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INTRODUCTION

CORPORATE TAXES:
Corporate tax refers to a tax levied by various jurisdictions on the profits made by
companies or associations. As a general principle, the tax varies substantially between
jurisdictions. In particular, allowances for capital expenditure and the amount of interest
payments that can be deducted from gross profits when working out the tax liability vary
substantially. Also, tax rates may vary depending on whether profits have been
distributed to shareholders. Profits that have been reinvested may not be taxed.

CORPORATE INCOME TAXES AND TAX RATES:

The taxes levied in India on income generated by the activities of a corporation include
corporate tax (national tax), corporate inhabitant tax (local tax), and enterprise tax (local
tax) (hereinafter collectively referred to as "corporate taxes").

Except in instances requiring exceptional treatment, the scope of income subject to


corporate inhabitant tax and enterprise tax is determined, and the taxable income
calculated, in accordance with the provisions for corporate tax.

Corporate inhabitant taxes are levied not only on income but also on a per capita basis
using the corporation's capital and the number of its employees as the tax base.
Corporations having paid-in capital of more than 100 million yen are subject to corporate
enterprise tax on a pro forma basis.

The income calculated for each taxable year is used as the tax base for determining these
corporate taxes to be levied on a corporation's income. Other corporate taxes include
corporate taxes on liquidation income and corporate taxes on reserves for retirement
pensions, etc.

The tax rates for corporate tax, corporate inhabitant tax and enterprise tax on income (tax
burden on corporate income) and per capita levy on corporate inhabitant tax for each
taxable year are shown below (a small company in Tokyo is used as an example). The
rates for local taxes may vary somewhat depending on the scale of the business and the
local government under whose jurisdiction it is located.

TAXATION SYSTEM IN INDIA


India has a well-developed tax structure with clearly demarcated authority between
Central and State Governments and local bodies. Central Government levies taxes on
income (except tax on agricultural income, which the State Governments can levy),
customs duties, central excise and service tax.

Value Added Tax (VAT), (Sales tax in States where VAT is not yet in force), stamp
duty, State Excise, land revenue and tax on professions are levied by the State
Governments. Local bodies are empowered to levy tax on properties, octroi and for
utilities like water supply, drainage etc.

In last 10-15 years, Indian taxation system has undergone tremendous reforms. The tax
rates have been rationalized and tax laws have been simplified resulting in better
compliance, ease of tax payment and better enforcement. The process of rationalization
of tax administration is ongoing in India.

Since April 01, 2005, most of the State Governments in India have replaced sales tax
with VAT.

TAXES LEVIED BY CENTRAL GOVERNMENT

DIRECT TAXES:
Tax on Corporate Income
Capital Gains Tax
Personal Income Tax
Tax Incentives
Double Taxation Avoidance Treaty

Indirect Taxes:
Excise Duty
Customs Duty
Service Tax
Securities Transaction Tax

Taxes Levied by State Governments and Local Bodies


Sales Tax/VAT
Other Taxes

DIRECT TAXES

TAXES ON CORPORATE INCOME


Companies residents in India are taxed on their worldwide income arising from all
sources in accordance with the provisions of the Income Tax Act. Non-resident
corporations are essentially taxed on the income earned from a business connection in
India or from other Indian sources. A corporation is deemed to be resident in India if it is
incorporated in India or if it’s control and management is situated entirely in India.

Domestic corporations are subject to tax at a basic rate of 35% and a 2.5% surcharge.
Foreign corporations have a basic tax rate of 40% and a 2.5% surcharge. In addition, an
education cess at the rate of 2% on the tax payable is also charged. Corporates are subject
to wealth tax at the rate of 1%, if the net wealth exceeds Rs.1.5 mn ( appox. $ 33333).

Domestic corporations have to pay dividend distribution tax at the rate of 12.5%,
however, such dividends received are exempt in the hands of recipients.

Corporations also have to pay for Minimum Alternative Tax at 7.5% (plus surcharge and
education cess) of book profit as tax, if the tax payable as per regular tax provisions is
less than 7.5% of its book profits.

Following measures were taken in the union budget 2007-08

Surcharge on income tax on all firms and companies with a taxable income
of Rs.1 crore or less to be removed.

A five year income tax holiday for two, three or four star hotels and for
convention centres with a seating capacity of not less than 3,000; they
should be completed and begin operations in National Capital Territory of
Delhi or in the adjacent districts of Faridabad, Gurgaon, Ghaziabad or
Gautam Budh Nagar during April 1, 2007 to March 31, 2010.

Concession under section 35(2AB) to be extended for five more years until
March 31, 2012.

Tax holiday to undertakings in Jammu & Kashmir to be extended for another


five years up to March 31, 2012.

Minimum Alternate Tax (MAT) to be extended to income in respect of


which deduction is claimed under sections 10A and 10B; deduction under
section 36(1) (viii) to be restricted to 20% of profits each year.

Rate of dividend distribution tax to be raised from 12.5% to 15% on


dividends distributed by companies; and to 25% on dividends paid by money
market mutual funds and liquid mutual funds to all investors.

Expenditure on free samples and on displays to be excluded from the scope


of Fringe Benefit Tax (FBT); ESOPs to be brought under FBT.

An additional cess of 1% on all taxes to be levied to fund secondary


education and higher education and the expansion of capacity by 54% for
reservation for socially and educationally backward classes.
CAPITAL GAINS TAX

Tax is payable on capital gains on sale of assets.

Long-term Capital Gains Tax is charged if


• Capital assets are held for more than three years and
• In case of shares, securities listed on a recognized stock exchange in India, units of
specified mutual funds, the period for holding is one year.

Long-term capital gains are taxed at a basic rate of 20%. However, long-term capital gain
from sale of equity shares or units of mutual funds are exempt from tax.

Short-term capital gains are taxed at the normal corporate income tax rates. Short-term
capital gains arising on the transfer of equity shares or units of mutual funds are taxed at
a rate of 10%.

Long-term and short-term capital losses are allowed to be carried forward for eight
consecutive years. Long-term capital losses may be offset against taxable long-term
capital gains and short-term capital losses may be offset against both long term and short-
term taxable capital gains.

PERSONAL INCOME TAX

Personal income tax is levied by Central Government and is administered by Central


Board of Direct taxes under Ministry of Finance in accordance with the provisions of the
Income Tax Act. The rates for personal income tax are as follows:-

Income range (Rupee) Tax Rate (%)

0-100,000 Nil
1,00,000-1,50,000 10
1,50,000-2,50,000 20
2,50,000 and above 30

Surcharges of 10% on total tax is levied if income exceeds Rs. 8,50,000

RECENT BUDGET INITIATIVES IN THIS REGARD ARE


AS FOLLOWS:

Threshold limit of exemption in the case of all assessees to be increased by


Rs.10,000 thus giving every assessee a relief of Rs.1,000; in the case of a
woman assessee, threshold limit to be increased from Rs.135,000 to
Rs.145,000 and in case of a senior citizen from Rs.185,000 to Rs.195,000
giving him or her a relief of Rs.2,000; deduction in respect of medical
insurance premium under section 80D to be increased to a maximum of
Rs.15,000 and, in case of a senior citizen, a maximum of Rs.20,000.

RATES OF WITHHOLDING TAX


Current rates for withholding tax for payment to non-residents are:-

(i) Interest 20%


(ii) Dividends Dividends paid by domestic companies: Nil
(iii) Royalties 10%
(iv) Technical Services 10%
(v) Any other services Individuals: 30% of the income
Companies: 40% of the net income

TAX INCENTIVES:

Government of India provides tax incentives for:-


• Corporate profit
• Accelerated depreciation allowance
• Deductibility of certain expenses subject to certain conditions.

These tax incentives are, subject to specified conditions, available for new investment in
• Infrastructure,
• Power distribution,
• Certain telecom services,
• Undertakings developing or operating industrial parks or special economic zones,
• Production or refining of mineral oil,
• Companies carrying on R&D,
• Developing housing projects,
• Undertakings in certain hill states,
• Handling of food grains,
• Food processing,
• Rural hospitals etc.

