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Unit 11: Computation of Taxable Income of Companies

Timing additions = accounting expenses which are not yet tax deductible. Some common Notes
examples include provisions for doubtful debts and annual leave.

Timing subtractions = accounting revenue items which are not yet assessable income like
revenue in advance, or accounting assets which are immediately deductible for tax law
purposes.

Future timing differences = accounting expenses which must be deducted over a prescribed
time period in accordance with the tax law like borrowing costs.

Did u know? The classical system of corporate taxation is followed in India which
encompasses the following:

1. Domestic companies are permitted to deduct dividends received from other domestic
companies in certain cases.
2. Inter Company transactions are honoured if negotiated at arm’s length.

3. Special provisions apply to venture funds and venture capital companies.
4. Long-term capital gains have lower tax incidence.
5. There is no concept of thin capitalization.
6. Liberal deductions are allowed for exports and the setting up on new industrial
undertakings under certain circumstances.
7. There are liberal deductions for setting up enterprises engaged in developing,
maintaining and operating new infrastructure facilities and power-generating units.
8. Business losses can be carried forward for eight years, and unabsorbed depreciation
can be carried indefinitely. No carry back is allowed.

9. Specula tax provisions apply to activities carried on by non-residents.
10. A Minimum Alternative Tax (MAT) on corporations has been proposed by the Finance
Bill 1996.

11. 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 are proposed to be tax exempt.

Self Assessment

Fill in the blanks:
1. Indian companies are taxable in India on their worldwide income, irrespective of
its………………
2. While calculating income from business or profession, expense incurred wholly and
exclusively for business purposes are generally …………….

3. …………………incurred in a tax year can be set off against any other income earned
during that year, except capital gains.
4. For companies, income is taxed at a flat rate of …………………for Indian companies.

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