rates:

DESCRIPTION TAX RATE EFFICTIVE TAX WITH
SURCHARGE
DOMESTIC
CORPORATION
30% 30%

NOTE:
18

A surcharge of 10% of the income tax is levied, if the taxable income exceeds Rs. 1
million.
All companies incorporated in India are deemed as domestic Indian companies for
tax purposes, even if owned by foreign companies.

FOREIGN COMPANIES TAX RATES:



Description
Withholding Tax Rate
for
Non-Treaty Foreign
companies
Tax Rate for US the
Treaty companies
under the Treaty
Dividends 20% 15%1
Interest Income 20% 15%2
Royalties 30% 20%2
Technicals Services 30% 20%2
Other Income 55% 55%


NOTE :-
Inter-corporate rates where there is minimum holding.
10% or 15% in some cases.
19

Withholding tax is charged on estimated income, as approved by the tax
authorities.There are other favorable tax rates under various tax treaties between
India and other countries.

ASSESSING TAXABLE INCOME[DEDUCTIONS]:

In ascertaining taxable income, all expenditure incurred for business purposes are
deductible. This includes interest on borrowings paid in the financial year and
depreciation on fixed assets. Certain expenses are specifically disallowed or their
quantum of deduction is restricted.
These include:-
Entertainment expenses
Interest or other amounts paid to a non-resident without deducting without tax
Corporate taxes paid
Indirect general and administrative costs of a foreign head office





20

TAX REBATES FOR CORPORATE SECTOR


The classical system of corporate taxation is followed
Domestic companies are permitted to deduct dividends received from other
domestic companies in certain cases.
Inter Company transactions are honored if negotiated at arm's length.
Special provisions apply to venture funds and venture capital companies.
Long-term capital gains have lower tax incidence.
There is no concept of thin capitalization.
Liberal deductions are allowed for exports and the setting up on new industrial
undertakings under certain circumstances.
There are liberal deductions for setting up enterprises engaged in developing,
maintaining and operating new infrastructure facilities and power-generating
units.
Business losses can be carried forward for eight years, and unabsorbed
depreciation can be carried indefinitely. No carry back is allowed.
Specula tax provisions apply to activities carried on by nonresidents.
A minimum alternative tax (MAT) on corporations has been proposed by the
Finance Bill 1996.
Dividends, interest and long-term capital gain income earned by an
infrastructure fund or company from investments in shares or long-term
finance in enterprises carrying on the business of developing, monitoring and
21

operating specified infrastructure facilities or in units of mutual funds involved
with the infrastructure of power sector is proposed to be tax exempt.

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.

Corporate tax contribution

Corporate tax bring a significant contribution to the government, as almost 10 per
cent of its revenue collections come from about major companies in the country.
Government tax collections in India are dependent on a few large corporate
entities which contribute significantly to the Indian governments total receipt
of corporate tax says the Total Tax Contribution Survey 2008 by Ficci and PwC.
The Corporate tax can eroded by concessions designed to encourage exports,
locations, employment and investment which help in overall development of
country.
22

In India, the contribution of direct taxes shown a significant growth in a past
decade.
Indias GDP overview
The Indian economy is the 12th largest in USD exchange rate terms. India is the
second fastest growing economy in the world.
Indias GDP has touched US$1.25 trillion. The crossing of Indian GDP over a
trillion dollar mark in 2007 puts India in the elite group of 12 countries with
trillion dollar economy.

India has made remarkable progress in informationtechnology, high end services
and knowledge process services.
Indian GDP Trend Of Growth Rate
1960-1980 : 3.5%
1980-1990 : 5.4%
1990-2000 : 4.4%
2000-2009 : 6.4%




23

CORPORATE TAX PLANNING

Corporate tax planning provides ugh minimization or deferral of taxes on
corporate earnings. It is so because corporate tax represents a significant part of
overhead cost for these companies.
The key objective in Corporate tax planning is to identify the main factors in
the organizations structure that dictate the opportunities for tax efficiencies /
savings . Thus, corporate tax planning aims to structure a business in such a way
as to minimize both its current and future income tax liabilities.
Corporate Tax Planning Under Income Tax, Excise, Service and Sales Tax / VAT.
Corporate Tax Planning is the arrangement of financial activities in such a way
that the maximum tax benefits are enjoyed by making use of all beneficial
provisions in the tax laws. It entitles the corporate assessee to avail certain
exemptions, deductions, rebates and reliefs, so as to minimize his tax liability. This
is permitted and not frowned upon. The principal objectives of Corporate Tax
Planning may be stated as follows:
Benefits of Corporate of Tax Planning
Reduction in Tax liability.
Minimization of litigation.
Healthy growth business.
Healthy growth of nation.
A sources of working capital.
24

Increase in distributable profits.
Enables to face competition from Multinationals.
Maximizing market valuation.
















