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Unit 5: Computation of Taxable Income of Companies

Therefore in crux for companies, income is taxed at a flat rate of 30% for Indian companies. Notes

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 5.3: Fringe enefit Tax Rates
Fringe Benefit Taxable percentage Effective Tax Rate

Medical reimbursements 20% 6.8%
Telephone bills 20% 6.8%
Employee Stock Options (Difference between market 100% 33.99%
value and purchase price on vesting date)
Source: http://www.madaan.com/taxrates.htm
!
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 fi rm; 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
specifi ed 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
livable on the amount of FBT. On these amounts, education cess shall also be payable. The
tax rates are already mentioned above for your reference.

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