DOUBLE TAX AVOIDANCE TREATY


India has entered into DTAA with 65 countries including the US. In case of countries
with which India has Double tax Avoidance Agreement, the tax rates are determined by
such agreements. Domestic corporations are granted credit on foreign tax paid by them,
while calculating tax liability in India.

In the case of the US, dividends are taxed at 20%, interest income at 15% and royalties at
15%.
INDIRECT TAXES
EXCISE DUTY:

Manufacture of goods in India attracts Excise Duty under the Central Excise act 1944
and the Central Excise Tariff Act 1985. Herein, the term Manufacture means bringing
into existence a new article having a distinct name, character, use and marketability and
includes packing, labeling etc.

Most of the products attract excise duties at the rate of 16%. Some products also attract
special excise duty/and an additional duty of excise at the rate of 8% above the 16%
excise duty. 2% education cess is also applicable on the aggregate of the duties of excise.
Excise duty is levied on ad valorem basis or based on the maximum retail price in some
cases.

RECENT BUDGET INITIATIVES IN THIS REGARD ARE AS


FOLLOWS:

Reduction in ad valorem component of excise duty on petrol and diesel


from 8% to 6%.

Relief to deserving cases especially job creating sectors: exemption limit


for small scale industry (SSI) to be raised from Rs.1 crore to Rs.1.5 crore;
to encourage food processing sector, biscuits whose retail sale price does
not exceed Rs.50 per kilogram and all kinds of food mixes including instant mixes to be
fully exempt; reduction in duty on umbrellas and parts of footwear from 16% to 8%; on
plywood from 16% to 8%; biodiesel to be fully exempt.To provide access to pure
drinking water, water purification devices
operating on specified membrane based technologies and domestic water
filters not using electricity to be fully exempt; exemption on pipes used for
carrying water from a water supply plant to a storage facility to be extended
to all pipes of diameter exceeding 200 mm used in water supply systems.

Reduction in the rate of duty from Rs.400 per metric tonne to Rs.350 per
metric tonne on cement sold in retail at not more than Rs.190 per bag; rate
of Rs.600 per metric tonne on cement that has a higher MRP.

Specific rates of duty on cigarettes to be increased by about 5%; duty


(excluding cess) on biris to be raised from Rs.7 to Rs.11 per thousand for
non-machine made biris and from Rs.17 to Rs.24 per thousand for machine
made biris; duty on pan masala not containing tobacco to be reduced from
66% to 45%; withdrawal of exemption for pan masala containing tobacco
and other tobacco products given to units in the North Eastern States.

CUSTOMS DUTY:
The levy and the rate of customs duty in India are governed by the Customs Act 1962
and the Customs Tariff Act 1975. Imported goods in India attract basic customs duty,
additional customs duty and education cess. The rates of basic customs duty are specified
under the Tariff Act. The peak rate of basic customs duty has been reduced to 15% for
industrial goods. Additional customs duty is equivalent to the excise duty payable on
similar goods manufactured in India. Education cess at 2% is leviable on the aggregate of
customs duty on imported goods. Customs duty is calculated on the transaction value of
the goods.

Rates of customs duty for goods imported from countries with whom India has entered
into free trade agreements such as Thailand, Sri Lanka, BIMSTEC, south Asian countries
and MERCOSUR countries are provided on the website of CBEC.

Customs duties in India are administrated by Central Board of Excise and Customs under
Ministry of Finance.

RECENT BUDGET INITIATIVES IN THIS REGARD ARE AS


FOLLOWS:

CUSTOMS DUTIES:
Reduction in peak rate for non-agricultural products from 12.5% to 10%.

Reduction in duty on most chemicals and plastics from 12.5% to 7.5%; on


seconds and defectives of steel from 20% to 10%.

All coking coal irrespective of ash content to be fully exempt.

Reduction in duty on polyester fibres and yarns from 10% to 7.5% and on
raw-materials such as DMT, PTA and MEG from 10% to 7.5%; on cut and
polished diamonds from 5% to 3%; on rough synthetic stones from 12.5%
to 5%; and on unworked corals from 30% to 10%.

Dredgers to be fully exempt from import duty.

To augment irrigation facilities and processing of agricultural products,


reduction in duty on drip irrigation systems, agricultural sprinklers and
food processing machinery from 7.5% to 5%.

Reduction in general rate of import duty on medical equipment to 7.5%.

To make edible oils more affordable, crude and refined edible oils to be
exempt from additional CV duty of 4%; reduction in duty on sunflower
oil, both crude and refined, by 15 percentage points.

Reduction in duty on pet foods from 30% to 20%; on watch dials and
movements and umbrella parts from 12.5% to 5%; to promote research
and development, concessional rate of 5% duty to be extended to all research
institutions registered with the Directorate of Scientific and Industrial
Research; reduction in duty from 7.5% to 5% on 15 specified machinery
for pharmaceutical and biotechnology sector.

Duty of 3% (WTO bound rate) to be levied on all private import of aircraft


including helicopters; such import to also attract countervailing duty and
additional customs duty.

Duty of Rs.300 per metric tonne to be levied on export of iron ores and
concentrates and Rs.2,000 per metric tonne on export of chrome ores and
concentrates.

SERVICE TAX
Service tax is levied at the rate of 10% (plus 2% education cess) on certain identified
taxable services provided in India by specified service providers. Service tax on taxable
services rendered in India are exempt, if payment for such services is received in
convertible foreign exchange in India and the same is not repatriated outside India. The
Cenvat Credit Rules allow a service provider to avail and utilize the credit of additional
duty of customs/excise duty for payment of service tax. Credit is also provided on
payment of service tax on input services for the discharge of output service tax liability.

RECENT BUDGET INITIATIVES IN THIS REGARD ARE AS


FOLLOWS:
Exemption limit for small service providers to be raised from Rs.400,000
to Rs.800,000.

EXTENSION OF SERVICE TAX:


To services outsourced for mining of mineral, oil
or gas; renting of immovable property for use in commerce or business
(residential properties, vacant land used for agriculture and similar purposes,
and land for sports, entertainment and parking purposes & immovable
property for educational or religious purposes to be excluded); development
and supply of content for use in telecom and advertising purposes; asset
management services provided by individuals; design services; services
involved in execution of a works contract with an optional composition
scheme under which tax will be levied at only 2% of the total value of
works contract.

SECURITIES TRANSACTION TAX


Transactions in equity shares, derivatives and units of equity-oriented funds entered in a
recognized stock exchange attract Securities Transaction Tax at the following rate:-

• Delivery base transactions in equity shares or buyer and seller


each units of an equity-oriented fund - 0.075%
• Sale of units of an equity-oriented fund to the seller mutual fund - 0.15%
• Non delivery base transactions in the above - 0.015%
• Derivatives (futures and options) seller - 0.01%

SALES TAX ACTS OF VARIOUS STATE GOVERNMENTS


AND CENTRAL SALES ACT GOVERNED THE
APPLICATION OF SALES TAX/VAT.

SALES TAX/VAT:

Sales tax is levied on the sale of movable goods. Most of the Indian States have replaced
Sales tax with a new Value Added Tax (VAT) from April 01, 2005. VAT is imposed on
goods only and not services and it has replaced sales tax. Other indirect taxes such as
excise duty, service tax etc., are not replaced by VAT. VAT is implemented at the State
level by State Governments. VAT is applied on each stage of sale with a mechanism of
credit for the input VAT paid. There are four slabs of VAT:-

• 0% for essential commodities


• 1% on bullion and precious stones
• 4% on industrial inputs and capital goods and items of mass consumption
• All other items 12.5%
• Petroleum products, tobacco, liquor etc., attract higher VAT rates that vary from State
to State

A Central Sales Tax at the rate of 4% is also levied on inter-State sales and would be
eliminated gradually.

