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Income Tax Provision for Private Limited companies
In this Article, I am trying to summarize all the provision of Income Tax Act which is generally applicable to the companies. So that compliances can be done smoothly by the companies without any default.
Income Tax rates
|If turnover/ Gross Profit does not exceeds 50 Cr (in F.Y. 2015-16)
|If Turnover exceeds 50Cr
|If taxable income:
|Exceeds Rs. 1Cr > 10Cr.
|Exceeds Rs. 10 Cr
- Education Cess & Secondary Education Cess @3% will be applicable on both Income tax as well as Surcharge.
Income Tax Deduction Specifically for Companies:
||Nature of Expenditure
||Deduction under section 32AC is available if actual cost of new plant and machinery acquired and installed by a manufacturing company during the previous year exceeds Rs. 25/100 Crores, as the case may be.(Subject to certain conditions)
||15% of actual cost of new asset
||Any expenditure incurred by a company on scientific research (including capital expenditure other than on land and building) on in-house scientific research and development facilities as approved by the prescribed authorities shall be allowed as deduction (Subject to certain conditions).
Expenditure on scientific research in relation to Drug and Pharmaceuticals shall include expenses incurred on clinical trials, obtaining approvals from authorities and for filing an application for patent.
|200% of expenditure so incurred shall be allowed as deduction.
150% of expenditure so incurred shall be allowed as deduction (applicable from AY 2018-19)
||Expenditure incurred by a company (not being expenditure in the nature of cost of any land or building) on any notified skill development project is allowed as deduction (Subject to certain conditions).
||150% of the expenditure (Subject to certain conditions)
||An Indian company can amortize certain preliminary expenses (up to maximum of 5% of cost of the project or capital employed, whichever is more) (Subject to certain conditions and nature of expenditures)
||Qualifying preliminary expenditure is allowable in each of 5 successive years beginning with the previous year in which the extension of undertaking is completed or the new unit commences production or operation.
||Expenditure incurred after 31-3-1999 in respect of amalgamation or demerger can be amortized by an Indian Company
||Expenditure is allowed as deduction in five equal installments in 5 previous years starting with the year in which amalgamation or demerger took place.
||Expenditure incurred by a company on promotion of family planning amongst employees is allowed as deduction
||1) Entire revenue expenditure is allowed as deduction
2) Capital expenditure shall be allowed as deduction in five equal installment in five years
Notes of the above:
- Company should enter into an agreement with the prescribed authority for co-operation in such research and development and fulfils conditions with regard to maintenance of accounts and audit thereof and furnishing of reports in such manner as may be prescribed.
- From the A.Y. beginning on or after the 1st day of April, 2021, the deduction shall be equal to the expenditure so incurred.
- No deduction shall be allowed to a company engaged in manufacturing alcoholic spirits or tobacco products.
- 100% deduction shall be allowed for the AY beginning on or after the 1st day of April, 2021
Carry Forward of Losses:
Some important points:
- Business loss can be carry forward over 8 Subsequent Assessment Year.
- Such loss can be carry forward or set off only if, Income tax return has been filled within the time limit prescribed U/S 139(1)
- Business loss cannot set off against salary income.
Section 79 of Income Tax Act:
- Notwithstanding anything contained in this Chapter, where a change in shareholding has taken place in a previous year in the case of a company, not being a company in which the public are substantially interested, no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year unless-
(a) on the last day of the previous year the shares of the company carrying not less than fifty- one per cent of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than fifty- one per cent of the voting power on the last day of the year or years in which the loss was incurred
Exception to above Rule:
- Where a change in the said voting power takes place in a previous year consequent upon the death of a shareholder or on account of transfer of shares by way of gift to any relative of the shareholder making such gift.
- Where a change in the said voting power takes place in an Indian company, being a subsidiary of a foreign company, as a result of amalgamation or demerger of the foreign company.
However this is subject to the condition that 51% of the shareholders of the Amalgamating/demerged company continue to be shareholders of the amalgamated/resulting company.
The above restriction will be applicable only for carry forward of losses and not for unabsorbed depreciation.
Following table gives the details of advance tax to be payable
||Advance tax payable
|On or before 15th June
||15% of estimated Advance Tax
|On or before 15th September
||45% of estimated Advance Tax
|On or before 15th December
||75% of estimated Advance Tax
|On or before 15th March
||100% of estimated Advance Tax
Dividend Distribution Tax Section 115(0):
- Section 115-O of the Income-tax Act,1961 applies to domestic companies and Tax is payable on any amount declared or distributed or pay by such Company by way of dividend, whether out of current or accumulated profits.
- Rate of Tax: 15% plus Surcharge at 10% irrespective of the amount, Plus EC and SHEC. Hence, total effective rate of Tax = 16.995%.
- Quantum of Tax: For determining tax payable u/s 115-O, Net distributed Profits shall be increase by = Dividend Distributed * 100 / (100-15).Thus, Dividend includes Dividend Distribution Tax.
Minimum Distribution Tax Section 115JA:
As per the MAT Act, the Minimum Alternate Tax liability of a company will be higher of the following.
- Tax liability computed as per the normal provisions of the Income Tax Law, i.e., the tax computed on the taxable income of the company by applying the tax rate applicable to the company. Such tax can be termed as the normal tax liability.
- Tax computed at the MAT rate of 18.5% on book profit. The tax computed by applying 18.5% (plus surcharge & cess as applicable) on book profit is called Minimum Alternate Tax.
Book Profit: “Book profit” means the Net Profit as shown in the profit and loss account. For the relevant previous year as determined by the provisions of Schedule III. To the Companies Act, 2013, with certain adjustments as given in section MAT 115JB of the Act.
Readers may forward the suggestion/comments & feedback.
By- CA Monika Rathi
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