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taxation
Taxation
Taxation of Corporates:
Different kinds of Taxes Relating to a Company
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Fringe Benefit Tax (FBT)

The Finance Act,2005 had introduced a new levy, namely Fringe Benefit Tax (FBT). The provisions relating to levy of this tax are contained in Chapter XIIH(Sections 115W to 115WL)of the income-Tax Act,1961 .

Fringe Benefit Tax (FBT) is an additional income tax payable by the employers on value of fringe benefits provided or deemed to have been provided to the employees. The FBT is payable by an employer who is a company;a firm;an association of persons excluding trusts/a body of individuals;a local authority;a sole trader, or an artificial juridical person. This tax is payable even where employer does not otherwise have taxable income. Fringe Benefits are defined as any privilege, service, facility or amenity directly or indirectly provided by an employer to his employees (including former employees) by reason of their employment and includes expenses or payments on certain specified heads.

The benefit does not have to be provided directly in order to attract FBT. It may still be applied if the benefit is provided by a third party or an associate of employer or by under an agreement with the employer.

The value of fringe benefits is computed as per provisions under Section 115WC . FBT is payable at prescribed percentage on the taxable value of fringe benefits. Besides,surcharge in case of both domestic and foreign companies shall be leviable on the amount of FBT. On these amounts,education cess shall also be payable.

Every company shall file return of fringe benefits to the Assessing Officer in the prescribed form by 31st October of the assessment year as per provisions of Section 115WD . If the employer fails to file return within specified time limit specified under the said section, he will have to bear penalty as per Section 271FB .

Minimum Alternative Tax (MAT)

A company is liable to pay tax on the income computed according to the provisions of the Income Tax Act, but the profit and loss account of the company is prepared as per provisions of the Companies Act.

Provision of MAT has been introduced for the companies popularly known as the 'Zero Tax Companies'. These are the companies, which are showing book profits and declaring dividends to the shareholders, but are not paying any income tax. Book profit, means the net profit as shown in the profit and loss account. The company shall furnish a report in Form 29B after certifying it by Chartered Accountant that book profits have been computed in accordance with the said section.

Under MAT, wherever the income tax payable on the total income of a company, in respect of any previous year, is less than the 'prescribed percentage of its book profits', such book profit shall be deemed to be the total income of the company and the tax payable on such total income shall be at the 'prescribed percentage of book profits', plus surcharge and education cess.

Tax Credit for MAT:- As per Section 115JAA ,a tax credit is allowed,where a company pays MAT, against tax payable at normal rates in any of the prescribed subsequent assessment years.It shall be allowed on the difference between the tax on the total income and the MAT which would have been payable for that assessment year.

Provision of MAT is not applicable to:-

  • Income from the business of developing, maintaining, and operating certain infrastructure facilities

  • Income from units in specified zones or specified backward districts

  • Income of certain loss-making companies

  • Export profits

Dividend Distribution Tax (DDT) or Tax on Distributed Profits of domestic companies

Under Section 115-O of the Income Tax Act, any amount declared, distributed or paid by a domestic company by way of dividend shall be chargeable to dividend tax. Only a domestic company (not a foreign company) is liable for the tax. Tax on distributed profit is in addition to income tax chargeable in respect of total income. It is applicable whether the dividend is interim or otherwise. Also, it is applicable whether such dividend is paid out of current profits or accumulated profits.

The tax shall be deposited within 14 days from the date of declaration, distribution or payment of dividend, whichever is earliest. Failing to this deposition will require payment of stipulated interest for every month of delay under Section115-P of the Act.

Wealth Tax on Companies

Wealth tax is a direct tax, which is charged on the 'net wealth' of the 'assessee' under the Wealth Tax Act. All companies (public or private) are liable to wealth-tax if their taxable 'net wealth' exceeds the prescribed limits. All the companies have thus been brought at par with other wealth-tax assesses.

Net wealth of a company is the excess of the 'aggregate value of specified assets' belonging to the company on the valuation date over the 'aggregate value of debts owned by the company' that are incurred in relation to the said assets.

For more details visit our Section on Wealth Tax.

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