CORPORATE TAX
DESCRIPTION EXISTING RATE(%) PROPOSED DIFFERENCE+-= (%)
RATE(%)
Domestic Company
Regular Tax 33.6 33.9** +0.33
MAT 11.22 11.33 +0.11
DDT 14.025 16.995 +2.97
Foreign Company
Regular T ax 41.82 42.33 +#0.41
For the Assessment Year 2007-08

*It includes the applicable surcharge and the education cess.


**If the income is equal or less than Rs 10 million, it is 30.9%.
#If the income is equal or less than Rs 10 million, it is 41.2%.

company has been defined as a juristic person having an independent and


separate legal entity from its shareholders. Income of the company is computed
and assessed separately in the hands of the company. however the income of
the company which is distributed to its shareholders as dividend is assessed in
their individual hands. Such distribution of income is not treated as an
expenditure in the hands of company, the income so distributed is an
appropriation of the profits of the company.

CORPORATE TAXES IN INDIA:

For companies, income is taxed at a flat rate of 30% for Indian companies, with a 10%
surcharge applied on the tax paid by companies with gross turnover over Rs. 1 crore (10
million).
Foreign companies pay 40%. An education cess of 3% (on both the tax and the
surcharge) are payable, yielding effective tax rates of 33.99% for domestic companies
and 41.2% for foreign companies.

FRINGE BENEFIT TAX:


Fringe Benefit Tax is a tax payable by companies against benefits that are seen by
employees but cannot be attributed to them individually. This tax is paid as 33.99% of
the benefit, which is only a percentage of the actual amount paid.
From April 1, 2007 , Employees Stock Option Plan (ESOP) or Sweat Equity has also
been brought within ambit of fringe benefit tax. Section 115WB(1)(d) specifies that any
ESOP will attract Fringe Benefit Tax, and the benefit is equal to the difference between
the price paid and the fair market value of the share, as determined by the Board. Tax is
levied on the date of vesting of such options. "Fair Market Value" is not yet defined by
the Income Tax Department.

TAX PENALTIES:

"If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the
course of any proceedings under this Act, is satisfied that any person-

(a) has failed to comply with a notice under sub-section (1) of section 142 or sub-section
(2) of section 143 or fails to comply with a direction issued under sub-section (2A) of
section 142, or

(b) has concealed the particulars of his income or furnished inaccurate particulars of such
income,

he may direct that such person shall pay by way of penalty,-

(ii) in the cases referred to in clause (b), in addition to any tax payable by him, a sum of
ten thousand rupees for each such failure;

(iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum
which shall not be less than, but which shall not exceed three times, the amount of tax
sought to be evaded by reason of the concealment of particulars of his income or the
furnishing of inaccurate particulars of such income".

CORPORATE TAXES OF INDIA WITH FOREIGN


COUNTRIES:
India's high rate of corporate taxes are a drag on the flow of foreign direct investments
(FDI) into the country as rival economies such as China, Spain, Singapore and Germany
are likely to reduce tax rates by next year, consultancy firm KPMG International said in a
report.
Corporate taxes in India varies from 33.6 per cent for domestic companies to over 42 per
cent for foreign firms while it is 17.5 per cent in Hong Kong, 20 per cent in Singapore
and 27 per cent in Malaysia, the KPMG study pointed out.

In a survey covering 92 countries, the KPMG said the average rate of corporate tax in the
EU was 24.2 per cent, compared with 27.8 per cent in the OECD countries, 28 per cent
in Latin America and 30.1 per cent in Asia-Pacific.

Hong-Kong`s corporate tax at 17.5 per cent, Singapore`s 20 per cent and Malaysia`s 27
per cent, these countries, which are also in the process of developing their economies and
with their lower corporate tax rates, can provide stiff competition to India for attracting
FDI," KPMG International said in its global corporate tax rate survey.

The study, however, said significant reductions in corporate tax rates are in pipeline in
the UK, Germany, Spain, Singapore and India.

"We believe that India should hasten the implementation of Kelker Committee
recommendation of reduction of corporate rates to 30 per cent." KPMG India`s national
head (tax and regulatory services) Sudhir Kapadia said,

Finance minister P Chidambaram in his budget 2007-08 had said that effective corporate
tax was 19.2 per cent. He has also said that FDI is expected to go up to $20 billion this
fiscal.

While some countries have made significant cuts - such as Turkey`s reduction from 30
per cent to 20 per cent and Bulgaria`s reduction by 5 per cent to 10 per cent - globally the
reduction in corporate tax rates from 2006 to 2007 has been very slight, from 27.2 per
cent to 26.8 per cent, much less than the year-on-year reductions of the 1980s and 1990s,
KPMG said.

India can, however, take solace from the fact that indirect tax rates like value added tax
(VAT) at 12.5 per cent is much lower than in China (17 per cent) and its neighbours-
Bangladesh (15 percent ) and Pakistan (15 per cent), the report said.

RESIDENCE OF A COMPANY :

A company is said to be a resident in India during the relevant previous year if: it
is an Indian company
If it is not an Indian company then, the control and the management of its affairs
is situated wholly in India
A company is said to be non-resident in India if it is not an Indian company and
some part of the control and management of its affairs is situated outside India.
TAXABLE CORPORATE INCOME:

CORPORATE SECTOR TAXES :

The taxability of a company's income depends on its domicile. Indian companies are
taxable in India on their worldwide income. Foreign companies are taxable on income
that arises out of their Indian operations, or, in certain cases, income that is deemed to
arise in India. Royalty, interst, gains from sale of capital assets located in India
[including gains from sale of shares in an Indian company] dividends from Indian
companies and fees for techincal services are all treated as income arising in India.
Domestic Corporate Income Taxes Rates:

DESCRIPTION TAX RATE EFFICTIVE TAX WITH


SURCHARGE
DOMESTIC 30% 30%
CORPORATION

NOTE:
A surcharge of 10% of the income tax is levied, if the taxable income exceeds Rs. 1
million.
All companies incorporated in India are deemed as domestic Indian companies for tax
purposes, even if owned by foreign companies.

FOREIGN COMPANIES TAX RATES:


Withholding Tax Rate for Tax Rate for US the Treaty
Non-Treaty Foreign companies under the Treaty
Description companies
Dividends 20% 15%1
Interest Income 20% 15%2
Royalties 30% 20%2
Technicals Services 30% 20%2
Other Income 55% 55%

NOTE :-
Inter-corporate rates where there is minimum holding.
10% or 15% in some cases.
Withholding tax is charged on estimated income, as approved by the tax authorities.
There are other favorable tax rates under various tax treaties between India and other
countries.

ASSESSING TAXABLE INCOME[DEDUCTIONS]:


In ascertaining taxable income, all expenditure incurred for business purposes are
deductible. This includes interest on borrowings paid in the financial year and
depreciation on fixed assets. Certain expenses are specifically disallowed or their
quantum of deduction is restricted.
These include:-
Entertainment expenses
Interest or other amounts paid to a non-resident without deducting without tax
Corporate taxes paid
Indirect general and administrative costs of a foreign head office

TAX REBATES FOR CORPORATE SECTOR:


• The classical system of corporate taxation is followed
Domestic companies are permitted to deduct dividends received from other domestic
companies in certain cases.

• Inter Company transactions are honored if negotiated at arm's length.

• Special provisions apply to venture funds and venture capital companies.

• Long-term capital gains have lower tax incidence.

• There is no concept of thin capitalization.

• Liberal deductions are allowed for exports and the setting up on new industrial
undertakings under certain circumstances.

• There are liberal deductions for setting up enterprises engaged in developing,


maintaining and operating new infrastructure facilities and power-generating units.

• Business losses can be carried forward for eight years, and unabsorbed depreciation
can be carried indefinitely. No carry back is allowed.

• Specula tax provisions apply to activities carried on by nonresidents.


• A minimum alternative tax (MAT) on corporations has been proposed by the Finance
Bill 1996.

• Dividends, interest and long-term capital gain income earned by an infrastructure


fund or company from investments in shares or long-term finance in enterprises
carrying on the business of developing, monitoring and operating specified
infrastructure facilities or in units of mutual funds involved with the infrastructure of
power sector is proposed to be tax exempt.

