Tax Rates on Taxable Income of Corporates
Status of |
Basic Rate |
Surcharge * |
Education |
Effective Rate |
Companies |
( per cent ) |
( per cent ) |
Cess ( per cent ) |
( per cent ) |
Resident |
30 |
5 |
3 |
32.45 |
Non resident |
40 |
2 |
3 |
42.02 |
Figure 16
1Surcharge at 5 per cent and 10 per cent where income exceeds `10 million and `100 million respectively . 2Surcharge at 2 per cent and 5 per cent where income exceeds `10 million and `100 million respectively .
■ Education cess at 2 per cent and Secondary and Higher Education cess at 1 per cent remain unchanged .
4.6.1.1 Permanent Establishment ( PE )
India ’ s tax treaty with other countries usually follows the UN model and provides that even residents of another country can get subjected to Indian tax on profits derived from their business in India , if , the non-resident company has a PE in India . A PE is generally understood as a fixed place of business . Therefore , when a foreign enterprise carries a business in India through a branch , dependent agent , installation agent or group entities , it may amount to having a substantial presence through a PE and hence taxability can arise in India . A subsidiary is specifically excluded from the scope of PE , unless proved to be a dependent agent .
Even though the country where the income originates ( referred to as country of source ) has the primary right to tax profits attributable to a PE , the same profits may also be taxed in the hands of the head office in the parent country . However , credit is generally allowed by the parent country for taxes paid in the country of source .
4.6.1.2 Business Profits
Business profits signify income from any trade or business including income derived by an enterprise from the performance of personal services . The Indian tax laws have elaborate provisions , which need to be adhered while computing business profits . The general principles for determining chargeability of business profits are
( i ) There must exist a business or profession ; ( ii ) The business or profession should be carried on by the tax payer ; and ( iii ) The business or profession should be carried on for some time during the tax year .
The business profits are computed under the mercantile or cash system of accounting 11 . Business expense is allowed as deductions as well as amortization of capital expenditure .
4.6.1.3 Depreciation
Depreciation or amortization included in the financial statements , as determined under the Indian Companies Act , is not considered as a tax-deductible charge . Depreciation on assets , for tax purposes , is to be calculated on the block of assets 12 on a reducing balance method as per prescribed rates . The following be noted ( i ) Depreciation is allowed only once the asset is actually put to use for business ( ii ) In the event assets are purchased during the year and used for less than 180 days , only half of the admissible depreciation is allowable
11
Refer section 4.5.1.1
12 group of assets falling within the class of assets entitled to the same rate of depreciation
35