Corporate tax

planning
Income Tax Act, 1961

Faculty:
CA Akshata Dand
Partner at APCA & Associates
Why learn
Corporate Tax Planning?

 Minimize Tax Liability

 Ensure Legal Compliances
 Improve Cash Flow
 Strategic Business Decisions
 Corporative Advantage
 Corporate Social Responsibility
Taxation Structure of India
Direct Tax Indirect Tax
Tax levied directly on Income Tax levied on consumption of
& Wealth Goods & Services
Burden cannot be shifted Burden of Tax can be shifted
Progressive in Nature Regressive in Nature – Same
Tax Rate for everyone
Ex. Income Tax Ex. GST
Person u/s 2(31)
Assessment Year & Previous
Year
Sr Financi Previous Assessment
No al Year Year Year

1 2024-25

2 2022-23

3 2020-21

4 2019-20

5 2017-18
Gross Total Income
Sr Particulars Amount

No
1 Income From Salary XXXX
2 Income From House Property XXXX
3 Profits & Gains from Business XXXX
& Profession
4 Capital Gains XXXX
5 Income From Other Sources XXXX
Gross Total Income XXXX
Less -
Deductions XXXX
Net Taxable Income XXXX
 Exemption Vs. Deduction
Particulars Exemption Deduction

Certain types of income are Certain expenses/investments

Meaning completely excluded from are reduced from Gross Total
total income Income

Income not considered at all Applied after computing Gross

Stage of application
while computing total income Total Income

Agricultural income (fully LIC premium deduction under

Example
exempt under Sec 10) Sec 80C

Reduces taxable income,

Impact Income itself is tax-free
thereby lowering tax

Chapter VI-A (Section 80C to

Relevant Sections Section 10, Section 11 etc.
80U)
 Method of Accounting
 In accounting, the method refers to how
financial transactions are recorded and
reported. The two main methods are cash basis
and accrual basis. Cash basis records
transactions when cash is received or paid, while
accrual basis records them when they occur,
regardless of cash flow.
 Revenue Receipt vs Capital
Receipt
• Revenue Receipts:
• Generally considered as income.
• Examples: Sales, fees, rent, interest, etc.
• Capital Receipts:
• Not normally treated as income in general usage.
• Under the Income Tax Act, 1961, certain capital receipts are
considered income.
• Example: Capital Gains → Profits from sale of capital assets
like land, jewellery.
Conclusion:
• Income usually refers to revenue receipts.
• Some capital receipts (like capital gains) are specifically
taxable under Income Tax Act.
Capital Expenditure Vs.
Revenue Expenditure
Capital Asset
 A capital asset is a long-term, tangible or intangible property
held for investment or generating income, not meant for
immediate resale. Examples include land, buildings,
machinery, patents, and securities like stocks and bonds. They
are distinct from short-term assets and contribute to a
business's overall value and growth.
Manufacture
 The Ordinance to the Income Tax Act, 1961 does not define
the term 'manufacturing' however, as per Section 2(29BA)
'manufacture' means a change in a non-living physical
object/article resulting in transformation into new & distinct
object having a different name, character and use.
Fair Market Value
 Fair Market Value (FMV) in income tax refers to the estimated
price an asset would fetch if sold on the open market. It is
commonly used for determining the value of assets like
property, shares, or investments, especially in cases of capital
gains tax, to ensure accurate taxation calculations.
Company u/s 2(17) of the
Income Tax Act,1961
A company includes:
1. Indian Company
A company formed and registered under Indian laws. (e.g.,
Infosys Ltd., Tata Steel Ltd.)
2. Foreign Company
A company incorporated outside India (e.g., Microsoft
Corporation, Google LLC)
3. Institution/Association/Body
An organisation or statutory body declared by law or CBDT
to be treated as a company for tax purposes
Eg. LIC (Life Insurance Corporation of India) → Created
under LIC Act, 1956
RBI (Reserve Bank of India) → Created under RBI Act, 1934
Classes of Companies
Type Meaning Examples
Indian company
OR company
Infosys Ltd.,
Domestic Company paying dividend
Reliance Industries
chargeable to tax
in India
Company
Google LLC, Apple
Foreign Company incorporated
Inc.
outside India
 A Company is further classified in to
following categories based on Public Interest

A. Widely Held Company (Public Company)

Company in which public is substantially interested:

B. Closely Held Company (Private Company)

Company where public is not substantially interested:
•Usually private limited companies
•Examples: Zoho Corporation Pvt. Ltd., Flipkart Internet Pvt.
Ltd. (before Walmart acquisition)
 Widely Held Companies

Criteria Example Explanation

Government or RBI holds 40% or
Govt./RBI holds ≥ 40% State Bank of India, LIC more of the company’s
shareholding.