DEPRECIATION:

Depreciation is normally calculated on the declining balance method at varying rates and
is available for a full year, irrespective of the actual period of use of the asset in the year
of the acquisition of the asset. Depreciation is allowed at half the normal rate, if the as set
is used for less than 180 days in that year. No depreciation is available in the year of the
sale of the asset.

Depreciation is calculated on the opening written-down value of the block of assets plus
the additions to the block less the sale proceeds/ scrap value of selections from the block.
Depreciation at 100% is allowed in respect of machinery and equipment the unit cost of
which does not exceed Rs. 5,000. No depreciation is allowed in respect of motorcars
manufactured outside India, unless they are rental cars for tourists or where such
motorcars are used outside India for the purposes of business. No depreciation is allowed
on plant and machinery if actual cost is otherwise allowed as a deduction in one or more
years under an agreement entered into with the Central Government for prospecting, etc.
of mineral, oil. The rates applicable for the accounting year ending March 1996 :

Blocks of Assets Deprecition Rates(%)


Buildings 20
Dwelling units with plinth area not
exceeding 80sq.meter 20
Mainly Residental 5
Others 10
Purely temporary structures 100
Machinery &Equipment General 25
Motorcars other than those used in business
of hire acquired after April 1,1990 20
Airplanes, airengines, specified moulds,
air&water pollution control equipments
solid waste control equipment ;motor bus, 40
motor trucks motor taxis used in a business
of hire
Specified energy-saving/renew energy
devices,specified machinery used in mines
and quarries,mineral oil cocern,salt,and 100
sugarworks,iron and steel industries,glass
works.
Furniture and Fittings 10
Special furniture and fittings used in hotels, 15
cinemas.
Oceangoing ships, including dredgers& 20
speedboats
Inland water vessel 10

TONNAGE TAX REGIME - A SHOT IN THE ARM FOR


SHIPPING SECTOR:

EUPHORIA surged through the Indian shipping industry with the introduction of the
long-proposed tonnage tax in the interim Budget for part of 2004-05 presented by the
Union Finance Minister, MrJaswant Singh.

The shipping companies, which are having a bull run with swelling profits in the wake of
a dream boom in the freight market, are understandably excited about the announcement,
as a tonnage tax regime will significantly bring down tax burden and further sharpen
profitability.

Although the quantum of reduction in tax burden will be clear only after the details of
the scheme is worked out, it is expected that the level of taxation under the new regime
will drop to 2-3 per cent, as against the pre-2002 rate of about 22 per cent and post-2002
rate of 7.5 per cent.

Apart from encouraging FDI in the shipping sector, a tonnage tax regime is also expected
to shore up the country's fleet strength, which fell from 11.20 million DWT as on March
31 20-02 to 10.06 million DWT as on March 31 2003.
However, due to the freight market boom, since April last year the fleet strength has been
showing signs of recovery, crawling up to 10.51 million DWT by July-end.

How will a tonnage tax regime help bolster the bottom lines of the shipping companies?
Currently, shipping companies are subject to a corporate tax of 35 per cent, with the
effective rate of taxation working out to around 22 per cent.
However from 2002-03, with the benefits under Section 33 AC of the Income-Tax Act,
1961 the effective rate of taxation has been about 7.5 per cent, which is still considered
amongst the highest in the world.

Under the tonnage tax regime, it has been proposed that a shipping company's tax
liability will be determined by the tonnage of its fleet rather than the profits generated by
its commercial operations.

Rakesh Mohan Committee report, which is considered the basis for working out the
contours of the new tax system, has recommended a system in which the tonnage tax is
obtained by multiplying the net registered tonnage (NRT) of a vessel with a prescribed
notional income rate to compute a notional daily taxable income.

This value is then multiplied by the prevailing corporate tax rate (35.7 per cent) and the
number of days the ship operates in a year to yield the actual tax liability.
For arriving at a common notional income rate, the committee has used a weighted
average notional income rate of three countries that have implemented such a system,
namely the UK, Germany and the Netherlands.

The national profit schedule per day per NRT worked out by the committee is Rs40 for
ships up to 1,000 NRT, Rs30 for ships of 1,000-10,000 NRT, Rs25 for ships of 10,000-
25,000 NRT and Rs15 for ships above 25,000 NRT.

The corporate tax paid by the entire industry had increased from Rs114.2crores in 1996-
97 to Rs122.4crores in 1997-98 and Rs274.7crores in 2000-01.
The tax liability, however, came down in 2002-03 after the benefit under Section 33 AC
to about Rs54crores, when it was calculated after multiplying the annual profit of the
industry with only 7.5 per cent.

Based on the current trend in reduction of total tonnage, a study by Tata -Energy
Research Institute (TERI) has calculated that the corporate tax liability for the entire
industry would go down from Rs54crores in 2003 to Rs45.3crores in 2007 (on a tonnage
of 6.84 GRT), Rs40.6crores in 2016 (5.04 million GRT) and Rs38.8crores in 2027
(4.82 million GRT) due to reduction in tonnage as a result of the high taxation.

For calculation of tonnage tax, the Rakesh Mohan Committee report can be used as a
basis.
For example, for 45,000 GRT, the daily notional income (weighted average tax rates of
three countries) is £107.30, which means that the notional annual income would be
£39,164.50 (107.30 x 365 days).
Thus, the tonnage tax for the ship would be £13.981.7, or Rs9.64lakhs at the then
conversion rate of Rs69 (PS 39,164.50 x 35.7 per cent which is the corporate tax rate on
deemed profits).
Using this assessment, the industry's tax liability under the tonnage tax regime has been
projected to be Rs15.2crores in 2007, Rs15.7crores in 2016 and Rs19.1crores in 2027.
Thus, the liability is significantly lower than the projected tax liability under the
corporate tax regime.

Mr.Sanjay Mehta, Managing Director of Essar Shipping, said: "On the other hand, the
tonnage tax regime will make Indian shipping companies internationally competitive and
will attract more investments for the industry."

However, with the decrease in tax liability, the tonnage is expected to go up, as ship
owners will be encouraged to make more investments for fleet acquisition.
TERI has estimated that for every additional million GRT added after introduction of
tonnage tax, about Rs2.4crores of additional tax will come to the Government every year
The corporate tax rate in India is at par with the tax rates of the other nations worldwide.
The corporate tax rate in India depends on the origin of the company.

If the company is domicile to India, the tax rate is flat at 30%. But for a foreign
company, the tax rate depends on a number of factors and considerations. The companies
that are domicile to India are taxed on the global income whereas the foreign companies
in India are taxed on their income within the Indian territory. The incomes that are
taxable in case of foreign companies are interest gained, royalties, income from the
capital assets in India, income from sale of equity shares of the company, dividends
earned, etc.

SET-OFF & CARRY FORWARD OF LOSSES[OPTIONS]

Business losses incurred in a tax year can be set off against any other income earned
during that year, except capital gains. In the absence of adequate profits unabsorbed
depreciation can be carried forward and set off against profits of the next assessment
year, without any time limit. Unabsorbed business losses can be carried forward and set
off against business profits of subsequent years for a period of eight years; the
unabsorbed depreciation element in the loss can however, be carried forward idefinitely.
However, this carry forward benefit is not available to closely-held (private) companies
in which there has been no continuity of business or shareholding pattern. Also, any
change in beneficial interest in the shares of the company exceeding 51 per cent
disqualifies the private company from the carry forward benefit.

TAX ON DISTRIBUTED PROFITS:


Upto 31-05-1997, the company was not liable to pay any income tax on the amount of
dividends declared, distributed or paid by such company. However, such dividend was
included in the income of the shareholders under the head "income from other sources".
The finance act, 1997 has introduced changes in this rule.

A) Tax on distributed profits of the Domestic company


The domestic company shall be liable to pay additional income tax on any amount
declared, distributed or paid by such company by way of dividend (whether interim or
otherwise) on or after 1-06-1997, whether out of current or accumulated profits. Such
additional income tax shall be payable @ 10% of the amount so ditributed. Thsi
additional tax shall be payable even if no income tax is payable by such company on its
total income.

