( iii ) The charge for depreciation is computed on the amount of depreciable asset after adding the cost of assets purchased during the year to the block of assets at the beginning of the year and reducing the sale proceeds from assets sold during the year .
4.6.1.4 Minimum Alternate Tax ( MAT )
The Indian tax law provides for a MAT which is to be paid by a company on the basis of profits disclosed in the financial statements . A company has to pay MAT on book profits at 18.5 per cent applicable surcharge and 3 per cent education cess . However , MAT provisions are only applied when the tax payable under regular tax provisions is less than 18.5 per cent of its book profits 13 .
4.6.1.5 Transfer Pricing
Businesses having cross border dealings with related concerns fall within ambit of Indian transfer pricing regulations . Primarily , this requires maintenance of documentation and certification by an Indian firm of chartered accountants confirming that dealings with related concern were at Arm ’ s Length and the profit is appropriately reported by the Indian business entity .
Where two group companies are dealing with each other , transfer pricing will attempt to verify that the dealings have been done at Arm ’ s Length Price . The purpose is to see whether independent person would have transacted at similar prices . In case transaction appears under / overvalued , transfer pricing adjusts the prices of cross-border transactions as adopted by related parties .
4.6.1.6 Royalty / Fee for Technical Services ( FTS )
Royalty includes payments for use or right to use any copyright , equipment , etc . Similarly , FTS includes payments in consideration of rendering any technical or consultancy service . The definition of Royalty or FTS is different in many countries , which affects the scope of taxability . Even the tax rate may vary depending on the nature of the transaction . Therefore , appropriate classification of the transaction becomes important . The prime issue which normally arises is , whether a particular income will be taxable as business income / as Royalty / FTS . The following will play a role
( i ) Terms of agreement as entered into with the Indian party ( ii ) Definition provided in the local laws of India and the relevant DTAA ( iii ) Business income is taxable in the country of source only in case of a PE 14 ( iv ) Royalty / FTS are generally taxable in the country of source .
4.6.1.7 Dividend
Dividend paid by a domestic company is exempt in the hands of the recipient . However , the company has to pay Dividend Distribution Tax ( DDT ) currently at 15 per cent ( plus applicable surcharge and education cess ).
4.6.1.8 Business Losses
A company doing business in India may have net business losses . There are specific guidelines on carry forward of these losses
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13
Book profits for this purpose are computed by making prescribed adjustments to the net profit disclosed in the financial statement
14
Refer section 4.6.1.1