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Impact on corporate taxation

What are the changes brought about in the taxation of companies?

The tax on distributed dividend will be enhanced from 12.5 to 15 per cent with effect from April 1, 2007. The rate of tax will be 25 per cent as against the present rate of 12.5/20 per cent in respect of dividend distributed by the Unit Trust of India or a mutual fund to the extent distributed to persons other than individuals or Hindu Undivided Families in respect of money market and liquid fund as defined under Sec. 115T of the Act.

The Minimum Alternate Tax (MAT) under Sec. 115JB is extended to income exempt under Sec. 10A or 10B. Trade and industry were hoping that this tax would be dropped. But the Finance Minister justified it as nothing more than an advance tax in view of the tax set off available under Sec. 115JAA, which is, however, subject to conditions and may not be available for all companies.

Surcharge has been removed for companies with income less than Rs.1 crore. This concession of exemption for surcharge is available also for firms with income below Rs.1 crore. The exemption up to Rs.1 crore will apply for short term and long term capital gains under Sec. 111A and 112 as well.

Companies along with other employers will be liable for the Fringe Benefits Tax (FBT) for any benefit given to employees under the Employees Stock Option (ESOP) scheme under Sec. 115WB(1).

To avoid redundancy, employee is spared tax on capital gains on such amount taxed for FBT by adding such amount to his cost under Sec. 49(2AB).

S. RAJARATNAM

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