Corporate Tax Basics

Corporate Taxation
Dr.Ramesh Subramanian
M.com., C.A.I.I.B.,F.C.S.,LL.M.,FCMA(India).,ACMA CGMA (UK).,CPFA(UK).,Ph.D

Assessment year
• “Assessment year” means the period starting from
April 1 and ending on March 31 of the next year.
• Income of previous year of an
assessee is taxed during the next
following assessment year at the rates
prescribed by the relevant Finance Act.

Assessment year
• Income earned in a year is taxable in the next year.
The year in which income is earned is known as
previous year and the next year in which income is
taxable is known as assessment year.
• Previous year is the financial year immediately
preceding the assessment year. All assessees are
required to follow financial year (i.e., April 1 to
March 31) as the previous year.
• This uniform previous year has to be followed for
all sources of income.

Previous year in the case of newly
set-up business/profession

Previous year
• The first previous year commences on the date of
setting up of the business/profession (or, as the
case may be, the date on which the source of
income newly comes into existence) and ends on
the immediately following March 31.
• Thus, in the case of a newly set-up
business/profession or new source of income, the
first previous year is a period of 12 months or less
than 12 months. It can never exceed 12 months.
• The second and subsequent previous years are
always financial years. The second and subsequent
previous years are always of 12 months each (i.e.,
April to March).

Previous Year & Assessment Year
Examples

Previous Year & Assessment Year
What is your perspective?

Assessment year
• Examples:
• A is running a business from 1993
onwards. Determine the previous
year for the assessment year
2022-23.

Assessment year
•Ans. The previous year will
be 1.4.2021 to 31.3.2022.

Assessment year
•A chartered accountant sets
up his profession on 1st July,
2021. Determine the
previous year for the
assessment year 2022-23.

Assessment year
•Ans. The previous year
will be from 1.7.2021
to 31.3.2022.

Connection between previous year
and assessment year

Rule - Income of a previous year is
taxable in the immediately following
assessment year.

Connection between previous year and assessment year
• Rule - Income of a previous year is taxable in the
immediately following assessment year.
• Exception - In the following cases income of previous
year is taxable in the previous year itself—
• a. income of non-resident from shipping;
• b. income of persons leaving India either permanently
or for a long period of time;
• c. income of bodies formed for short duration;
• d. income of a person trying to alienate his assets with
a view to avoiding payment of tax; and
• e. income of a discontinued business.
• In these cases, income of a previous year may be
taxed as the income of the assessment year
immediately preceding the normal assessment year.

Income-tax is a tax levied on the
total income of the previous year
of every person.

The Seventh Schedule to Article 246
• Income-tax is the most significant direct tax.
• Entry 82 of the Union List i.e., List I in the Seventh
Schedule to Article 246 of the Constitution of India
has given the power to the Parliament to make
laws on taxes on income other than agricultural
income.
• Income-tax is a tax levied on the total income of
the previous year of every person.
• A person includes an individual, Hindu Undivided
Family (HUF), Association of Persons (AOP), Body of
Individuals (BOI), a firm, a company etc. The
income-tax law in India consists of the following
components:

Assessment Section
• This is the procedure by which the income of an
assessee is determined by the Assessing Officer.
• It may be by way of a normal assessment or by way
of reassessment of an income previously assessed.
• Types of income-tax assessment:
• Self-assessment under section 140A
• Summary assessment under section 143(1)
• Scrutiny assessment under section 143(3)
• Best judgment assessment under section 144
• Re-assessment or income escaping assessment
under section 147

Person
• The term “person” includes :
• a. an individual;
• b. a Hindu undivided family;
• c. a company;
• d. a firm;
• e. an association of persons or a body of individuals,
whether incorporated or not;
• f. a local authority; and
• g. every artificial juridical person not falling within any
of the preceding categories. e.g., an idol or deity.
• These are seven categories of persons chargeable to
tax under the Act.
• The aforesaid definition is inclusive and not exhaustive.

Person
Individual
HUF
Company
Firm
AOPs
Local
Authority
Artificial
Juridical
Person

Assessee
• “Assessee” 2(7)]: means a person by whom income-tax
or any other sum of money is payable under the Act. It
includes
• a) every person in respect of whom any proceedings
under this act have been taken for the assessment
• i. of his income or of the income of any other person in
respect of which he is assessable; or
• ii. of the loss sustained by him or by such other person,
or
• iii. of the amount of refund due to him or to such other
person;
• (b) every person who is deemed to be an assessee
under any provision of this Act.
• (c) every person who is deemed to be an assessee in
default under any provisions of this act.

Method of accounting
• Income chargeable under the head “Profits and
gains of business or profession” or “Income from
other sources” is to be computed in accordance
with the method of accounting regularly
employed by the assessee.
• In other cases, method of maintaining books of
account is irrelevant.

What are the
Types of accounting methods?

