AN ANALYSIS OF THE TAX STRUCTURE OF CORPORATE ENTITIES IN INDIA

Abstract

As a result, the goal of this research is to look at the dynamic movement in the tax structure of corporate organisations during the last ten years. Corporation tax, tax rate schedule, the impact of corporate tax, tax evasion, and tax avoidance are all depicted in this article. The government's primary source of funding is taxes. Direct and indirect taxes are used to collect this income. One of the direct taxes is corporate tax. A corporation tax is a tax on a company's entire income that is paid at predetermined flat rates. However, various rates apply to kinds of companies and different levels of income. The Union Government has sole authority to enact company tax legislation. Occasionally, the business tax rate is raised. The tax burden on companies is increasing over time. The corporate income tax rate in India is a tax levied on companies. Its value is determined by the net income companies earn while conducting business, usually over the course of a single fiscal year. The highest rate for corporate income is the benchmark we utilize. The corporation tax rate generates a significant amount of revenue for the Indian government. The majority of the information in this study comes from secondary sources. The data was gathered from the Prowess database, journals, periodicals, records, newspapers, and articles on taxes. Corporate tax rates during the period from 2009-2018 to 2022-2023.?

Keywords- corporate tax, Taxation Laws (Amendment) Ordinance, Section 115 BA, 115 BAA, 115BAB, tax rate, etc.

INTRODUCTION

The corporate tax, often known as corporation tax or company tax, is a form of tax levied by many nations on the revenue or capital of certain types of legal companies. A tax of this nature might be levied at the state or local level.?

Corporate taxes on income, wealth, Capital Gains are some of the most significant taxes paid by customers. Corporate houses too, be it domestic or foreign, are required to pay taxes in order to run their business. One of the may taxes that corporate are required to pay to the Indian government is corporate tax or company tax.

For the purpose of tax calculation, companies in India have been broadly divided into the following two categories.

Domestic Corporate: Any company that is Indian is called as domestic company or if the company is foreign but the control and management is wholly situated in India then also it is termed as a domestic company. An Indian company means a company registered under the Companies Act 1956

Foreign Corporate: Any foreign company is one that is not of Indian origin and has some part of control and management of affairs located outside India.

The taxes are also known as income tax and capital tax. Partnerships are normally exempt from taxation at the entity level. The income of all firms conducting business in a country is usually taxed in that country. Many governments levy a tax on all profits made by domestic firms. Taxable income for corporations is frequently calculated similarly to taxable income for individuals. The tax is applied to net profits in most cases. The regulations for taxing corporations and individuals may differ dramatically in certain jurisdictions. Certain company acts, such as reorganizations, may be exempt from taxation. Some entities may be excluded from paying taxes. Many additional nations impose income taxes on corporations as well as on their owners when the corporation distributes a dividend. A withholding tax may be applied where the owners are taxed. These taxes on owners aren't usually referred to as corporate taxes. Income, capital, net worth, and other taxes placed on corporations are referred to as corporate taxes. Corporations may have different tax rates and taxable bases than individuals. Rates of tax and the taxable base for corporations may differ from those for individuals or other taxable persons.??

Due to historical causes, India's tax system is disorganized, uncontrolled, and unmanaged. India's foreign rulers taxed the population for their own advantage as well as for the state's royal privileges. The royal treasury's main source of income was land revenue. Other taxes used to be imposed on a case-by-case basis. During British authority, no effort was taken to ensure that the tax system was uniform. The tax practices of the native rulers and the British provinces were vastly different. In no way were social fairness, social welfare, or economic progress tied to the tax system. Following independence, every part of the Indian tax system was extensively examined, and every effort was made to make it equal, just, and cost-effective, while also generating sufficient money to fund the administration and meet the demands of economic development. The Indian constitution took effect on January 26, 1950. It is a federal government. There is a clear difference drawn between union revenue sources and states in which the center retains residual power. In India, the constitution is supreme and the source of all laws. The constitution gives the Union and states the authority to impose and collect taxes. If any rule or law of the government is not according to the constitution, it becomes illegal and void. According to Taxation Enquiry Commission, the division of tax powers and distribution of revenue resources between the center and states can be termed the ‘Tax System’.

