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CORPORATE INCOME TAX Corporate Tax Structure

- For locally incorporated companies, the tax rates for widely held and closely held domestic companies has been fixed at a single rate of 35%.
- For Foreign Companies, the tax rates have been fixed at 48%.
- The rate of capital gains tax is 30% to 40% on domestic companies in order to remove the deterrent to their restructuring.

Other Information Related to Corporate Taxes

- Corporates need to pay a tax of 10% on the dividends paid by these companies to the ir shareholders.
- Foreign branches are taxed at a flat rate of 65 percent on branch income.
- There is no withholding tax on remittance of branch profits but evidence of payment of applicable tax is required.
- Depreciation is allowed on all industrial buildings and machinery at specified rates for all types of business.
- Certain specified industries, such as, oil exploration etc., are eligible for lower rates of corporate tax.
- Government also allows certain exemption for exports profits and exemption or refund of customs duties paid for raw materials, components and capital goods imported for the manufacture of exported goods.
- Duty drawback on domestically procured inputs is also available for exports and the Duty Drawback Scheme has been considerably simplified and widened in scope.
- An Indian company is taxed on its worldwide income. A foreign company is taxed only on income that is accrued in India or that is deemed to accrue in India.
- Double taxation of foreign income is avoided by means of foreign tax credits.

OTHER TAXES

• MINIMUM ALTERNATE TAX
  
  - A minimum tax called Minimum Alternate Tax (MAT), amounting to 12 % of the net profits of a company, would be levied corporates with zero tax liability
  - 100% Export Oriented Units are exempted from this tax.
  - Export profits eligible for deduction under Section 80- HHC of the Income Tax Act will be exempt from MAT.
  
  CAPITAL GAINS & WEALTH TAX
  
  - Long term capital gains to be taxed at flat rates of 20% for individuals and HUFs, 30 percent for firms and 40 percent for companies.
  - Capital gains are computed by deducting an inflation index original cost from the sales price of assets.
  - Capital gains to be adjusted for inflation. Cost inflation index with 1981 - 82 = 100 notified
  - In the case of non-residents, no indexation for inflation is available, but protection is given against fall in the value of rupee vis-a-vis the foreign currency in which the asset was acquired.
  - A distinction is made between short-term and long-term capital gains.
  - Foreign instutional investors are taxed 20% on investment income, 10% on long-term capital gains, and 30% on short-term capital gains.
  
  WITHHOLDING TAXES
  
  Income of foreign companies by way of dividends, interest, royalty and other technical know-how fee taxable in India is subject to withholding tax rates as indicated here :

Countries	Dividends	Interest	Royalties/ Technical fees
Non-Treaty Countries	25%	25%	30%
Treaty Countries	10-25%	10-25%	10-30%

 
  India has tax treaties with about 38 countries including Australia, Canada, France, Germany, Korea, Italy, Japan, U.K. and U.S.A.

INCOME TAX BENEFITS FOR EXPORTERS

Income Tax exemption upto 50% is granted on earnings from exports of projects and consultancy services under Sections 80- HHB and 80-O of Income Tax Act respectively.