Company registered under Sec. 25

Section 25 Company (Non- of Companies Act, 1956 (now Sec. 8,
Akshaya Patra Foundation
profit) Companies Act 2013) for promoting
charitable purposes.

Institution or body declared by

Co. with no Share Capital -
RBI CBDT to be treated as a company
Declared by CBDT
for tax purposes.
Mutual benefit society that accepts
Local Mutual Benefit
Nidhi Company deposits from and lends to its
Societies
members only.
Cooperative Society (≥50% Indian Farmers Fertiliser Cooperative society owning ≥ 50% of
shares) Cooperative (IFFCO) equity shares in the company.

Public Limited Co. listed on Company listed and actively traded

Tata Motors, HDFC Bank
stock exchange on a recognised stock exchange.
Tax Rates for Companies
Particulars Tax Rate
Turnover/Gross receipts ≤
25%
₹400 crore (PY 2022-23)
Any other domestic company 30%

Optional Concessional Tax Rates – No Deductions except

80JJAA & 80M
•Section 115BAB:
• 15% tax rate for new manufacturing company set up
on or after 1.10.2019 and commenced before
31.3.2024.
• Applicable only if opting under Sec 115BAB.
•Section 115BAA:
• 22% tax rate for any domestic company opting under
this section
Surcharge on Domestic Companies

Surcharge for Domestic

Companies

Particulars Surcharge Rate

Total income > ₹1 crore ≤
₹10 crore (not opting 7%
115BAA/BAB)
Total income > ₹10 crore
12%
(not opting 115BAA/BAB)
10% flat surcharge (no
Opting for 115BAA or 115BAB threshold, no marginal
relief)
Tax Rates for Foreign Company

Income Type Tax Rate

Royalty / FTS (approved by
50%
Govt.)
Other income 35%

Situation Surcharge Rate

Total income > ₹1 crore ≤ ₹10
2%
crore
Total income > ₹10 crore 5%

Marginal Relief available.

 What is Marginal Relief

Marginal Relief is provided to ensure that the additional

tax payable (due to surcharge) does not exceed the actual
amount of income exceeding the threshold (₹1 crore or
₹10 crore).
It prevents an unfair jump in tax liability when a company
crosses the threshold by a small amount.
Applicable to:
• Domestic Companies (except those opting under Sec
115BAA or 115BAB)
• Foreign Companies
Not available for:
• Companies opting for concessional tax rates under Sec
115BAA or 115BAB.
Example for Domestic Company
Case: Company with ₹1,00,10,000 income (crossed ₹1 crore)
• Normal Tax @ 30% = ₹30,03,000
• Surcharge @ 7% on tax = ₹2,10,210
• Total Tax with surcharge = ₹32,13,210
Without Marginal Relief, tax increases by ₹2,13,210 for just
₹10,000 extra income.
With Marginal Relief:
The extra tax payable cannot be more than ₹10,000 (the
income exceeding ₹1 crore).
So, final tax = tax on ₹1 crore + ₹10,000 = ₹30,00,000 + ₹10,000 =
₹30,10,000.
 Company gets relief of ₹2,03,210.
Examples
Ex 1:Domestic Company
• Total Income: ₹1.20 crore
• Turnover last year > ₹400 crore → Tax rate = 30%

Ex. 2: Domestic Company (Opting Sec 115BAA)

Total Income: ₹3 crore

Ex 3: Foreign Company
• Total Income: ₹12 crore (other income)
For Domestic Company
(Income ₹1.20 crore; Tax Rate 30%, Surcharge 7%,
Cess 4%)

 Step 1: Calculate Basic Tax

= ₹1,20,00,000 × 30% = ₹36,00,000
 Step 2: Surcharge
= ₹36,00,000 × 7% = ₹2,52,000
 Step 3: Tax + Surcharge
= ₹36,00,000 + ₹2,52,000 = ₹38,52,000
 Step 4: Health & Education Cess
= ₹38,52,000 × 4% = ₹1,54,080
 Step 5: Total Tax before Marginal Relief
= ₹38,52,000 + ₹1,54,080 = ₹40,06,080
 Step 6: Marginal Relief Check
Excess income over ₹1 crore = ₹20,00,000
Extra tax over tax on ₹1 crore should not exceed ₹20,00,000 → no
further adjustment needed here as tax increase is within limit.