B) Exemption of dividend in the hands of shareholders


In view of the income tax now payable by the domestic company, any dividends
declared, distributed or paid by such company, on or after 01-06-1997 shall be exempt in
the hands of the shareholders.

Time limit for deposit of additional income tax :


Such additional tax will have to be paid by the principal officer of the domestic company
within 14 days from the date of :
a) Declaration of any dividend
b) Distribution of any dividend
c) Payment of any dividend, whichever is earlier

Additional income-tax is not allowed as deduction :


The company shall not be allowed any deduction on account of such additional income
tax under any provisions of the income tax act.
CONCESSIONS OFFERED TO SPECIFIC SECTORS:

OIL COMPANIES:

The taxable income of all oil companies which are engaged in petroleum exploration and
production is taxed favourably and the following expenses/allowances are deductible:
Infructuous or abortive exploration expenses incurred in areas surrendered prior to the
commencement of commercial production.
All expenses incurred for drilling or exploration activities, whether before or after
commencement of commercial production, including the cost of physical assets used.
These are deductible after the commercial production.
The allowances are calculated according to the agreement reached between the oil
company and the Government.

OIL AND GAS SERVICES:

All revenues of non-resident oil service companies (excluding royalties


and technical service fees), earned in connection with providing
services and facilities (e.g. hire of plant and machinery) to be used in
extraction or production of mineral oils, are taxed at a deemed profit.

POWER PROJECTS:

Foreign companies engaged in constructing, erecting, testing or commissioning of plant


and machinery for turnkey power projects approved by the Government and financed by
an international aid programme are taxed on a deemed profit.

TAX HOLIDAY IN THE FREE TRADE ZONE:

Complete Tax Holiday for industrial units situated in Free Trade Zones
Free Trade Zone, also called Foreign-trade Zone, formerly Free Port, an area within
which goods may be landed, handled, manufactured or reconfigured, and re-exported
without the intervention of the customs authorities. Only when the goods are moved to
consumers within the country in which the zone is located do they become subject to the
prevailing customs duties.

There are six free trade zones namely Kandla free trade zone, Santa Cruz Electronics
Export processing zone, Falta Export processing Zone, Madras export processing zone,
Cochin Export Processing zone and Noida Export Processing zone.

KANDLA FREE TRADE ZONE:

Kandla, established in 1965, boasts to be India's first free trade zone. Free trade zone in
Kandla provides environment ensuring internationally competitive duty free
environment,with low costs for export production. The basic infrastructure facilities for
the units like developed land, Standard design factory buildings, power, water and
customs clearance facilities are provided here. Government of Gujarat and Indian
Government offer special incentives to units set up in this zone and that are 100 per cent
export oriented.

SANTA CRUZ ELECTRONICS EXPORT PROCESSING ZONE:

Santa Cruz Electronic Export Processing Zone, was established in year 1974 at Mumbai
with access to commercial, industrial and social infrastructure. It has got efficient
communication network, a competent ancillary base. It has skilled and experienced urban
work force and a well developed financial and credit structure.

FALTA EXPORT PROCESSING ZONE:

Falta Export processing Zone was approval by Govt. of India in 1984


and started work in 1984-85. It declared a Customs Bonded Area on
16th of August. 1985. Its first export was on 4th of January, 1986.

MADRAS EXPORT PROCESSING ZONE:

MEPZ Special Economic Zone was established in 1984 with the objective of promoting
foreign direct investment, enhancing foreign exchange earnings, and creating greater
employment opportunities.

The Zone was converted into a Special Economic Zone on 1.1.2003. The added objective
of the SEZ is to facilitate exports through reduction of transaction costs. To this effect,
the Ministry of Commerce and Industries has introduced special features that include
Offshore Banking Units and Container Freight Stations to be set up within the Zone,
besides liberalised Customs procedures. It is expected that the cost, time and effort saved
would translate to higher exports from the Zone.

MEPZ SEZ is a multi-product Zone housing 86 functional units. Another 5 units are
under various stages of implementation. The export turnover for the year 2002-2003 was
Rs.820 crores. Garments, software and engineering products contributed more than 50%
of export value. Recent growth has been in engineering sector with special reference to
automobile ancillaries.

Located in Chennai (formerly Madras), the Zone is under the administrative control of
the Ministry of Commerce and Industries and caters to the needs of both units in the
Special Economic Zone as well as of 100% EOUs located in Tamil Nadu, Pondicherry
and Andaman & Nicobar islands.

DOMESTIC CORPORATE INCOME TAXES RATES:


• For Domestic Corporations the effective tax rate is 30% and the tax rate with
surcharge is 30% Attention must be given on the factor that if the taxable income
is more than Rs. 1 million then a surcharge of 10% of the tax on income is levied

• Attention must also be given on the fact that all of the companies formed in India
are regarded as Indian domestic companies, even in the case of ancillary units
with mother companies in foreign countries.

FOREIGN COMPANIES INCOME TAX RATES:

• For dividends 20% in case of non-treaty foreign companies and 15% for
companies under the treaty based in United States

• For interest gains 20% in case of non-treaty foreign companies and 15% for
companies under the treaty based in United States

• For royalties 30% in case of non-treaty foreign companies and 20% for
companies under the treaty based in United States

• For technology based services in case of non-treaty foreign companies and 20%
for companies under the treaty based in United States

• For other kinds of income and gains 55% in case of non-treaty foreign companies
and 55% for companies under the treaty based in United States

• Attention must be given on levying inter corporate rates in case the holding is
minimum

• Attention must be given on the fact that the sanctions of the tax authorities on tax
withholding

• Attention must be given on the several of the tax treaties India signed with the
other countries and also the various encouraging tax rates.

CONDITIONS FOR AVAILING FACILITY:

Sections 10A provides complete tax exemption in respect of profits


and gains derived from industrial undertakings set up in these zones
for a period of five initial assessment years.
It applies to any industrial undertaking which fulfils the folowing
conditions:-
It has begun to manufacture or produce articles in any electronic
hardware or soft technology park during the previous year relevant to
the assessment year commencing on or after 1st day of April, 1994 or
in any free trade zone on or after 1st day of April,1981
It is not formed by splitting up or the reconstruction of a business
already in existence
It is not formed by the transfer to a new business machinery or plant
previously used for any purpose
The profits and gains of the undertaking shall not be included in the
total income of the assessee in respect of any five consecutive
assessment years opted for by the assessee, falling within a period of
eight years begining with the assessment year relevant to the
previous year in which the undertaking begins to manufacture or
produce articles or things
After the expiry of the tax holiday period ther will be no carry forward
of any unabsorbed losses, unabsorbed depreciation, unabsorbed
investment allowances, unabsorbed capital expenditure on scientific
research, the unabsorbed capital expenditure on family planning, tax
holiday deficiency or any other deuction or allowance admissible
under the income tax act.
The industrial units set up during any previous year relevant to the
assessment years 1977-78 to 1980-91 will at their option , be entitled
to complete tax holiday for the xpired period of five years.
Where the goods transferred to any other business or whre goods held
for any other purpose are transferred to the business of thenew
industrial undertakings to which the new section applies, then the
consideration for the transfer of goods for the purposes of
computation of deduction under the section shall be the amrket value
of such goods as on the date of transfer of goods.
The benift od deduction under section 10A is optional
It may be noted taht the tax concession under section 10A will be
availble to all tax payers, incl;uding foreign companies and non-
resident non-corporate tax payers.
Exchange Controls

The Reserve Bank of India (RBI) administers India's extensive foreign


exchange controls and regulations. All foreign exchange transactions
are subject to the control and approval of the RBI, including the
transfer of profits and dividends. Controls on outflows of foreign funds
are stringent due to India's foreign exchange shortage. The Indian
government provides no guarantees against inconvertibility.
Companies with 40 percent or more foreign equity are subject to
certain provisions of the Foreign Exchange Regulations Act.