The tax structure in India is divided into direct and indirect taxes.?

India's taxation system is divided into two categories: direct and indirect taxes. Corporate tax is classified as direct tax. Companies in India that are registered under company law are obligated to pay this tax on the net profit they produce from their business. It is taxed at a specified rate (determined by the Income Tax Act), which is subject to the Income Tax Department's annual rate modifications.

While direct taxes are charged on taxable income produced by individuals and corporations, the assessee bears the cost of deposit taxes. On the other hand, indirect taxes are levied on the?sale?and provision of?goods and services respectively and the burden to collect and deposit taxes is on the sellers instead of the assessee directly.

The taxation system in India is such that the taxes are?levied by the?Central Government?and the?State Governments.?Some minor taxes are also levied by the local authorities such as the Municipality?and the Local Governments.?

Over the last few years, the Central?and many State Governments have undertaken various policy reforms and process simplification towards great predictability, fairness and automation. This has consequently?led to India’s meteoric rise to the top 100 in the World Bank’s Ease of Doing Business (EODB) ranking in 2019 as?India jumps 79 positions from 142nd (2014) to 63rd (2019) in 'World Bank's Ease of Doing Business Ranking 2020'.?The Goods & Services Tax (GST) reform is one such reform to ease the complex multiple indirect tax regime in India.

Major Central and State Taxes

• Income Tax- Under Indian income tax law both flat rate (proportional tax) and slab rate (progressive tax) apply. Tax is computed on total income. On lottery income, long-term capital gain, and in some cases short-term capital gain is taxed under a proportional taxation system. Again, the income of assesses such as for companies, firms, etc. proportional taxation system is applied while for individual and cooperative society, the progressive taxation system is followed
• Customs Duty- Customs duty is levied on goods imported or exported from India at the rates specified in the Customs tariff act. Import means bringing into India from a place outside India while export means taking out of India from a place outside India. India includes territorial waters of India which extend up to 12 nautical miles from the baseline.
• Goods & Services Tax (GST)- means tax on goods and services which are paid by a person to the producer, seller or service provider who is liable to pay the same to the account of the Government. For example, customs duty, excise duty, VAT, service tax, entertainment tax, etc. in India. Now a modern system of taxing all goods and services ―goods and services tax is about to be introduced. This will replace all existing enactments relating to goods and services.

?

Corporate Tax Planning

To better comprehend corporate tax planning, think of it as organizing one's financial company affairs in such a manner that they maximize profit while minimizing tax liability by taking advantage of available deductions, refunds, and exemptions. Because tax administration is seen as a difficult and hazardous business, most organizations with large sums of money at stake use the help of financial specialists to oversee their taxation process.

There are various financial players in our nation who give corporate tax India consultancy and execution. Complete awareness and due diligence about every tax law and corresponding rules and regulations is extremely important to ensure healthy tax planning.

Non-payment or tax evasions are not the same as corporate tax planning in India. Tax planning is the process of arranging one's finances in such a manner that the amount of tax owed is minimized while earnings are maximized. One of the most significant characteristics of tax planning is that it is completely?compliant with the Indian government's legal and financial requirements.

Corporation Taxation in India?

a) Corporate Tax Rate - The corporate income tax rate is a tax levied on companies and for-profit organizations or institutions in general. Typically, the amount of Corporate Income Tax is calculated based on the net income corporations earn during a single business year while conducting business. The indicator we use for most nations is the top rate of Corporate Income.

b) Tax Evasion -Tax evasion occurs when a person decreases his overall income by making false claims or withholding information about his true income in order to reduce his tax burden. Tax evasion is not only against the law, but it is also unethical, anti-social, and anti-national. As a result, provisions have been included indirect tax legislation for the implementation of harsh penalties and the initiation of criminal actions against tax evaders.

