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Income Tax Laws – I

Notes to the rules for each class of income and then aggregated to determine total taxable
income.

Business losses incurred in a tax year can be set off against any other income earned during
that year, except capital gains. 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 indefinitely. 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.
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.
In India, in the case of companies, if the tax payable on their taxable income for any
assessment year is less than 18.54% of their ‘book profit’(if book profit does not exceed
` 10 m),or 19.9305% of book profit (if book profit exceeds ` 10 m), an amount equal to
18.54% of the book profit (if book profit does not exceed ` 10 m) or 19.9305% of book profit
(if book profit exceeds ` 10 m) is regarded as their tax liability.
The tax so paid could be carried forward and set off against normal tax (in excess of MAT
for that year) of future years up to ten years but from the financial year 2010–11 said carry
forward shall not apply to a limited liability partnership which has been converted from
a private company or unlisted public company.
It must be noted that in India the treatment of tax on distributed profits of domestic
companies is dealt in by Chapter XIID which contains a special provision relating to tax on
distributed profits of domestic companies. This has only three sections, namely section
115 O, which is a charging section and also prescribes the period, the rate of additional tax,
which is payable, and time and manner of payment etc. by company on dividend
distributed. Section 115-P provides for interest payable for non-payment or delayed
payment of additional tax by domestic companies. Section 115-Q is about when company
is deemed to be in default.

Any amount of income distributed by a venture capital company or venture capital fund
to the investors shall be chargeable to tax and such company or fund shall be liable to pay
income-tax on such distributed income at the rate of twenty per cent. A venture capital
company or venture capital fund shall be liable to pay income-tax at the rate of 20 per cent
on any income which is not distributed to the investors within such time as may be
specified, with the approval of the Central Government, by the Securities and Exchange
Board of India, by notification in the Official Gazette, in this behalf.
The venture capital company, the venture capital fund or the person responsible for making
payment of the income on behalf of such company or fund shall furnish, within such time
as may be prescribed, to the person receiving such income and to the prescribed income-
tax authority, a statement in the prescribed form and manner, giving details of the nature
of the income paid during the financial year and such other relevant details as may be
prescribed.

11.6 Keywords

DDT: It is the tax levied by the Indian Government on companies according to the dividend paid
to a company’s investors.

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