Page 121 - DCOM508_CORPORATE_TAX_PLANNING

Corporate Tax Planning

Notes

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 capitalisation.
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 specifi ed
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 blank:
1. Indian companies are taxable in India on their worldwide income, irrespective of
it’s………………

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.

5. ………………….is a tax payable by companies against benefits that is seen by employees

but cannot be attributed to them individually.
6. ……………….is deductible only through depreciation or as the basis of property in
determining capital gains or losses.

5.2 Minimum Alternative Tax (MAT)

Normally, a company is liable to pay tax on the income computed in accordance with the

provisions of the Income Tax Act, but the profit and loss account of the company is prepared
as per provisions of the Companies Act. There were large number of companies who had book

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