Regulations governing the remittance of dividends state that the


foreign currency outflow due to dividends may not exceed export
earnings and that automatic approval is granted on preference and
equity shares up to certain limits. There are no limitations applied to
interest payments on foreign loans although there are limits applied to
the repatriation of capital. There is a cap on royalties paid under
technology licensing agreements equal to eight percent of export
sales or five percent of domestic sales.

Businesses can consult the Exchange Control Manual of the Reserve


Bank of India for all rules and regulations governing India's foreign
exchange controls regime.

SOME OF THE TAX REBATES UNDER CORPORATE


TAX RATE IN INDIA:
• The gains pertaining to long term capital is subjected to low tax incidence.
• The venture capital funds and venture capital companies has special tax
provisions.
• The Specula tax provisions are applicable for the non resident Indian's involved
in activities in India.
• Under the Finance Bill 1996, minimum alternative tax (MAT) on the corporate
sector is levied.

INDIA VALUATION:

• Conducted business and financial valuation of companies for the purpose


of acquiring such companies as also for potential sell-outs. The process
involved discussions with the client to understand their objectives and
assistance in negotiations.

INDIA - POST EVALUATION:

• Carried out a post evaluation study at the behest of the Japanese


government through their embassy in India. This evaluation involved a
1000 MW power plant (the first in India) set up with the aid of Japanese
government funding and required reporting on various aspects of the
project from planning, efficient utilization of resources, time management
to sustainability of the project.

INDIA - PARTNER SEARCH:

• Short listed potential business partners for a Japanese auto ancillary


company, assisted in finalizing on the partner, negotiating with the Indian
partner on various business and financial matters, drafting of legal
documents and obtaining necessary government approvals.

• Carried out partner searches for 35 Spanish companies as part of a


special forum organised by the Spanish Institute of Foreign Trade (an
undertaking of the Spanish government) during the largest Engineering
Trade Fair (IETF 2001) held in New Delhi, India. This involved nationwide
search and short listing of like companies that would match the profile and
interests of the specific Spanish companies.
• Identified contract manufacturers on behalf of a US based MNC dealing in
FMCG. The search was conducted in two states of India for availing tax
and fiscal incentives.
• Assisted an Indian auto ancillary company in developing their vision
statement and assisted them in identifying a suitable technical and
financial partner.

INDIA - DUE DILIGENCE:

• Credit Worthiness Studies - Conducted credit worthiness checks on


potential Indian partners for the automobile ancillary business. This
involved reporting beyond ‘balance sheet’ items such as market
reputation and credibility, financial stability, customer satisfaction and key
attributes of the management style.
• Financial Due Diligence - Carried out a study of the various laws,
regulations and financial strategies of a public listed company which
planned to de-merge certain parts of their business units. This process
also involved valuing the current business for the purpose of exchange of
shares in the de-merged companies.
• Corporate Law - Carried out legal due diligence of an Indian company,
which was to be acquired by a Japanese company in the optical fiber
cable business. Subsequently undertook to prepare legal documentation
relating to proposed joint venture and technology licensing between the
two companies.

INDIA – RESTRUCTURING:

• Operational Restructuring - Conducted operational restructuring for a poly


urethene foam and mattress manufacturing company. We studied the
working of the different divisions of the company and recommended steps
to control cost and improve efficiency.
• Demerger - Carried out a study of the various laws, regulations and
financial strategies of a public listed company which planned to de-merge
certain parts of their business units. This process also involved valuing
the current business for the purpose of exchange of shares in the de-
merged companies.
• Financial Restructuring - Assisted a large Japanese auto component
company having an Indian joint venture to re value and restructure
shareholding in the Indian Company.

INDIA - TRANSACTION RISK ANALYSIS:

• We were engaged by the Venture Funder to an IT related company to


carry out a transaction risk analysis and comment on utilisation of funds.
We identified serious risk of exposure to operations arising through non-
compliance with statutory requirements and various instances of non-
effective utilisation of funds and provided a more tax efficient mode of
cross border investment. Our study concluded with a 6 months action plan
for a turnaround.
INDIA - TAX STRUCTURING:

• A media company had overlooked certain compliance requirements in the


past and engaged us to carry out a detailed analysis. We identified
possible risk of exposure to interest and penalty. Thereafter through
focussed tax research, found areas of efficient tax planning which resulted
in net savings in cash flows and were equally acceptable to the Indian tax
authorities.
• Provided Tax advisory to a UK based Telecom Company in respect of
their expatriates posted to India

INDIA - MARKET RESEARCH:

• Conducted a detailed study for estimating demand of premium quality


taps and faucets in India for a European company. It was a category
research and analysis that factored in various players and market shares,
channels of distribution and possible entry routes. Both primary and
secondary data tools were employed including the influence of
government policies.
• Undertook study for a leading international fast food brand to identify key
factor to optimise logistics and rework the supply chain process.

INDIA - INDUSTRY STUDY:

• Industry reports were prepared for various sectors viz. pharmaceutical,


chemical & petrochemical, consumer durable & electronics, automobiles
& auto ancillaries, coal & mineral, oil & gas, power, telecom, iron & steel,
retailing & distribution sector. the studies covered government policy
framework, installed capacities, demand and supply, future projections,
market movement and financial positions of various players.

INDIA - FEASIBILITY STUDY:

• Study undertaken to analyse the feasibility of setting up a pharmaceutical


unit for anti-anemic formulations in India. An in-depth market study was
undertaken with the aim to capture the market. Since there were no
realistic figures available, we bridged the gap by obtaining qualitative data
from the pharmaceutical sector/ trade and supplemented it with
quantifiable secondary data.
• Analysed feasibility of setting up a technical training centre for the
Netherlands Embassy, which acted on behalf of an EU client interested in
tying up with a maritime institute in India.

• Undertook feasibility study for an Indian three-wheeler-manufacturing unit


for shifting the manufacturing facility to another state.

• Financial feasibility study done for a Japanese company interested in


setting up a manufacturing unit for catalytic converters.

INDIA - PRE-LAUNCH STUDY:

• Evaluated the acceptability and potential for new products. The


techniques employed one-to-one interaction with the select targeted
respondents within defined socio-economic classes at respective
geographic locations across India.
• Undertook market analysis and forecasting for a new food product to be
launched for an International company. The scope covered production
patterns, demand estimation, supply sources & analysis, character of
competition and identifying access points for new entrants.
• Undertook a Concept Study to identify the perception and acceptability of
Indian consumers towards Soya based meat substitute.

INDIA - SOCIO-ECONOMIC STUDY:

• Assessed the impact and effectiveness of the various developmental


programmes carried out by Government of India. These programmes
offer solutions for alleviating rural poverty and providing basic needs of
drinking water, sanitation and health.
• A Common Rating Mechanism was designed for Non Government
Organisations (NGOs) for grading their operations in order to help the
funding agencies/ donors to evaluate the performance of the various
NGOs.
• A comprehensive survey was conducted on various motorized vehicles to
derive vehicle operating cost, effect of road condition on speed of
vehicles, evaluation of monetary value of passenger time and over all
impact of those conditions on the economy. Ministry of Surface Transport,
Government of India and Asian Development Bank sponsored the study.

INDIA- DISTRIBUTION & LOGISTICS SEARCH:

• The assignment involved identification of distributors in major cities of


India for a foreign manufacturer of electronic products.

INDIA-HUMAN RESOURCE:

• Assisted a German Information Technology client in identifying and short


listing candidates for their East European Operations.

INDIA –ENTRY:

• Assisted a Japanese advertising agency in their negotiations with an


Indian partner for setting up a joint venture company.
• Assisted a Japanese auto component company in identifying land to
construct a factory in India. Negotiated with the land authorities, identified
and obtained necessary environmental clearances.

