An entity incorporated in India or having
its entire management and control in India is a resident and
is taxed on its worldwide income. A non-resident corporation
(foreign company) is taxed only on income derived in India
from Indian Operations, income that is deemed to arise in
India and income that is received in India.The tax year runs
from April 1 to March 31. The tax rate differs on the basis
of category of the Company like Domestic and Foreign.
Minimum alternate tax (MAT)
MAT is leviable as a percent of book profits
of the companies which has incurred loss for the year under
review. The profits from software and goods exports and from
exports of film, television, music or television news software,
including telecast rights is not considered as part of book
profits for the purposes of MAT. MAT is not allowed as credit
against future normal tax payable.
Dividends distribution tax
Any dividend distributed by a Company to its shareholders is not taxable in the hands of Shareholders. On such dividend s, the Company will have to pay dividend tax under section 115 O of the act.
Residential status and tax liability
Under the Income- tax Act, 1961 ('Act')
a resident is called up on to pay tax on his global income
though he does not get relief against double taxation. A non-resident,
on the contrary, is required to pay tax only on his Indian
income unless he commits the 'indiscretion' of receiving his
foreign income in India. For, income received in India is
taxable in any case. There are basically two mutually exclusive
tests for determining one's residential status whereas for
individuals the accent is on 'minimum period of stay in the
country', for others the test boils down to the situation
of 'control and management of affairs'. A foreign company
scores over other foreign entities in this regard. While a
part control in India is enough for all others, a foreign
company becomes a resident only if the control and management
of affairs is situated wholly in India otherwise normally
presumed to be a non-resident. The ensuing discussion proceeds
on the twin assumption that the foreign collaborator is a
company and the control and management of its affairs is not
wholly situated in India.
Dividends can be paid only out of the profits
of a year, undistributed profits of previous years. Dividends
received in India can be repatriated subject to compliance
of exchange control formalities.
Now under section 205(1A) of the Companies Act 1956 Act the
'interim dividend' also can be declared in the middle of a
financial year and has the same status of the final dividend.
Because of this, once declared by the Board interim dividend
cannot be rescinded later and the declared interim dividend
has to be paid to the shareholders. Company can declare and
pay the dividend to the shareholders subject to complying
with the Companies (Transfer of Profits to Reserves) Rules,
Withholding Tax in India
Withholding of tax is required from all
payments chargeable to tax made to non- resident at rates
specified under the domestic law treaty.
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