Corporate Taxation

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: Introduction and Basic Concepts

: Corporate Taxation
: PGDM (Finance)
: CS(Dr.) Monika Goel
: monikagoelfcs@gmail.com
: www.csmonikagoel.com

Basic Concepts related to Tax

Tax can be defined as a levy or other type of a financial charge or fee
imposed by state or central governments on legal entities or
individuals.
Tax Classifications
A direct tax is a form of tax is collected directly by the government
from the persons who bear the tax burden.
An indirect tax is a form of tax collected by mediators who
transfer the taxes to the government, and also perform functions
associated with filing tax returns. The customers bear the final tax
burden. Examples of indirect taxes are sales tax and value added
tax (VAT).

Income Tax Act, 1961

It came into force on 1st April, 1962.
Sec 1 of IT Act, the Act is called as Income Tax Act, 1961 & it
extends to whole of India.

Constitutional Framework...
Taxes levied by Central Government and State Government(s)
Authority to levy a tax is derived from the Constitution of India
Which allocates power to levy various taxes between the Centre and
State
Article 265 of the Constitution which states that "No tax shall be
levied or collected except by the authority of law
Article 246 of the Indian Constitution, distributes legislative powers
including taxation, between the Parliament of India and the State
Legislature
Schedule VII enumerates use of three lists;
List - I Where the parliament is competent to make laws
List - II Where only the state legislature can make laws
List - III Where both the Parliament and the State Legislature can
make laws upon concurrently
4

...Constitutional Framework
Union List
Income Tax

State List
Taxes on lands and

Custom Duty
Excise Duty
Corporation Tax
Service tax
Central Sales Tax
Stamp duty in respect of

bills of exchange,
cheques, promissory
notes, etc

buildings
Excise duty on alcoholic
liquor etc
Entry tax
Sales Tax
Tolls
Luxury Tax
Stamp duty in respect of
documents other than
those specified in the
provisions of List I

Concurrent List
Stamp duties other than

duties or fees collected

by means of judicial
stamps, but not
including rates of stamp
duty

The constant blurring of taxing jurisdiction between the Centre and the States has
necessitated multiple Constitutional challenges
5

Constitutional Amendment Bills

To enable Parliament to formulate by law principles for
determining the modalities of levying the Service Tax by the
Central Govt. and collection of the proceeds thereof by the Central
Govt. and the State, the amendment vide Constitution (92nd
amendment) Act, 2003 has been made.
Consequently, new article 268 A has been inserted for Service Tax
levy by Union Govt., collected and appropriated by the Union
Govt., and amendment of seventh schedule to the constitution, in
list I-Union list after entry 92B, entry 92C has been inserted for
taxes on services.

Heads of Taxation in three Lists- Union List

S.
No.

Parliament

Taxes on income other than agricultural income (List I, Entry 82)

Duties of customs including export duties (List I, Entry 83)

Duties of excise on tobacco and other goods manufactured or produced in India except (i) alcoholic liquor for
human consumption, and (ii) opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal
and toilet preparations containing alcohol or any substance included in (ii). (List I, Entry 84)

Corporation Tax (List I, Entry 85)

Taxes on capital value of assets, exclusive of agricultural land, of individuals and companies, taxes on capital of
companies (List I, Entry 86)

Estate duty in respect of property other than agricultural land (List I, Entry 87)

Duties in respect of succession to property other than agricultural land (List I, Entry 88)

Terminal taxes on goods or passengers, carried by railway , sea or air; taxes on railway fares and freight (List I,
Entry 89)

Taxes other than stamp duties on transactions in stock exchanges and futures markets (List I, Entry 90)

10

Taxes on the sale or purchase of newspapers and on advertisements published therein (List I, Entry 92)

11

Taxes on sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course
of inter-State trade or commerce (List I, Entry 92A)

12

Taxes on the consignment of goods in the course of inter-State trade or commerce (List I, Entry 93A)

13

All residuary types of taxes not listed in any of the three lists (List I, Entry 97)