Final Tax Payable = ₹40,06,080

For Domestic Company (Opting 115BAA)
(Income ₹3 crore; Tax Rate 22%, Surcharge 10%, Cess 4%)

Step 1: Calculate Basic Tax

= ₹3,00,00,000 × 22% = ₹66,00,000
Step 2: Surcharge
= ₹66,00,000 × 10% = ₹6,60,000
Step 3: Tax + Surcharge
= ₹66,00,000 + ₹6,60,000 = ₹72,60,000
Step 4: Health & Education Cess
= ₹72,60,000 × 4% = ₹2,90,400
Final Tax Payable = ₹72,60,000 + ₹2,90,400 =
₹75,50,400
 (Note: No marginal relief for companies opting 115BAA)
For Foreign Company
(Income ₹12 crore; Tax Rate 40%, Surcharge 5%, Cess 4%)

1. Basic Tax:
₹12,00,00,000 × 35% = ₹4,20,00,000
2. Surcharge:
₹4,20,00,000 × 5% = ₹21,00,000
3. Tax Plus Surcharge
₹4,20,00,000 + ₹21,00,000 = ₹4,41,00,000
4. Health & Education Cess:
₹4,41,00,000 × 4% = ₹17,64,000
5. Total Tax Liability Before Marginal Relief:
₹4,41,00,000 + ₹17,64,000 = ₹4,58,64,000
Step 6: Marginal Relief Check
Excess income over ₹10 crore = ₹2,00,00,000
Tax excess must not exceed ₹2 crore → after check, no
adjustment required.
 Final Tax Payable = ₹4,58,64,000
Residential status in case of
Company
 What is Residential Status???
Why is it important to
understand?
 Residential Status determines the scope of total
income taxable in India.

What income is taxable

Residential Status
in India?
Global income (earned
Resident Company
in India + outside India)
Only Indian Income –
Non-Resident Company Income recd or accrued
in India
Examples -
 XYZ Pvt. Ltd. is incorporated under the Companies Act,
2013. Its entire operations are carried out in Singapore. All
board meetings are held there.
What is the residential status of XYZ Pvt. Ltd.?
 BlueMoon Inc., a company incorporated in the US, has its
key decision-making team (board of directors) operating
out of India. Strategic and commercial decisions are taken
from their Bengaluru office.
Is BlueMoon Inc. resident or non-resident in India?
 NovaSteel Ltd., a UK-incorporated company, has a liaison
office in India that collects market research and
coordinates with Indian vendors. All management decisions,
financial decisions, and board meetings take place in the
UK.
What is NovaSteel’s residential status in India?
 InfiLearn Pvt. Ltd., incorporated in India, shifts its entire
operations and decision-making team to Dubai. All revenue
comes from Middle East markets.
Is the company resident in India?
 Income Received in India
Definition: Income is physically or legally received in
India, regardless of where it was earned.
Example 1:
 A Dubai-based company sells raw materials to a
Singapore client, but asks for payment to be made
directly to its bank account in Mumbai.
Taxable in India – Income received in India.
Example 2:
 A foreign software company receives payment from a US
client via cheque deposited while visiting India.
Income is received while in India, hence taxable.
 Income Deemed to be Received in India

 Definition: Income is not physically received, but the law

treats it as received in India under specific provisions.
Example 1:
 An Indian company makes a contribution to an employee's
Provident Fund.
It is deemed to be received by the employee, even if the
employee hasn't withdrawn it.
Example 2:
 Employer credits salary to employee’s account in India, even if
the employee is on foreign assignment.
Though employee may not withdraw, it's deemed received.
Income Accrued in India
 Definition: Income is earned or the right to receive
income arises in India, whether or not it is actually
received.
Example 1:
 An Indian company delivers goods to a UK client. The
invoice is raised and accepted, but payment is yet to be
made.
Right to receive is established in India → Accrued in
India.
Example 2:
 A company completes a consultancy project for a foreign
client, entirely from India, and awaits payment.
Income has accrued in India, though not received.
Income Deemed to Accrue or
Arise in India [Sec 9]
Even if not actually received in India, following foreign
incomes are deemed to accrue/arise in India:
• Business connection in India
• Property in India
• Services rendered in India
• Royalties or Fees for Technical Services paid by Indian
entity
• Interest paid by Indian concern
Business Connection in India
TechGlobe Inc., a US-based electronics company, does not
have a branch in India but appoints an Indian agent,
SmartDistributors Pvt. Ltd., to promote and finalize sales
of its gadgets across India. The Indian agent negotiates
contracts and places orders directly with TechGlobe Inc.
Tax Implication:
Even though TechGlobe Inc. receives payment directly in
the USA and ships products from abroad, the existence of a
business connection in India through the Indian agent
makes the income deemed to accrue or arise in India
under Section 9(1)(i).
 Result:
Taxable in India in respect of the business income
attributable to the Indian operations.
Property in India
BritBuild Ltd., a company registered in the UK, owns a
commercial complex in Bengaluru. It leases out the
office space to multiple Indian startups and receives
monthly rent directly into its UK bank account.
Tax Implication:
Even though rent is received abroad, the source of
income is property situated in India. Under Section
9(1)(i), such rental income is deemed to accrue or
arise in India.
 Result:
Fully taxable in India in the hands of BritBuild Ltd.
Services Rendered in India
DataTech GmbH, a German IT company, is hired by an
Indian bank to install and test cybersecurity software in
its Mumbai office. DataTech sends a technical team to
India for a 2-week implementation.
Tax Implication:
The fees paid by the Indian bank to DataTech GmbH,
even if transferred to Germany, are fees for technical
services rendered in India. As per Section 9(1)(vii),
such services are deemed to accrue or arise in India.
 Result:
Taxable in India as Fees for Technical Services
(FTS)
Royalty / Fees for Technical
Services Paid by Indian Company

