TIMES GUIDE TO CORPORATE TAX

Proposal:

Increase in surcharge from 5% to 10% for domestic companies where total income exceeds Rs 10 crore.

Impact:

The effective corporate tax rate for domestic companies stands increased from 32.45% to 33.99%.Effective minimum alternate tax rate stands revised to 20.96% from 20% earlier,resulting in higher tax outgo.

Proposal:

Increase in surcharge from 2% to 5% for foreign companies where total income exceeds Rs 10 crore.

Impact:

The effective corporate tax rate for foreign companies such as branches of overseas companies and other similar entities shall stand revised to 43.26% from 42.02%.

Proposal:

Increase in surcharge from 5% to 10% on dividend distribution tax (DDT).

Impact:

The effective rate of DDT shall be increased from 16.22% to almost 17%.

Proposal:

Dividends received from foreign subsidiaries by India Inc will continue to be taxed at the concessional rate instead of at the corporate tax rate.Thus,the effective tax rate will be 16.995%.

Impact:

This will incentivize Indian companies to repatriate excess cash lying in overseas subsidiaries to India.

Proposal:

Remove cascading effect of DDT in respect of dividend received by a domestic company from its foreign subsidiary.

Impact:

The Indian company shall not be liable to pay DDT on the dividend distributed to its shareholders to the extent of dividends received from its foreign subsidiary.This will bring in tax efficiency by eliminating multiple levy of tax on the dividend distributed by the Indian company.

Proposal:

Increase in rate of tax on royalty and fees for technical services for non-resident tax payers under the Income Tax Act from 10% to 25% in respect of agreements entered into after March 31,1976.

Impact:

This would increase the tax rate of royalty and fees for technical services paid to non-residents where income is taxable under the provisions of the Income Tax Act.Non-residents can continue to avail of lower tax rates under the Double Taxation Avoidance Agreement,where applicable.Tax treaties such as those with Netherlands and Singapore prescribe for a lower tax withholding of 10% which will continue.

Proposal:

Investment allowance to manufacturing companies is introduced additional deduction of 15% of the actual cost of new assets acquired and installed during the period April 1,2013 to March 31,2015,provided actual costs exceed Rs 100 crore,subject to conditions

Impact:

This will provide a much needed boost to the manufacturing sector.The additional deduction would be over and above the depreciation claimed by such a company.

Proposal:

Beneficial withholding tax of 5% extended to interest on rupee-denominated long-term infrastructure bonds of an Indian company,subject to certain conditions.

Impact:

Earlier,only borrowings in foreign currency were eligible for the beneficial withholding tax of 5%.Liberalizing this requirement by extending the benefit of such reduced withholding tax of 5% will further augment long-term low-cost funds from abroad for infrastructure companies.

Proposal:

Introduction of additional income tax of 20% on buyback of shares by unlisted companies.

Impact:

According to the FM,buyback of shares is often used as a tool to avoid DDT on distribution of income in the form of dividend.Henceforth,distribution of income by an unlisted company by way of buyback will also be liable to tax at 20%.However,there would be no tax liability in the hands of the shareholders.

Proposal:

Difference between stamp duty valuation and sale price of land or building or both will be regarded as business income where sale price is less than stamp duty value,even if such assets are held as stock-in-trade.

Impact:

There will be additional tax liability in cases where land or building or both are treated as stock-in-trade and the sale value is less than the stamp duty value.Earlier,this was applicable only to land or building held as capital asset.

Proposal:

Where tax due from private company cannot be recovered,the burden can shift to a director.It is clarified that the tax due shall include interest,penalty or any other sum payable.

Impact:

The proposal seeks to put the litigation on meaning of the term tax due at rest.This would cast an additional obligation on the director.

Proposal:

Deduction in respect of commodity transaction tax paid.

Impact:

Payment of commodity transaction tax shall be allowed as a deduction where income arising from commodities transaction is included under business income.The treatment is aligned with the treatment in respect of securities transaction tax.

Times of India, New Delhi, 01-03-2013