Heads of Taxation in three Lists- State List

S.
No

State Legislature

Land revenue, including the assessment and collection of revenue, the maintenance of land records, survey for revenue purposes and
records of rights, and alienation of revenues (List II, Entry 45)

Taxes on agricultural income (List II, Entry 46)

Duties in respect of succession to agricultural income (List II, Entry 47)

Estate Duty in respect of agricultural income (List II, Entry 48)

Taxes on lands and buildings (List II, Entry 49)

Taxes on mineral rights (List II, Entry 50)

Duties of excise for following goods manufactured or produced within the State (i) alcoholic liquors for human consumption, and (ii)
opium, Indian hemp and other narcotic drugs and narcotics (List II, Entry 51)

Taxes on entry of goods into a local area for consumption, use or sale therein (List II, Entry 52)

Taxes on the consumption or sale of electricity (List II, Entry 53)

10

Taxes on the sale or purchase of goods other than newspapers (List II, Entry 54)

11

Taxes on advertisements other than advertisements published in newspapers and advertisements broadcast by radio or television (List II,
Entry 55)

12

Taxes on goods and passengers carried by roads or on inland waterways (List II, Entry 56)

13

Taxes on vehicles suitable for use on roads (List II, Entry 57)

14

Taxes on animals and boats (List II, Entry 58)

15

Tolls (List II, Entry 59)

16

Taxes on profession, trades, callings and employments (List II, Entry 60)

17

Capitation taxes (List II, Entry 61)

18

Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling (List II, Entry 62)

 A law to levy or collect any tax or duty or cess

or fees does not include an executive order or
a rule without express statutory authority. A
Money Bill, which includes a bill to impose,
abolish, remit, alter or regulate any tax shall
not be introduced in Rajya Sabha or a
legislative council. Such a Bill shall not be
moved or introduced except as the
recommendations of the President or the
Governor, as the case may be.

Who makes the Budget?

Constitutional Prohibitions on taxation

The law imposing the tax, like other laws, must not violate any
fundamental right or contravene any specific provision relating to
particular matters e.g.
the prohibition against specific appropriation of the proceeds of any
tax in payment of expenses for the promotion or maintenance of
any particular religious denomination (Article 27) or
the ceiling of Rs. 2500 per annum in respect of total amount
payable by one person as taxes on profession, trade, calling or
employment (Article 276(2)] or
the specific restrictions on the imposition of sales tax by a State
(Article 286) or
the freedom of trade and commerce carried on between one place
and another in India so as to ensure that the economic unity of
India is not broken up by internal barriers (Article 301).

Distribution of revenues between the

Union and States

Stamp duties like those on financial documents and excise or medicinal or toilet
preparations as mentioned in the Union list are to be levied by the Government of
India but are to be collected by the States (Article 268).
Central Sales Tax is levied and collected by the Government of India but is assigned
to the States (Article 269).
All taxes and duties referred to in the Union list, except those referred to in Articles
268 and 269, surcharge on taxes and duties, for the purposes of the Union and any
cess levied by the Parliament for specific purposes are to be collected by the
Government of India and are to be distributed between the Union and the States
in the manner prescribed by the President by order until a Finance Commission
has been constituted and after its constitution, as prescribed by the President by
order after considering the recommendations of the Finance Commission.
As per recommendations of the Thirteenth Finance Commission duly accepted by
the Government, in the overall scheme of transfer of funds, 39.5% of the gross
revenue receipts is the ceiling for such transfer of funds to the States.
The share of states in the net proceeds of shareable central taxes has been raised
from 30.5 per cent to 32 per cent.

Review Questions
1. Which of the following does not fall under the State List as stipulated in the
Article 246 read with Schedule VII of the Constitution of India
(a) Excise on alcoholic liquors and narcotics
(b) Taxes on consumption and sale of electricity
(c) Taxes on advertisements in newspapers
(d) Taxes on advertisements other than those contained in newspapers.
2. What percentage of the net proceeds of shareable central taxes are
transferred to the States as per recommendations of the Thirteenth
Finance Commission
a) 39.5%
b) 30%
c) 30.5%
d) 32%.

