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Income Tax Laws – I

Notes Therefore in crux for companies, income is taxed at a flat rate of 30% for Indian companies.
Foreign companies pay 40%. An education cess of 3% (on the tax) is payable, yielding effective
tax rates of 33.99% for domestic companies and 41.2% for foreign companies. From the tax year
2005–06, electronic filing of company returns is mandatory.

Fringe Benefit Tax by Companies

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. Some fringe benefits and their taxable rates are mentioned:

Table 11.3: Fringe Benefit Tax Rates

Fringe Benefit Taxable Percentage Effective Tax Rate
Medical reimbursements 20% 6.8%
Telephone bills 20% 6.8%
Employee Stock Options (Difference between 100% 33.99%
market value and purchase price on vesting date)
Source: http://www.madaan.com/taxrates.htm

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Caution 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.

Important Corporate Tax Rates in India

Following are some other important taxes which are applicable for the business entities in
addition to the corporate taxes:
1. 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.

Notes The FBT is payable by an employer who is a company; a firm; an association of
persons excluding trusts or 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

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