BUSINESS NEGOTIATION:

• Assisted a large Spanish company in negotiating and arbitrating with their


Indian joint venture partner.
• Assisted a Japanese auto component company in identifying land to
construct a factory in India, negotiated with the land authorities, identified
and obtained necessary environmental clearances.
• Assisted a Japanese advertising agency in their negotiations with an
Indian partner for setting up a joint venture company.
• Undertook commercial planning for a Japanese company taking up
renovation and modernization of an existing power plant. We reviewed
and analysed the complete commercial part of the contract and were the
part of Negotiations.
INDIA-TRANSFER PRICING STUDY:

• Have carried out detailed transfer-pricing studies for companies in


handicraft and garment exports, telecom, consumer durable, information
technology and automobiles & auto ancillary. These companies are from
Japan, Australia, UK, USA, France, Singapore, Germany, Switzerland etc.

INDIA- AUDIT:

• We act as Internal Auditors for companies engaged in BPO (Business


Process Outsourcing), manufacturing, trading, exports and service sector.
We analyse the internal systems and redesign them to strengthen
functioning of the organisation.
• We are Concurrent auditors for various public sector banks.
• We are statutory auditors for various companies dealing in electronics,
consumer durables, food processing, travel & tourism, consultancy
services, power, information technology etc.

INDIA -BUSINESS PROCESS OUTSOURCING:

• Account Outsourcing - This is a continuous process where we handle


accounts as an outsourced function. Presently we provide these services
to various Japanese, British, European companies or their liaison offices
in India.

Tax Preparation India, Outsourcing Tax Return Preparation BPO India, Tax Compliance
Outsourcing Services India, Corporate Tax Compliance with Tax Consultant India,
International Tax Consultancy, Tax Planning, Tax Advisory, Corporate or Individual Tax
Processing, 401K Compliance Services, 401k Compliance Testing etc.

TAX PREPARATION:
The tax processing outsourcing business has significantly changed and expanded beyond
the client to tax preparers and now, to back-office outsource processing. As mainland
tax service costs increase, more and more accountants and companies are opting to
outsource tax preparation to help minimize operating costs and maximize efficiency and
profits. To meet this market demand, we at MINFO provide a customized tax processing
outsourcing service using the best industry tax software like Drakes Lacerte, Turbo Tax,
Ultra Tax.
TAXES IN BPO:

Our tax BPO outsourcing service method provides CPAs and Tax service providers of
almost any size with a new way of handling their tax compliance workload and meeting
filing timing deadlines. This cost-effective BPO solution utilizes ASP / FTP technology,
to move source document information from clients to our tax processing facilities in
India.

This way, we handle the tax processing functions of a tax department while you focus
on improving your client relationship. We have considerable experience in US tax
preparation and reporting. We use top of the line tax software and technology like Drakes
Lacerte, Turbo Tax and Ultra Tax, so that the CPA or Tax preparing firm is assured a
seamless and secure delivery of work from an outsourced environment. The tax
processing BPO services. The offer tax preparation services for the following:
Form1040 - For individuals, Form1065 - For Partnerships Form 1120 - For companies
and Corporations. We will examine your balance sheets, interpret and classify each item
on it. We will also classify and interpret P/L items, and interpret the taxability and
treatment of various accounts.

OUTSOURCING TAX PROCESS METHOD :

It starts with sending us scanned documents. We will supply you with our standard
format to send the relevant and required data either in the form of pdf files, mdi or e fax
messenger. Once the tax information images are received, trained tax professionals at
our offshore processing facility will data enter the information into our tax software or
the tax software of your choice. After data entry, the tax return is audited to verify that
all the information received has been correctly entered and accounted for. Next, the
returns are transmitted using the ASP/FTP to your firm for review. You'll receive
complete returns, including any questions or comments the preparer thought necessary.
Once you have the return, your firm can review and finalize, plus add or delete any
information as is necessary. We can then update the tax file and send you a final copy for
filing. Cost benefits of outsourcing tax preparation Tax Returns prepared by us will cost
up to 60% less than the average tax preparation cost currently incurred by a mainland
firm. This reduction in cost will not only ensure increased profit margins, but will
provide a significant marketing advantage for acquiring new clients.

India Tax is regulated and administered by the Ministry of Finance under the
Government of India. Taxation is the government's main source of revenue and several
types of taxes are applied to different categories of the population.
INCOME TAX:

The Income Tax Act of 1961 stipulates that any person who qualifies as an assessee and
whose gross income is more than the exemption limit is required to pay Income Tax in
accordance with the rates indicated by the Finance Act.

CORPORATE TAX:

India Corporate Tax is the tax charged on the profits earned by associations and
companies by several jurisdictions. The rate of Corporate Tax in India depends on
whether the profits have been passed on to the shareholders or not.

VALUE ADDED TAX:

This is the tax that a manufacturer needs to pay while purchasing raw materials and a
trader needs to pay while purchasing goods. VAT is eventually expected to replace Sales
Tax. All goods and services provided by business individuals and companies come under
the ambit of VAT.

CAPITAL GAINS TAX:

A Capital Gain can be defined as an any income generated by selling a capital investment
(business stocks, paintings, houses, family business, farmhouse, etc.). The 'gain' here is
the difference between the price originally paid for the investment and money received
upon selling it, and is taxable.

SERVICE TAX:

As per the Finance Act of 1994, all service providers in India, except those in the state of
Jammu and Kashmir, are required to pay a Service Tax in India.

FRINGE BENEFIT TAX:

As per Section 115WB of the Finance Bill, expenses incurred for employees, by an
employer (individual/company/local authority/trader) for purposes of entertainment,
gifts, telephone, clubbing, festivals etc., will be treated as Fringe Benefits and will be
taxed.
The Indian industry today asked the government to cut personal and corporate tax rates
in the coming budget and impose 35 per cent import duty on Chinese products to offset
rupee's appreciation against the yuan.

The industry placed these demands during the customary pre-budget consultations with
the Finance Minister, saying the steps were necessary to spur consumption and
investment level - key to sustaining economic expansion.
Although the industry wanted him to impose 35 per cent import duty on Chinese
products, sources quoted Finance Minister P Chidambaram as saying that that rupee
appreciation has not been much in terms of real effective exchange rate.

The minister felt that though there were reports of a dip in exports due to rupee
appreciation, tax collections did not corroborate this. Sources said Chidambaram was of
the view that industry and services sector need to sustain high growth rates, as four per
cent growth in agriculture alone would not help achieve 9-10 per cent economic growth.
For this, the industry sought greater tax concessions.

"The peak income tax rate should be reduced to 25 per cent from 30 per cent and should
be levied on more than Rs five lakh. Corporate tax rate should be retained at 30 per cent
but 10 per cent surcharge on it should be withdrawn," Assocham President Venugopal N
Dhoot told reporters. He also wanted tax concessions for India Inc making acquisitions
abroad.

The pharma industry asked the finance minister to expand the scope of tax rebate to third
party R&D activities instead of just in-house activities.

Unlike many countries that have kept their corporate tax rates unchanged since 2004, the
European Union, India, Barbados, Albania and Israel are among those that have
witnessed large reductions, according to a new global report released Monday.

Tax and advisory services major KPMG International's 'Corporate Tax Rates Survey
2006' has revealed that company tax rates across Europe are being driven steadily down
by a combination of competition amongst EU member states for jobs and capital, and
economic liberalisation.

'Average corporate tax rates in the EU fell by 0.28 percent to 25.04 percent in 2005,
thanks to rate cuts in six EU member states, including France, Greece and the
Netherlands,' the report stated.

'This compared with average rates of 28.31 percent for the OECD countries, 28.25
percent for Latin America and 29.99 percent in the Asia Pacific region.'

The countries with the highest tax rates were Japan with 40.69 percent and the US with
40 percent. The lowest was the Cayman Islands with a corporate tax rate of zero percent.

Of the 86 countries surveyed, the majority had either kept their tax rates unchanged since
2004, or reduced them. This year's survey compares corporate income tax rates as on Jan
1, 2006, with their equivalent as on Jan 1, 2005.

'The largest reductions were in Barbados (minus 5.0 percent to 25 percent), Albania
(minus 3.0 percent to 20 percent), Israel (minus 3.0 percent to 31 percent) and India
(minus 2.9 percent to 33.66 percent), while countries reporting significant increases were
the Dominican Republic (plus 5.0 percent to 30 percent) and the Philippines (plus 3.0
percent to 35 percent).