Review Question
1. Powers given to Parliament by Entry No.97 of
List I of Seventh Schedule to the Constitution
of India are called_____________.

Review Questions
Which schedule to the Constitution of India indicates bifurcation of powers
to make laws, between Union government and State governments
(a) First Schedule
(b) Seventh Schedule
(c) Eighth Schedule
(d) Twelfth Schedule.
(ii) Which article of the Constitution of India provides that no tax shall be
levied or collected except by authority of law
(a) Article 265
(b) Article 268
(c) Article 269
(d) Article 274.

Review Question
(i) What is the source of power of levying VAT under the
Constitution of India (a) Entry 84 of List I
(b) Entry 97 of List I
(c) Entry 52 of List II
(d) Entry 54 of List II.
(ii) What is the source of power of levying Service Tax under the
Constitution of India
(a) Entry 92C of List I
(b) Entry 97 of List I
(c) Entry 54 of List II
(d) Entry 59 of List II.

Review question

BASIC CONCEPTS OF INCOME TAX ACT

Income Tax is levied on the total income of
the previous year of every person.

How to understand Definitions

Means the definition is self explanatory. E.g.
Agricultural Income, Assessment Year,
Capital Asset.
Includes the definition is not exhaustive and
its meaning may be extended. E.g. Income,
Person, Transfer.

CONCEPT OF INCOME
Inclusive definition and not exhaustive u/s 2(28).
Certain important principles relating to income
are:
A periodic monetary return which accrues or is
expected to accrue regularly from definite sources.
Exceptions are income from lottery, horse racing etc.
Income normally refers to revenue receipts. Exception
is capital gains tax.
Income means net receipts and not gross receipts.
Income is taxable on due or receipt basis.
Income earned in the previous year is assessed to tax
in the assessment year.

Some more concepts relating to tax on

income

Cash or kind
Legal or illegal source
Temporary/Permanent
Lumpsum/instalments
Gifts
Revenue or Capital receipt

CAPITAL AND REVENUE RECEIPTS

Taxable income in relation to Annuities

Taxable income vis-a-vis Compensation
Taxable income vis-a-vis Subsidies and grants
Taxable income vis-a-vis debenture
Taxable income vis-a-vis Royalties
Taxable income vis-a-vis Devaluation in foreign
currency

PERSON,SEC 2(31)
The term person as per Income Tax law is defined to include: 1)
An Individual. e.g. Mr. A or Mr. B.
2)
A Hindu Undivided Family. e.g. Mr. A (HUF) or Mr. B (HUF).
3)
A Company. e.g. XYZ Pvt. Ltd. Or ABC Ltd.
4)
A Partnership firm. e.g. M/s ABC or M/s XYZ and Co.
5)
An Association of persons or a body of Individuals, whether incorporated or
not. e.g. ABC Sangh or XYZ Dal.
6)
A Local Authority. e.g. Pune Municipal Corporation or PCMC Municipal
Corporation.
7)
Every Artificial Juridical persons not falling within any of the above
categories. (Residual Category).

ASSESSEE,SEC 2(7)
It is defined broadly to include the following:
In Simple terms any Person whose income is
assessable under the tax law is called an Assessee.

PREVIOUS YEAR, SEC.3

It is the financial year immediately preceding the assessment year

i.e. The year in which the income is earned is called the previous
year.
EXCEPTIONS:
1)Persons leaving India,SEC.174
2)Bodies formed for short duration,SEC.174A
3) Persons likely to transfer property to avoid tax,SEC.175
4)Discontinued Business,Sec.176
5)Shipping business of Non-Residents,SEC.172.

27

ASSESSMENT YEAR,SEC.2(9)
Assessment year in simple terms means the financial year immediately succeeding
the previous year. In other words it is the year in which one is assessed for his/ her
income. Below mentioned example will help you gain more clarity on these
terms:
Mr. B, a salaried individual earned an income of Rs. 3, 50,000/- in the previous year
starting from 1st April 2013 to 31st March 2014 (i.e. 2013-14). Now he has to pay
tax on income earned, at applicable rates for assessment year starting from 1st
April 2014 to 31st March 2015.
PLEASE NOTE:
Previous year and Assessment year will always be starting from 1st April and
ending on 31st March, In no case it can be followed as a Calendar year i.e. 1st
January to 31st December.
At present the assessment year 2015-2016 is going on.