The tax evader reduces his taxable income by one or more of the following steps:?

(1)? Unrecorded sales.

(2) Claims bogus expenses, bad debts, and losses.?

(3) Charging personal expenses as business expenses, e.g., car expenses, telephone expenses, travel expenses.?

(5) Non- disclosure of capital gains on assets.?

(6) Non- disclosure of income from 'Benami transactions'.?

In brief, to evade tax he suppresses or omits receipts, inflates expenses, and claims bonus Deductions.

c) Tax Avoidance -Tax evasion is the practice of avoiding paying taxes without breaching the law. It is a way of lowering tax liability by taking advantage of legal loopholes. The idea of "tax avoidance," as defined by the Royal Commission on Taxation for Canada, is as follows: The term "tax avoidance" will be used to describe any attempt to avoid or decrease tax responsibility that would otherwise be imposed by the use of lawful means, such as taking advantage of a provision or absence of a provision in the law. It does not include deception, concealment, or other criminal tactics.

In other words, ' tax avoidance is a device that technically satisfies the requirement of the law but in fact, it is not in accordance with the legislative intent The Corporate Tax Rate in India stands at 33.99 percent.?

Tax Rebates Applicable on Corporate Tax

If we ignore the different forms of taxes imposed on corporate earnings, there are a number of tax refund arrangements available to businesses. The following is a complete list of all of these rebates:

? In a few cases, domestic companies are allowed to deduct dividends received from other domestic companies

? In some cases, domestic companies can deduct dividends received from other domestic companies?

? Special provisions apply to venture capital enterprises and venture funds

? In a few cases, domestic companies are allowed to deduct dividends received from other domestic companies

Impact of Corporate Tax Rate Cut on Indian Economy

The Ministry of Finance, Government of India, publishes the corporate tax rate in India. From 2006 to 2013, India's corporate tax rate averaged 33.6 percent, with a high of 34.0 percent in January 2013 and a low of 25 percent in the current Assessment?year (FY 2017-2018). The corporate income tax rate in India is a tax levied on companies. Its value is determined by the net income companies earn while conducting business, usually over the course of one business?year. The highest rate for Corporate Income is the benchmark we utilize. The corporation tax rate generates a significant amount of revenue for the Indian government.

Corporate tax (commonly known as company tax) is a tax imposed on a corporation's net income. This tax must be paid by both private and public companies established in India under the Companies Act, 2013.

Corporate tax is a type of tax that is charged on profits made by companies and businessmen over a set period of time. Different rates of this type of tax are applied to varied amounts of profits made by different companies. In general, corporate tax is charged on a company's income after specific deductions such as depreciation, selling general and administration expenses, and cost of goods sold, among other things.

Company tax or commonly, corporate tax can be considered as a form of?Income Tax?for income earned by businesses. Quite a few countries have levied corporate tax so as to ensure that the tax process for enterprises is carried out smoothly. Countries across the globe have various rules that apply to the process of taxing income.

The reasons for the government to reduce the rate of tax for corporate

India, as we all know, is a developing country. Our pace of growth has been steadily growing. India's economy is now experiencing its worst deceleration?in the previous six years. As a result, automobile?sales have decreased, the manufacturing sector has declined, and our exports have decreased while imports have increased. As a result, we may assume that our economy is collapsing, and the FY 2019-20 budgets increased the rate of surcharges for individuals with taxable income from Rs. 2 crores to Rs. 5 crores and Rs. 5 crores and beyond. As a result of this decision, the stock market fell.

Tax Benefits for Companies

Indian companies, body corporates incorporated under the laws of a country outside India, body corporates/ institutions being assessed as companies under the earlier laws in force, body corporates Indian or not, incorporated or not, declared as a company by general or special order of the Board for the period specified in such declaration/ order.

