Tax is a mandatory payment made to the Government for the welfare of the State and various other expenses. It is levied on worker’s income, business profits, and on goods and services. Since it is a mandatory charge, individuals and businesses should be wary of it. They should make sure to pay their taxes in the correct manner and at the apt time to avoid any unnecessary penalty with the best TDS software
India has a very structured tax system. Taxes in India are divided into the following two types:
- Direct Tax: These are taxes the burden of payment of which cannot be shifted to another person. For e.g. Income Tax, Wealth Tax, etc.
- Indirect Tax: These are taxes the burden of payment of which can be shifted on others. For e.g. Value Added Tax (VAT), Excise Duty, Sales Tax, etc by best tds software
Who imposes these taxes?
Taxes are covered under the concurrent list and thus, it is a subject matter on which both the center and State can rule. The Central Government imposes Central Excise Duty, Income Tax, Service Tax, etc and the State Government imposes VAT, Land revenue, and Professional Tax. Local Government also imposes some taxes like octroi, property tax, etc.
Here, we shall discuss the taxes applicable to A Company.
A company is an artificial, separate entity independent of its shareholders. The profits that a Company earns are either appropriated for the next year or distributed to its shareholders in the form of dividends. Various taxes apply to a company depending on whether it is an Indian Company or a Foreign Company. An Indian company’s income is taxable worldwide while for a foreign company, only their operations that happen in India are taxable with the best TDS software
The major taxes applicable are:
- MINIMUM ALTERNATE TAX(MAT):
Earlier, Companies had to pay tax according to the Income Tax Act on the incomes of their employees and employers, as there was no such provision of MAT under the Companies Act. Few companies who used to distribute their profits as dividends were able to show no or negative income even despite earning profits. To bring such companies to pay taxes, MAT was introduced. It is charged at a rate of 17-18% on the profits earned by a company until any Income Tax is charged. This tax is also set off in the subsequent five years against the tax paid under certain conditions. Best tds software
- FRINGE BENEFIT TAX(FBT):
Fringe Benefit is any privilege, service, good, or facility provided by an employer or an associate of an employer or any third party to the employees of a company. It is an additional income tax paid by the employer. Fringe Benefits Tax also includes employee stock Options.
- DIVIDEND DISTRIBUTION TAX
This is the tax imposed on dividends paid by a domestic company to its shareholders. It is charged irrespective of the dividend being interim or otherwise, or profits being current or accumulated. But, it is only charged on Domestic Companies.
- WEALTH TAX:
Wealth Tax is imposed on properties, especially the fixed assets type. They are not imposed on properties where there is value addition. For e.g. A Commercial building, land, etc with the best TDS software
- CAPITAL GAIN TAX:
Capital Gain is earned when a fixed asset is sold at a profit. The profit made on such a sale is called Capital Gain and the tax imposed on it is Capital Gain Tax.
- PROFESSIONAL TAX:
It is a tax levied on the income of professionals, workers, and employees by the State Government. While Income tax is imposed by the Central Government, professional tax is put by the State Government. Rates differ from state to state. In Maharashtra, the rate is as per the following table:
|Rate of Tax
|Less than Rs. 7500
|Rs. 7500- 10,000
|Rs. 175 PER MONTH
|Rs.10,001 and above
|Rs. 200 per month excluding February, For February it is Rs. 300.
For more information, refer to the Maharashtra State Tax on Professions, Trades, Calling and Employment Act, 1975.
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- SALES TAX:
This tax is imposed on inter-state sales of goods conducted by businesses. The current ceiling rate of Central Sales Tax is 3%
VAT is imposed on every stage of production or value-addition. It is payable on goods and services and changes their value incrementally with every stage of production. It is a general consumption tax with the best TDS software
- EXCISE DUTY:
It is charged on goods manufactured in India. The Central Excise Tariff Act should be referred to determine the kind and percentage of tax applicable. They are of three kinds- Basic, Additional, and Special.
- CUSTOM DUTY:
It is the tax paid on Goods imported from outside India. It is imposed by the Central Government and determined by the Custom Tariffs. The current rate in line with ASEAN countries is 10%.
- NEW DIMENSION TO THE TAX REGIME- GST
Goods and Service Tax has been recently introduced into the Indian Markets. Various changes to the tax regime will be brought on. The role of states in introducing or charging taxes has been reduced considerably. To read about how GST will affect businesses, look out for the next article.
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