MapleSoft Ltd., a Canadian software firm, grants a license

to TechSpark India Pvt. Ltd. to use its patented
software for manufacturing purposes. The Indian
company agrees to pay an annual royalty fee to
MapleSoft.
Tax Implication:
As per Section 9(1)(vi), royalty paid by an Indian
resident is deemed to accrue or arise in India,
regardless of where the software is used or where the
payment is made.
 Result:
Taxable in India in MapleSoft’s hands, and TechSpark
must deduct TDS before remitting the royalty.
Interest Paid by Indian
Concern
Sunrise Textiles Pvt. Ltd., an Indian company, takes a
loan from Deutsche Finance Ltd., a German financial
institution. The loan agreement states that interest will
be paid annually into Deutsche's German bank account.
Tax Implication:
Under Section 9(1)(v), interest paid by a resident
(except in certain overseas business exceptions) is
deemed to accrue or arise in India, even if paid
abroad.
 Result:
Interest income is taxable in India in the hands of
Deutsche Finance Ltd.
Sunrise Textiles must deduct TDS under Section
195.
 Exemption for Units in Free Trade
Zones (FTZ), STPs, EHTPs
What was the benefit?
• 100% tax exemption on export profits for 10 consecutive years.
Who was eligible?
• New undertakings located in:
• Free Trade Zones (FTZ)
• Software Technology Parks (STPs)
• Electronic Hardware Technology Parks (EHTPs)
Conditions:
• Should be a new unit.
• Should not be formed by splitting or reconstruction of existing business.
• Income must be from exports.
Example:
A company started a new STP unit in 2006 to export software. It claimed 10 years’ tax
exemption under Section 10A till AY 2016.
 Note: Not available for new units now – applicable only to older units set up
before March 31, 2011.
 Exemption for Units in Special
Economic Zones (SEZs) [Section 10AA]

Who is eligible?
• New undertakings established in an SEZ (after 1 April 2005).
• Must export goods or services directly.
What is the benefit?
• 100% exemption on export profits → First 5 years
• 50% exemption → Next 5 years
• 50% exemption (on reinvested profits) → Further 5 years, if credited to SEZ Reinvestment Reserve
Conditions:
• Unit should be new.
• Not formed by splitting an existing business.
• Maintain proper books of account.
Example:
A company opens an IT unit in an SEZ in 2023. It exports software services:
• No tax on profits till 2028.
• Half tax from 2028–2033.
• Half exemption again if profits are reinvested in the business from 2033–2038.
 Highly relevant for software and manufacturing exporters.
Exemption for 100% Export-Oriented
Undertakings (EOUs)[Section 10B]
Who is eligible?
• Undertakings approved as 100% EOUs by the Development
Commissioner.
• Engaged in manufacture or production of goods or software for
export.
What is the benefit?
• 100% tax exemption on export profits for 10 consecutive years.
Conditions:
• Should be new (not formed by splitting).
• Must export 100% of production.
• Maintain separate audited accounts.
Example:
 An electronics manufacturing company registered as a 100% EOU
and exports all its output to Europe. It enjoys full tax exemption
on such profits for 10 years.
 Exemption for Handmade Artistic
Wooden Articles and Similar Products
[Section 10BA]
Who is eligible?
• Manufacturers/exporters of:
• Handmade artistic wooden items
• Handicrafts
• Handloom products
• Handmade silk garments and similar items
What is the benefit?
• 100% exemption of export profits for 10 consecutive years
Conditions:
• Articles must be handmade and artistic.
• Goods must be exported.
• Unit must be new and not formed by reconstruction of existing business.
Example:
A Jaipur-based firm exports hand-carved wooden figurines. If it’s a new unit, it can
claim full tax exemption on export income for 10 years.
 Encourages traditional Indian craft industries to participate in global trade.
Section Applies To Benefit Duration
Units in FTZ, STP, 100% export
10A (old) 10 years
EHTP profits

100% (5 yrs), 50%

10AA SEZ Units (5 yrs), 50% Up to 15 years
reinvested (5 yrs)

100% export
10B 100% EOUs 10 years
profits

Handmade artistic 100% export

10BA 10 years
goods exporters profits