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Corporate
Income Tax
No change has been made in the applicable rate of
tax on domestic companies, which is presently 35%.
The tax
rate as applicable to foreign company has however been
reduced from 48% to 40%.
In addition,
surcharge @ 5% on the tax amount shall be payable by
both domestic and foreign companies.
The effective
rates (including surcharge) shall be as under :
|
S.No
|
Company
|
Tax
Rate
|
Surcharge |
Effective
Rate
|
|
1.
|
Domestic
Company
|
35%
|
5% |
36.75%
|
|
2.
|
Foreign
Company
|
40%
|
5% |
42%
|
Taxation of Dividend :
As per the present
provision a company declaring dividend pays tax on the
amount of dividend distributed @ 10%. No tax is payable
in the hands of recipient.
This provision
is sought to be totally revised. It is proposed to re-introduce
the earlier provision as per which no tax will be payable
by the company declaring the dividend but would be payable
by the recipient shareholder at the rate as applicable
to him.
A foreign
company is liable to tax @ 20% on the gross amount under
the provisions of Income Tax Act. Under the tax treaties,
the rate is generally reduced to 10%. In the case of
certain treaties like with Mauritius the applicable
rates are as low as 5%.
A provision
has however been made to exempt inter-corporate taxation
of dividend in the hands of domestic company.
Withdrawal
of Exemption from Grossing Up
Under certain
Agreements entered into by foreign companies with Indian
companies or the Government, income tax liability of
foreign company is shifted to the Indian concern or
the Government. The amount of tax paid on behalf of
the foreign company is not includible in the income
of foreign company. This exemption is proposed to be
withdrawn.
Accordingly
in the hands of foreign company amount of tax paid by
the Indian company or the Government will now be includible
by grossing up of income, taking into account the tax
paid, under Agreements entered into on or after 1st
June 2002.
Payment
for Non-Compete Fee, Exclusivity Right
A new provision provides
for charging of tax on the sum received under agreement
for non-competition or agreement not to share any know-how,
patent, trademark, license etc. as "Profit and
Gains of Business and Profession".
Partial,
Temporary Withdrawal of Exemption to Units in Free Trade
Zones and 100% Export Oriented Units (EOU)
As a temporary
measure, in the financial year 2002-2003 it is proposed
to restrict the full exemption as is presently available
in respect of profits derived by the units set up in
free trade zones and 100% EOU to only 90% of the taxable
profits, thus making remaining 10% chargeable to tax.
Transfer
Pricing
Clarificatory
amendments have been carried out in Transfer Pricing
provisions, which would be effective from the financial
year 2001-2002:
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Even
where international transaction comprises of merely
an outgoing, the allowance for any expenses or interest
arising from an international transaction shall
also be determined according to Arm's length principles.
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Arm's
length price in no case shall be substituted where
it results in bringing down the income chargeable
to tax in India.
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It
has now been clarified that an enterprise does not
become associated enterprise merely by participating
in the management or control or capital. Such enterprise
has in addition to fulfill the criteria specified
such as holding directly or indirectly not less
than 26% of the voting power or providing loans
of not less than 51% of the book-value of assets
of the other enterprise.
-
With
a view to provide more flexibility in determining
Arm's length price, where the most appropriate method
results in more than one price, a price which differs
from the arithmetical mean by an amount not exceeding
5% of such mean may be taken to be the arm's length
price in relation to the international transaction.
-
Definition
of enterprise to also include an enterprise engaged
in the activity of construction.
-
"Permanent
Establishment" has been defined on lines of
tax treaty entered into by India.
Additional
Depreciation
To provide incentive
to manufacturing sector, it is proposed to allow a deduction
of a further sum equal to 15% of the actual cost of
machinery or plant acquired and installed after 31st
day of March 2002 by a new industrial undertaking or
an exiszting industrial undertaking for expanding installed
capacity by not less than 25%.
It is also
proposed to modify, reduce existing applicable rates
of depreciation on certain items for which separate
details are proposed to be notified.
Other
Amendments
The Budget proposals
contain many other amendments including in respect of
applicable procedures.
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