Relation between A.Y and P.Y

Income earned in a year is taxable in the next year.
The year in which income is earned is known as previous year.
Income of previous year of an assessee is chargeable in the
next following assessment year at the tax rates applicable for
the assessment year. This rule is, however, subject to some
exceptions.
Shipping business of non residents (7.5% of the carriage would be
deemed to be income)
Persons leaving India
Bodies formed for short duration
Persons likely to transfer property to avoid tax.
Discontinued business.

Rates of Tax-Individual resident aged below 60 years (i.e. born on

or after 1st April 1954) or any NRI / HUF / AOP / BOI / AJP*
Income Slabs

Tax Rate

Where the total income does not exceed Rs. 2,50,000/-.

NIL

ii.

Where the total income exceeds Rs. 2,50,000/- but does

not exceed Rs. 5,00,000/-.

10% of amount by which the total

income exceeds Rs. 2,50,000/-.
Less: (in case of Resident
Individuals only) Tax Credit - 10%
of taxable income upto a
maximum of Rs. 2000/-.

iii.

Where the total income exceeds Rs. 5,00,000/- but does

not exceed Rs. 10,00,000/-.

Rs. 25,000/- + 20% of the amount

by which the total income exceeds
Rs. 5,00,000/-.

Where the total income exceeds Rs. 10,00,000/-.

Rs. 125,000/- + 30% of the

amount by which the total income
exceeds Rs. 10,00,000/-.

i.

iv.

Surcharge: 10% of the Income Tax, where total taxable income is more than Rs. 1
crore. (Marginal Relief in Surcharge, if applicable)
Education Cess: 3% of the total of Income Tax and Surcharge.

Rates of Tax-Individual resident who is of the age of 60 years or more but

below the age of 80 years at any time during the previous year (i.e. born
on or after 1st April 1934 but before 1st April 1954)
Income Slabs
i.

Tax Rate

Where the total income does not exceed Rs. 3,00,000/-. NIL

ii.

Where the total income exceeds Rs. 3,00,000/- but

does not exceed Rs. 5,00,000/-

10% of the amount by which the

total income exceeds Rs. 3,00,000/Less: (in case of Resident Individuals
only) Tax Credit - 10% of taxable
income upto a maximum of Rs.
2000/-.

iii.

Where the total income exceeds Rs. 5,00,000/- but

does not exceed Rs. 10,00,000/-

Rs. 20,000/- + 20% of the amount by

which the total income exceeds Rs.
5,00,000/-.

Where the total income exceeds Rs. 10,00,000/-

Rs. 120,000/- + 30% of the amount

by which the total income exceeds
Rs. 10,00,000/-.

iv.

Surcharge: 10% of the Income Tax, where total taxable income is more than Rs. 1
crore. (Marginal Relief in Surcharge, if applicable)
Education Cess: 3% of the total of Income Tax and Surcharge.

Individual resident who is of the age of 80 years or more at any time

during the previous year (i.e. born before 1st April 1934)
Income Slabs

Tax Rate

i.

Where the total income does not exceed Rs.

5,00,000/-.

NIL

ii.

Where the total income exceeds Rs. 5,00,000/but does not exceed Rs. 10,00,000/-

20% of the amount by

which the total income
exceeds Rs. 5,00,000/-.

Where the total income exceeds Rs. 10,00,000/-

Rs. 100,000/- + 30% of the

amount by which the total
income exceeds Rs.
10,00,000/-.

iii.

Surcharge: 10% of the Income Tax, where total taxable income is more than Rs. 1
crore. (Marginal Relief in Surcharge, if applicable)
Education Cess: 3% of the total of Income Tax and Surcharge.