'The accession of 10 new members to the EU in 2004, and the continuing efforts of the
EU judicial system to break down barriers to free movement of capital, seem to have
combined to increase tax competition among EU member states,' said Loughlin Hickey,
global head of KPMG's Tax practice.

'There is a clear contrast with other parts of the world where borders are less permeable,
but even so, the global trend seems to be stable or declining tax rates.'

Hickey has however stressed that headline tax rates are not the only factor affecting the
corporate tax bill. 'A low tax rate does not necessarily mean a low tax burden,' he said.

Effective tax burdens can vary significantly depending on the attitude of governments
and their tax authorities to corporate taxpayers, ranging from aggressive policing to
actively promoting business collaboration, the report stated.

'Clarity and certainty in the application of tax laws is a rare, but much prized
commodity,' states the global consultants who have been bringing out the survey report
since 1993.

'As tax competition progressively erodes differences in rates, these factors are likely to
grow in importance. One of the keys to tax competitiveness could become the relative
business friendliness of a nation's tax environment.'

P Chidambaram ruled out if there is any reduction in corporate tax rates unless
exemptions were removed, saying effective tax rate in India was already very low.

"Effective tax rate is not only moderate but very moderate... the effective tax rate in India
is 19.2 per cent. Show me one Asian country, one ASIAN country which has an effective
tax rate of less than 19 per cent," he said at a post-Budget interaction with Federation of
Indian Chambers of Commerce and Industry members.

Pointing out that it is not the scheduled rate but the effective rate which matters, he said
only if exemptions are removed effective tax rates on corporates will rise and there
would be scope for moderation of tax rates.

Responding to a suggestion from a member that a committee should look into


moderation of corporate tax rates, he said: "While I welcome your offer to join a
committee to examine what the moderation would be, that committee should also
examine how effective tax rate can rise to ASIAN level."

Removal of ten per cent surcharge on corporate tax for small firms and companies was
an indication that the government wants moderate taxes, he said.

"Twelve lakh small firms and companies have been immediately given relief of three per
cent... that's an indicator of line we are pursuing for the future, we want taxes to
moderate, we have moderated taxes, the moderation has applied this year to small firms
and companies,"

FM leaves India Inc a bit disappointed by not tinkering with corporate tax levels
in Budget 2008. Corporates will be paying the same rates of tax corporatethe
tax-sees-no-change this year as well, additionally there is no change in
surcharge on corporate tax.

Corporate India was expecting a cut from the current 33.99% tax rate corporate-
tax -sees-which is on the higher side compared to what it is in other Asian
countries. However, even though tax collections were buoyant this year, the FM
did not take any step in reducting tax rates.

Chidambaram has not abolished the corporate surcharge as well.


DDT or Dividend Distribution Tax, which was one of the most unfavourable
moves introduced last year, did not see any change this year. The rate have
been kept unchanged at 15%.

INDIA Inc. pays considerably lower taxes as compared to its counterparts in the
developed world.

At an average corporate tax rate of 35.875 per cent, Indian industry, however, pays
among the highest tax in comparison to industry in many of the developing countries,
including China, the ASEAN countries and SAARC nations, according to the latest
KPMG Corporate Tax Rates Survey.

According to the report, which point to corporate tax rates moving downwards in most
countries, the tax squeeze on industry in most developed nations is comparatively higher.
The highest corporate tax is levied by Japan, at an average rate of 42 per cent as on
January 1, 2004.

The United States comes in second, with industry having to shell out corporate taxes at a
40 per cent rate.

Other OECD nations such as Germany, Canada and Italy also have high corporate taxes.
Indian corporate tax rates are definitely much lower, but when compared to the tax rates
levied in most of the developing world, Indian companies seem a highly taxed lot.
The much-vaunted Chinese industry, the biggest threat to Indian industry, pays an
average corporate tax rate of 33 per cent.

Russia and Brazil, the two countries that were included with India and China in Goldman
Sachs' BRIC classification, also levy a lower tax on industry, with Russia levying just a
24 per cent corporate tax, as against Brazil's 34 per cent corporate tax rate.

The ASEAN countries, the tiger economies of yore, also seem lenient in taxing industry.
While Malaysia has only a 28 per cent corporate tax rate, Indonesia and Thailand levy a
slightly higher tax of 30 per cent on industry.

Our SAARC neighbours also levy a lower tax, with Pakistan (at a corporate tax rate of
35 per cent) coming in closest to Indian tax rates.

Among developed countries, countries like South Korea, UK and Singapore are among
those taxing industry the least. South Korea has a corporate tax of 29.7 per cent, UK at
30 per cent and Singapore at 22 per cent.

The least taxing country, according to the survey, is Cyprus, which has two rates of 10
per cent and 15 per cent levied on industry.

CORPORATE OPTIMISM:

As the countdown to Budget 2008 begins, the expectations of the corporate sector are
high. The optimism has been spurred by, among other factors, robust GDP growth,
increased tax collections, capital market buoyancy, and rising FDI inflows and foreign
exchange reserves. While much is called for on the infrastructure, industrial productivity,
inflation and agricultural output fronts, and amidst concerns of increasing crude prices
and rupee appreciation, the road to Budget 2008 is rife with optimism.
On its parts, India Inc. is looking for more tax reforms. With direct tax collections at an
all-time high, corporate tax rates, in keeping with the global trend, need to be lowered.
Reduction of the base corporate tax and fringe benefit tax (FBT) rates or complete
abolition of MAT (minimum alternate tax) and surcharge could be considered.

MULTIPLE DDT:

Abolition of dividend distribution tax (DDT) has been a long-standing demand on the
grounds of double taxation. While this may not seem a welcome suggestion, considering
that it is a healthy and efficient contributor to overall tax collections, the demand for
introducing a credit mechanism to alleviate double/multiple DDT impact for holding
companies is justified. This could be akin to the erstwhile Section 80-M deduction.
In an era of corporate restructuring and consolidation, restricting the benefit of carry
forward and set off of business losses under Section 72A to only selected industrial
undertakings does not create a level-playing field. Extending the benefit to all industries
would be welcome.

To boost industrial output by encouraging exports and address rupee appreciation


concerns, deductions such as the erstwhile Section 80HHC to provide relief and
encouragement to exporters should be looked at. The information technology sector has
contributed significantly to GDP growth. This sector has also fostered entrepreneurship
at the SME level and continues to encourage growth in tier-II cities. Export benefits
under Section 10A/10B and through the STPI Scheme must be continued with.
Infrastructure, or its inadequacy, is posing a major challenge, that of maintaining the
country’s growth momentum. To attract the required investments the need to extend
fiscal benefits to the investors cannot be overemphasised. Reintroduction of exemption to
investors under Section 10(23G) and extending the benefits of exemption under Section
10(23FB) to investments by venture capital funds into all sectors should be considered.

REVIEW FBT:

Certain genuine business expenses (on business promotion, samples, office telephone
expenses, and so on) that are incurred exclusively for business purposes are taxed under
the deeming provision of FBT. Thus there is a legitimate need to review and restrict the
scope of FBT only to expenses that have some plausible nexus to a direct/indirect benefit
to employees.

Introduction of new policies to provide much needed tax certainty such as extension of
advance ruling mechanism for domestic entities and advance pricing agreements for
transfer pricing is necessary. To provide greater tax efficiency to the conduct of business
operations of a group, enabling filing of consolidated group tax returns will be a major
step forward.

It has been evident in the recent past that moderation in tax rates and extension of tax
benefits to the key industries has borne fruits with better compliance and higher tax
collections.

This is also being taken care of by government initiatives like the corporate tax
exemption to all ITES companies till 2010. Apart from these, the fact that India has
53 of the 83 SEI CMM Level 5 companies[3] and that companies outsourcing to
India have experienced cost savings in the range of 30% in the first year itself, have
added to the attractiveness of India as 'the' destination for outsourcing. Given the
strengths of India, it is no wonder that it is the first choice of nearly 82 % companies
in the US for outsourcing.