Further, Companies that are not domestic companies are termed as foreign companies for Income Tax purposes. As we are aware, Companies, having separate legal identities being an artificial person created by law, are also included in the definition of a 'person' for Income Tax purposes. Such that, any provisions which are applicable to a person would be applicable to a company as well unless specifically excluded. Some of the noteworthy benefits available to companies are discussed as under:

1. Tax rate reduced to 25% from 30%- With effect from financial year ["FY"] 2018-19, the income tax rate stands reduced to 25% (plus applicable surcharge and cess) for domestic companies with total turnover or gross receipts not exceeding Rs. 250 crores for the year ended 31 March 2017.
2. Provisions of Minimum Alternate Tax ["MAT"] are made inapplicable to certain foreign companies-The provisions of MAT are made inapplicable to foreign companies that have opted for presumptive taxation. Foreign companies that are engaged in the business of shipping, air transport, oil exploration, and turnkey construction projects are benefited from this.
3. Transfer of certain capital assets not treated as a transfer for income tax purposes- The sale, relinquishment, or extinguishment of rights in assets would be deemed a transfer of assets for the purposes of income tax. Furthermore, any gains deriving from such transfers to a person transferring such capital assets are subject to capital gains taxation. However, some transactions are defined that are not to be recognized as transfers for income tax purposes in order to encourage the merging of unprofitable divisions with financially sound Indian companies with the goal of enhanced efficiency and productivity. Some of the significant transactions specified in this regard are discussed as under:

• Transfer of capital assets by a parent company to its wholly-owned Indian subsidiary
• Transfer of capital assets by a wholly-owned subsidiary co.

1. Deduction on the expense incurred in relation to setting up/ extension of a business- Any expenditure incurred by a company for the start-up or growth of a business is eligible to be amortized and claimed as an expense over a five-year period commencing with the year in which the business started/expansion was completed. This allows a company to recover expenses such as project report preparation, feasibility report preparation, legal fees for drafting agreements, incorporation cost, and so on over a five-year period. However, such a claim should be limited to 5% of the Company's total capital. Further, any expenditure incurred by a Company in course of amalgamation or demerger could also be amortized and claimed over a period of five consecutive years.
2. ?Deduction specific to the nature of the business of the Company- Tax incentives are commonly used to encourage enterprises to enter particular areas that are important for the country's economic development. For a certain period, any corporation engaged in such designated activity would be entitled to a tax holiday or deduction with respect to earnings derived from such operation. It's worth noting, though, that many of the early incentives have now passed their expiration date.

Conclusions

The Taxation Laws (Amendment) Bill, 2019 caused a reduction in the base corporate tax rate, that is, from 30 percent to 22 percent for the existing businesses which led to revenue inference of INR 1.45 Lakh Crores. The base corporation tax rate was cut from 25% to 15% for new manufacturing enterprises created after October 1, 2019, and before March 31, 2023. Domestic company tax rates have been cut in order to support growth and attract new investment. According to studies, India has the lowest corporate tax rates of any country in the world, and the impact would be felt in the Indian economy in the next years. This deliberate move might help India's company tax rates compete more effectively with those of other Asian countries. Prior to the latest modifications, India's corporate tax rates were significantly high when compared to its territorial peers. The reduction in corporate tax rates is expected to assist stimulate corporate financing in the Indian economy in the short to medium term. According to analysts, lower corporate tax rates may improve corporations' ability to push surpluses. The imposition of a 15% tax on new manufacturing conditions will increase global capital's appeal. The cut in the corporate tax rate would facilitate a surge in the profit margins of the businesses of about 10 percent. In the medium to long run, this would result in an increase in profit-making companies in India, as well as a reduction in tax outflow. Expansion in the business sector would eventually help the economy thrive because companies would have greater earnings and could use these surpluses to invest in new ideas or reinvest in existing company operations. Nonetheless, it is critical to recognize the worldwide influence that corporation tax rates have on how investors distribute their money or assets. Governments all over the world are constantly insisting on lowering corporation tax rates in order to encourage more foreign investment.