Page 67 - DCOM508_CORPORATE_TAX_PLANNING

Corporate Tax Planning

Notes 3.2.2 Foreign Companies Income Tax Rates

Following are the foreign companies income tax rates:

1. For dividends: 20% for non-treaty foreign companies and 15% in case of companies under
the treaty based in the United States

2. For interest gains: 20% for non-treaty foreign companies and 15% for companies under the
treaty based in the United States
3. For royalties: 30% for non-treaty foreign companies and 20% for companies under the
treaty based in the United States
4. For the technology based services in case of non-treaty foreign companies & 20% for
companies under the treaty based in the United States
5. For all other kinds of income and gains: 55% in case of non-treaty foreign companies and
55% for the companies under the treaty based in the United States
6. Attention should be given on levying inter corporate rates in case holding is minimum
7. Attention should be given on the fact that sanctions of the tax authorities on tax
withholding
8. Attention should be given on several of the tax treaties that India signed with other
countries and also on the various encouraging tax rates
3.2.3 Tax Rebates under Corporate Tax Rate

Some of the tax rebates under corporate tax rate in India:
1. Gains pertaining to long term capital are subject to low tax incidence
2. Venture capital funds and venture capital companies have special tax provisions

3. Specula tax provisions are applicable for non resident Indians involved in activities in
India
4. Under the Finance Bill 1996, the Minimum Alternative Tax (MAT) is levied on the corporate
sector

Taxes can eat away at business profits. To address it, small business owners and corporate leaders
look for ways to reduce their tax liability, and the tax planning process is an integral part of this
activity.

(i) Identifi cation: Tax planning is the act of developing a plan to minimise or defer taxes paid
against current business revenue or income. The planning process includes understanding
all local, state and federal tax obligations, determining which deductions are available and
how and when to pay each tax.
(ii) Function: The essence of tax planning is determining how to maximise tax deductions
against current revenue. Options include, but are not limited to, deductions associated
with incorporation status (sole proprietorship, S-corporation, LLC or C-corporation),
capital expenditures and setting up 401(k) plans for employees. Business owners use the

tax planning process to find and take advantage of all deductions available.
(iii) Signifi cance: Companies decide whether to expand and hire new employees based on their
tax burden. For this reason, tax planning is crucial and business owners do it religiously
every year.

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