corporate-tax-rate-foreign-company-tax-rate-2011-2012

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For rates applicable for asst.year 2012-13, click here

Below note is prepared by Mr.Kunjan Shah who can be reached on 9820750784. (As tax rates especially for non-residents is a complicated and vast topic, please consult your tax consultant, before taking any action. This is only for general help of public):-

1.      Indian Corporates –

o   Domestic companies are taxable @ 30 percent

o

2.      Foreign company’s branch office or foreign company’s project office (only for income generated through Indian operations)

·        Rate @ 40 percent



3. Common Note for both, Domestic and foreign companies (rate of atleast 18.5%):-

o   A Comparison between above rates and 18.5% is to be made - While calculating final tax liability , every company (domestic or foreign) has to compare their above stated tax liability versus MAT liability.

o   Minimum Alternate Tax (MAT) is levied @ 18.5 percent of the adjusted book profits in the case of those companies where income-tax payable on the taxable income according to the normal provisions (i.e. 30% or 40% stated above) is less than 18.5 % of the adjusted book profits. Generally this 18.5% rate happens in companies which enjoy special exemption like in Export zones etc. But every company has to be careful of this and has to calculate this 18.5% MAT and make comparison before filing its tax return.

o   If in case your company is liable under MAT @ 18.5%, then its credit will be available for 10 years

   Education cess is applicable @ 3 percent on income-tax (inclusive of surcharge, if any).

o   In short, tax rate of atleast 18.5% of book profits is payable by companies, if tax liability @ 30% or @  40% is less than this 18.5% of book profits.

Further, please note below  3 points :-

A.     Income without branch / project office’s connection (I.e. without Permanent establishment in India)

 If the income is directly attributed / earned by foreign company and is earned without any help and without any connection with Indian branch or project office of this foreign company, then there will be no Permanent establishment of this foreign company in India.  In that scenario, while making payments to your foreign company, the Indian customer will have to deduct a withholding tax rate called special rates as below (or its corresponding rate stated in respective double taxation treaty, whichever is more beneficial) :-

The following incomes in the case of non-resident are taxed at special rates on gross basis:

Nature of Income

Rate(a)

Dividend {read note (b) below}

20%

Interest received on loans given 

in foreign currency to Indian

concern or Government of India

20%

Income received in respect of 

units purchased in foreign

currency of specified Mutual

Funds / UTI

20%

Royalty or fees for technical 

Services

For Agreements entered into: 

- After 31 May 1997 but before

1 June 2005 – @ 20%

- After 1 June 2005 – @ 10%

Interest on FCCB, FCEB / 

Dividend on GDRs {read note (b) below}

10%

(a) These rates may further increase by surcharge and education cess

(b) Other than dividends on which Dividend distribution tax has been paid

(c) In case the non-resident has a Permanent Establishment (PE) in India and the royalty/fees for technical services paid is effectively connected with such PE, the same could be taxed @ 40 percent (plus surcharge and education cess) on net basis

 

(2) Tax on non-resident sportsmen or sports association on specified income @ 10 percent plus applicable surcharge and education cess.

 

B.     If non-resident entity is in below specific industries and their gross receipts do not exceed INR 6,000,000, then below stated rates are an option available to them :-

 

Business

Rate at which income is 

Presumed

Shipping(b)

7.5% of gross receipts

Exploration of mineral oil (b)(c)

10% of gross receipts

Operations of Aircraft (b)

5% of gross receipts

Turnkey power projects (b)(c)

10% of gross receipts

 

Above note is prepared by Mr.Kunjan Shah who can be reached on 9820750784

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