25

Merits and Demerits of Direct Taxes

The tax-payer is the tax-bearer. The impact i.e. the initial burden and its incidence
i.e. the ultimate burden of direct tax is on the same person. For e.g. Income tax,
wealth tax, property tax, estate duties, capital gain tax, corporate / company tax,
etc. are all direct taxes.
Advantages / Merits of Direct Taxes
Following are the important advantages or merits of Direct Taxes :-
Equity:-
There is social justice in the allocation of tax burden in case of direct taxes as they
are based on the principle of ability to pay. Persons in a similar economic situation
are taxed at the same rate. Persons with different economic standing are taxed at
a different rate. Hence, there is both horizontal and vertical equity under direct
taxation. Progressive direct taxation can reduce income inequalities and bring
about adequate social & economic justice.For example, in the Indian Budget of
2007, individual with an income of upto Rs. 1,10,000 are exempted from payment
of income tax and in the case of women tax payer, the exemption limit is Rs.
1,45,000.
Certainty:-
As far as direct taxes are concerned, the tax payer is certain as to how much he is
expected to pay, as the tax rates are decided in advance. The Government can
26

also estimate the tax revenue from direct taxes with a fair accuracy. Accordingly,
the Government can make adjustments in its income and expenditure.
Relatively Elastic
The direct taxes are relatively elastic. With an increase in income and wealth of
individuals and companies, the yield from direct taxes will also increase. Elasticity
also implies that the government's revenue can be increased by raising the rates
of taxation. An increase in tax rates would increase the tax revenue.
Creates Public Consciousness
They have educative value. In the case of direct taxes, the taxpayers are made to
feel directly the burden of taxes and hence take keen interest in how public funds
are spent. The taxpayers are likely to be more aware about their rights and
responsibilities as citizens of the state.
Economical
Direct taxes are generally economical to collect. For instances, in the case of
personal income tax, the tax can be deducted at source from the income or
salaries of the individuals. Therefore, the government does not have to spend
much in tax collection as far as personal income tax is concerned. However, in the
case of indirect taxes, the government has to set up an elaborate machinery to
collect taxes.
Anti-inflationary
27

The direct taxes can help to control inflation. During inflationary periods, the
government may increase the tax rate. With an increase in tax rate, the
consumption demand may decline, which in turn may reduce inflation.

Disadvantages / Demerits of Direct Taxes
Though direct taxes possess above mentioned merits, the economist have
criticised them on the following grounds :-
Tax Evasion
In India, there is good amount of tax evasion. The tax evasion is due to High tax
rates, Documentation and formalities, Poor and corrupt tax administration. It is
easier for the businessmen to evade direct taxes. They invariable suppress correct
information about their incomes by manipulating their accounts and evade tax on
it.
In less developed countries like India, due to high rate of progressive tax evasion
& avoidance are extensive and led to rise in black money.
Arbitrary Rates

The direct taxes tend to be arbitrary. Critics point out that there cannot be any
objective basis for determining tax rates of direct taxes. Also, the exemption limits
in the case of personal income tax, wealth tax, etc., are determined in an arbitrary
28

manner. A precise degree of progression in taxation is also difficult to achieve.
Therefore direct taxes may not always fulfill the canon of equity.
Inconvenient
Direct taxes are inconvenient in the sense that they involve several procedures
and formalities in filing of returns. For most people payment of direct tax is not
only inconvenient, it is psychological painful also. When people are required to
pay a sizeable part of their income as a tax to the state, they feel very much hurt
and their propensity to evade tax remains high. Further every one who is required
to pay a direct tax has to furnish appropriate evidence in support of the
statement of his income & wealth & for this he has to maintain his accounts in
proper form. Direct tax is considered inconvenient by some people because they
have to make few lump sum payments to the governments, whereas their income
receipts are distributed over the whole year.
Narrow Coverage
In India, there is a narrow coverage of direct taxes. It is estimated that only three
percent of the population pay personal income tax. Due to low coverage, the
government does not get enough funds for public expenditure. Estate duty &
wealth tax are equally narrow based and thus revenue proceeds from these taxes
are invariably small.

Affects Capital Formation
29

The direct taxes can affect savings and investment. Due to taxes, the net income
of the people gets reduced. This in turn reduces savings. Reduction in savings
results in low investment. The low investment affects capital formation in the
country.
Effect on Willingness and Ability to Work
Highly progressive direct taxes reduce people's ability and willingness to work and
save. This in turn may have a negative impact on investment and productive
capacity in the economy. If tax burden is high, people's consumption level gets
adversely affected and this has an impact on their ability to work and save. High
taxes also discourage people from working harder in order to earn and save more.
Sectoral Imbalance
In India, there is Sectoral imbalance as far as direct taxes are concerned. Certain
sectors like the corporate sector is heavily taxed, whereas, the agriculture sector
is 100% tax free. Even the large rich farmers are exempted from payment of
personal income tax.





30

Conclusion On CorporateTaxes


The Government could miss the target of corporate tax revenue totalling Rs 2,
26,361crore estimated in the Budget .
India needs to revise its corporate tax rates in align with the developing Asian
economies.
Government should revise the corporate tax rates from the current 30 per cent to
20-25 per cent that would regain Indian industries competitiveness having
significant implications on governments revenues and expenditures.