 Income Tax Rates for Partnership Firm

including LLP: 30%
Surcharge : 10% of the Income Tax, where
total taxable income is more than Rs. 1 crore.
(Marginal Relief in Surcharge, if applicable)
Education Cess: 3% of the total of Income Tax
and Surcharge.

Review Question

Mr. X has a total income of Rs. 12,00,000. Compute his gross tax liability.
Tax Liability = Rs. 1,25,000+ 30% of Rs. 2,00,000 = 1,85,000..
Alternatively:
Tax Liability:
First Rs. 2,50,000
- Nil
Next Rs. 2,50,000- Rs. 5,00,000 - @ 10% of Rs. 2,50,000= Rs. 25,000
Next Rs. 5,00,000- Rs. 10,00,000 -@ 20% of Rs. 5,00,000= Rs. 1,00,000
Balance i.e Rs. 2,00,000
-@ 30% of Rs. 2,00,000= Rs. 60,000
Tax
Rs. 1,85,000
Education cess @ 3%
Rs.
5,550
Total tax
Rs. 1,90,550
It is to be noted that for a senior citizen (being a resident individual who is of
the age of 60 years but not more than 80 years at any time during the previous
year), the basic exemption limit is Rs. 3,00,000. Further resident individuals at
the age of 80 years or more at any time during the previous year, being very
senior citizens, would be eligible for a higher basic exemption limit of Rs.
5,00,000.

Review Question
Surcharge of 10% is payable by an individual where the total
income exceeds :
(a) Rs.7,50,000
(b) Rs.100,00,000
(c) Rs.10,00,000
(d) None of these
(ii) Additional surcharge (Education cess) of 2% is payable on
(a) Income-tax
(b) Income-tax plus surcharge, if any
(c) Surcharge
(d) Not payable by any assessee

Rebate of Rs.2000/ As per 2013 Budget (Finance Act, 2013) section

87A of the Income Tax Act, 1961 rebate of
Rs.2000/- will be given to the individual tax payer
whose total does not exceed Rs 5 lakhs or we can
say that Individual Tax Payer whose total income
doesnt exceed Rs 5 Lakhs is eligible for deduction
of Rs 20000/- from income.
A Surcharge of 10 percent has also been levied on
persons (other than companies) whose taxable
income exceed Rs.1 crore to augment revenues.

Marginal Relief- Example

Compute the tax liability of X Ltd., a domestic company,
assuming that the total income of X Ltd. is Rs. 1,01,00,000 and
the total income does not include any income in the nature of
capital gains.
The tax payable on total income of Rs. 1,01,00,000 of X Ltd.
computed@ 31.5% (including surcharge) is Rs. 31,81,500.
However, the tax cannot exceed the tax of Rs. 30,00,000
payable on total income of Rs. 1 crore by more than the
Rs.1,00,000, being the amount of total income exceeding Rs. 1
crore. Therefore, the tax payable on Rs. 1,01,00,000 would be
Rs. 31,00,000 (30,00,000+1,00,000). The marginal relief is Rs.
81,500 (i.e., Rs.31,81,500 Rs. 31,00,000).

Basic Tax Framework

Section 4- charging section
Income chargeable at rates prescribed by Budget provided It comes within
Scope of Total Income u/s. 5 and
It is not exempt u/s. 10
Income-tax is an annual tax on total income.
Difference between deduction and exemption.

Computation of Total Incme

Total Income and Tax Payable

Step 1 Determination of residential status

Step 2 Classification of income under different heads
Step 3 Exclusion of income not chargeable to tax
Step 4 Computation of income under each head
Step 5 Clubbing of income of spouse, minor child etc.
Step 6 Set-off or carry forward and set-off of losses
Step 7 Computation of Gross Total Income
Step 8 Deductions from Gross Total Income
Step 9 Total income
Step 10 Application of the rates of tax on the total income
Step 11 Surcharge
Step 12 Education cess and secondary and higher education cess on income-tax
Step 13 Advance tax and tax deducted at source,
Step 14- Self Assessment tax ,Double taxation relief.