India's tax system is governed by a variety of laws and regulations. The Government of India imposes taxes on both resident and non-resident companies. However, the taxes that are levied and the rates that apply differ depending on whether the company is resident or non-resident.
The two main categories of taxes in India are direct taxes and indirect taxes. Direct taxes are levied on the income of individuals and companies, while indirect taxes are levied on goods and services. So, let’s dig in and check out both the categories in detail.
Direct taxes in India are levied on the income or wealth of individuals and businesses. They are considered to be more progressive than indirect taxes, as they tend to place a greater burden on higher-income earners. This is because the tax rates for direct taxes typically increase as the income or wealth of the individual or business increases.
Direct taxes are also considered to be more efficient than indirect taxes, as they are less likely to be evaded. This is because the tax authorities can more easily track the income and wealth of individuals and businesses. So, let’s have a look at the different kinds of direct taxes!
Corporate Tax
The Income Tax Act of 1961 states that Corporate Tax is levied annually by the Government of India upon the net profit earned by companies, domestic or foreign. The corporate tax rates at the moment goes as follows:
For Domestic company not availing exemptions
The tax rate for any domestic company which opt to not avail any exemptions is 22%, and effective rate after adding surcharge and cess works (MAT inapplicable) out to be 25.17%.
For other domestic companies with annual turnover up to INR 4000 Million
Corporate Tax is 25%. In case annual income is between INR 10 Million to INR 100 Million, Surcharge and Cess is 7%. For the companies whose annual income exceeds INR 100 Million, Surcharge and Cess is 12%
Minimum Alternative Tax
MAT was introduced in 1996 to prevent companies from avoiding taxes by claiming a lot of deductions and exemptions. The government wanted to make sure that all companies, regardless of their size or industry, paid their fair share of taxes. It ensures that all companies pay a minimum amount of tax to the government, even if they are able to claim a lot of deductions and exemptions.
As per Section 115JB, all companies are required to pay Corporate Tax at least equal to the higher of the following:
Normal Tax Liability
Calculated as per the normal provisions of the Income Tax Act, i.e. by applying the relevant tax rate to the company's taxable income.
Minimum Alternate Tax (MAT)
For FY 2019-20, tax payable is computed at 15% (previously 18.5%) on book profit plus applicable cess and surcharge.
Indirect taxes are taxes that are collected by the government from the seller of goods and services, who then passes on the tax liability to the buyer. The buyer ultimately pays the tax, but they do not pay it directly to the government. This is why indirect taxes are also known as consumption taxes. These taxes are a major source of revenue for the governments around the globe.
Goods and Service Tax (GST)
The implementation of GST on July 1, 2017, marked a pivotal shift in India's taxation landscape. This comprehensive, destination-based tax brought forth uniform tax rates nationwide, streamlining the movement of goods. GST replaced numerous indirect taxes, forging a unified market and simplicity in tax structure. Presently, four distinct GST rates - 5%, 12%, 18%, and 28%, along with zero-rated and exempted items - further define this transformative tax regime.
Current GST structure in India
CGST
This is the tax applicable on intra-state transactions (carried out within the state and UTs). This is collected by the Central Government. This is 50% of the GST rate applicable on goods and services.
SGST
This is the tax applicable on intrastate transactions (carried out within the state and UTs). This is collected by the State Government. This is 50% of the GST rate applicable on goods and services.
IGST
This is the tax applicable on inter-state transactions (carried out between the states and UTs). This is collected by the Central Government. This is 50% of the GST rate applicable on goods and services.
GST Compliances
- GST registration- Registration required for places of business
- Calculation and deposit of tax monthly
- Filing of returns GSTR1 and GSTR 3B – monthly/quarterly basis
- Filing of Annual Return
- Filing of Annual Reconciliation
- GST Annual Audit
- Filing of Declaration (RFD-1) annually for export of services without payment of GST
- GST refund for unavailed ITC (Input Tax Credit)
How BANDRAZ can help?
Our team of tax advisory experts at Bandraz come up with a comprehensive solution with end to end service compliance of the GST suiting your business needs, making sure that you get the best tax consultancy in India.
- GST Registration – all places of business
- Ascertaining HSN/SAC for items/services and rates applicable
- Doing/advising on invoicing complying with GST format
- E-way Bill generation as and when required
- Calculation of GST payable, generating challans
- Preparation and filing on returns on the GST portal
- Reconciling and providing a report for unmatched ITC
- Carry out GST audit and filing of the same
- Preparing replies to all the queries, notices, appeals, assessments and demands
- Representation with authorities whenever needed
- Coordinating with Statutory Auditors for GST related work
- Composite scheme documentation, if applicable
- Keeping management informed about new notifications / changes / announcements from time to time.
- Event-based compliances such as address change, authorized signatory change etc
- Any other work related to GST
Custom Duty
With regulations governing its imposition on imports and exports, Customs Duty stands as a crucial facet of Indirect Taxation, serving as a significant revenue stream for the Indian Government. Guided by the Indian Customs Act, 1962, and overseen by the Central Board of Excise & Customs, this levy plays a vital role in cross-border trade. The process of customs clearance follows the classification of goods using the Harmonized System Nomenclature (HSN) devised by the World Customs Organization, enhancing global trade classification since its introduction in 1988.
How BANDRAZ can help ?
We extend a guiding hand for all your import and export requirements including:
- Study your taxation needs and provide comprehensive and cost-effective solutions
- Develop customized strategies to prepare a manageable tax optimization plan
- Obtain all regulatory registrations and import-export codes for the smooth operation of the business
- Advise and provide services compliant to the statutory regulations
- Assistance to deposit tax, file returns and conduct audits & reconciliations
- Identify permissible tax exemptions and help obtain incentives and benefits under various schemes
- Get registered IEC with different custom ports
- Assist in obtaining custom clearances from designated authorities
- Advice on custom duty structure for the items being imported or exported
- Prepare responses to queries, notices, appeals, assessments, and demands
- Representation with authorities whenever needed
- Get shipments cleared through our associate.
- Advise and apply for export incentives under various schemes
- Help make informed decisions in accordance with new notifications / changes / announcements
Cross-border commercial transactions have significantly increased as a result of the corporate world's increasing globalization. International trade has seen tremendous growth for businesses everywhere. Governments are therefore closely monitoring these changes to ensure adequate taxation within their borders and stop any unjust advantages from going to other countries. Intricate international tax regulations have been established as a result of this increased scrutiny.
These rules cover a variety of transfer pricing techniques, require substantial annual transfer price paperwork requirements, and include severe sanctions for non-compliance. To successfully navigate and adhere to these complexity, as well as the changing landscape of international business taxation, demands specialized experience.
The Government of India, thus, inserted a separate code on transfer pricing under Sections 92 to 92F of the Indian Income Tax Act, 1961, which covers intra-group cross-border transactions. Non-compliance with the same can result in paying interest on late tax payments – plus substantial penalties.
How BANDRAZ can help ?
Our team of experts are well-equipped to assist you in crafting a strong Transfer Pricing policy. We specialize in establishing efficient processes for record-keeping associated with Transfer Pricing, managing audits, conducting studies, facilitating return filings, and managing appeals, along with all other relevant compliance matters. We are dedicated to evaluating your future requirements and offering tailored solutions that align with your current international business operations and Transfer Pricing needs.
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