Page 24 - DCOM508_CORPORATE_TAX_PLANNING

Unit 1: Income Tax: Basic Framework

The above rates are prescribed by the annual Finance Acts. However, in respect of Notes
certain types of income, as mentioned below, the Income tax Act has prescribed
specific rates –

(1) Section 112 has prescribed the rate of tax @20% in respect of long term capital
gains. In case of non-corporate non-residents and foreign companies, long-
term capital gains arising from transfer of unlisted securities would be subject
to tax@10% without giving effect to indexation provision and currency.
(2) Section 111A provides for a concessional rate of tax (i.e. 15%) on the short-term
capital gains on transfer of -
(i) an equity share in a company or
(ii) a unit of an equity oriented fund.
The conditions for availing the benefit of this concessional rate are –

(i) the transaction of sale of such equity share or unit should be entered into
on or after 1. 10.2004; and
(ii) such transaction should be chargeable to securities transaction tax.
(3) Section 115BB prescribes the rate of tax @30% for winnings from-
(i) any lottery; or
(ii) crossword puzzle; or
(iii) race including horse race; or
(iv) card game and other game of any sort; or
(v) gambling or betting of any form.
3. Surcharge:
(i) In the case of domestic companies, the rate of surcharge is 5%, where the total income
exceeds ` 1 crore.
(ii) In the case of foreign companies, the rate of surcharge is 2%, where the total income
exceeds ` 1 crore.
(iii) No surcharge is leviable for assessees, other than companies.
4. Marginal Relief: The concept of marginal relief is applicable only in the case of companies’
w.e.f. A.Y.2010-11. Marginal relief is available in case of companies having a total income
exceeding ` 1 crore i.e. the additional amount of income tax payable (together with
surcharge) on the excess of income over ` 1 crore should not be more than the amount of
income exceeding ` 1 crore.
5. “Education cess” and “Secondary and Higher education cess” on income tax: The amount
of income tax as increased by the union surcharge, if applicable, should be further increased
by an additional surcharge called the “Education cess on income tax”, calculated at the rate
of 2% of such income tax and surcharge, if applicable. Education cess is leviable in the

case of all assessees i.e. individuals, HUF, AOP / BOI, firms, local authorities, co operative
societies and companies. Further, “Secondary and higher education cess on income tax”

@1% of income tax plus surcharge, if applicable, is leviable to fulfil the commitment of the

Government to provide and finance secondary and higher education.

Task Compute the tax liability of X Ltd., a domestic company, assuming that the total
income of X Ltd. is ` 1,01,00,000 and the total income does not include any income in the
nature of capital gain.

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