Method of accounting
• Mainly there are two types of accounting methods
- Mercantile system and cash system.
• Mercantile system - Under mercantile system,
income and expenditure are recorded at the
time of occurrence during the previous
year.
• Cash system - Under cash system of accounting,
revenue and expenses are recorded only
when received or paid.

Capital receipts vs
Revenue receipts

Capital receipts vs Revenue receipts
• Receipts are of two types – Capital receipts and
revenue receipts.
• Capital receipts are exempt from tax unless they
are expressly taxable. For instance, capital gains are
taxable under section 45 even if they are capital
receipts.
• On the other hand, revenue receipts are
taxable, unless they are expressly exempt from
tax. For instance, income exempt under section 10.

Income normally refers
to revenue receipts

• Income normally refers to revenue receipts. Capital
receipts are generally not included within the scope
of income in general parlance.
• However, the Income-tax Act, 1961 has specifically
included certain capital receipts within the definition
of income e.g., Capital gains i.e., gains on sale of a
capital assets like land.
• The Act contemplates a levy of tax on income and not
on capital and hence it is very essential to distinguish
between capital and revenue receipts.
• Capital receipts cannot be taxed, unless they fall
within the scope of the definition of “income” and
so the distinction between capital and revenue
receipts is material for tax purposes.

• Certain capital receipts which have been
specifically included in the definition of income
are compensation for modification or
termination of services, income by way of capital
gains etc.
• It is not possible to lay down any single test as
infallible or any single criterion as decisive, final
and universal in application to determine whether
a particular receipt is capital or revenue in nature.
Hence, the capital or revenue nature of the
receipt must be determined with reference to the
facts and circumstances of each case.

Fixed capital or Circulating capital

• A receipt referable to fixed capital would be a
capital receipt whereas a receipt referable to
circulating capital would be a revenue receipt. The
former is not taxable while the latter is taxable.
• Tangible and intangible assets which the owner
keeps in his possession for making profits are in the
nature of fixed capital.
• The circulating capital is one which is turned over
and yields income or loss in the process.

Income from transfer of capital asset or trading
asset

• Profits arising from the sale of a capital asset are
chargeable to tax as capital gains under section 45
whereas profits arising from the sale of a trading
asset being of revenue nature are taxable as
income from business under section 28 provided
that the sale is in the regular course of assessee’s
business or the transaction constitutes an
adventure in the nature of trade.

Capital Receipts vis-a-vis Revenue Receipts: Tests to
be applied

Tests to be applied
Transaction entered into the course of business

• a) Transaction entered into the course of business:
Profits arising from transactions which are entered
into in the course of the business regularly carried on
by the assessee, or are incidental to, or associated
with the business of the assessee would be revenue
receipts chargeable to tax.
• Example: A banker’s or financier’s dealings in foreign
exchange or sale of shares and securities, a
shipbroker’s purchases of ship in his own name, a
share broker’s purchase of shares on his own account
would constitute transactions entered and yielding
income in the ordinary course of their business.
Whereas building and land would constitute capital
assets in the hands of a trader in shares, the same
would constitute stock-in-trade in the hands of a
property dealer.

Profit arising from sale of shares and securities

• b) Profit arising from sale of shares and securities: In
the case of profit arising from the sale of shares and
securities the nature of the profit has to be
ascertained from the motive, intention or
purpose with which they were bought.
• If the shares were acquired as an investor or with a
view to acquiring a controlling interest or for
obtaining a managing or selling agency or a
directorship the profit or loss on their sale would be
of a capital nature; but if the shares were
acquired in the ordinary course of business
as a dealer in shares, it would constitute his
stock-in-trade.

• If the shares were acquired with speculative
motive the profit or loss (although of a revenue
nature) would have to be dealt with separately
from other business.

A single transaction - Can it constitute business?

• c) Even a single transaction may constitute a
business or an adventure in the nature of trade
even if it is outside the normal
course of the assessee’s business.
• Repetition of such transactions is not necessary.
• Thus, a bulk purchase followed by a bulk sale or a
series of retail sales or bulk sale followed by a
series of retail purchases would constitute an
adventure in the nature of trade and
consequently the income arising therefrom would
be taxable.

• Purchase of any article with no
intention to resell it, but resold
under changed circumstances
would be a transaction of a capital
nature and capital gains arise.

• d) Receipt of liquidated damages directly and
intimately linked with the procurement of a
capital asset, which lead to delay in coming into
existence of the profit-making apparatus, is a
capital receipt.

Compensation on termination of agency/service
contract

• e) Where an assessee receives compensation on
termination of the agency business being the
only source of income, the receipt is
a capital nature, but taxable under
section 28(ii)(c).

• However, where the assessee has a
number of agencies and one of
them is terminated and
compensation is received therefor,
the receipt would be of a revenue
nature since taking agencies and exploiting the
same for earning income is the ordinary course of
business. The loss of one agency would be made
good profit from another agency.

Capital Receipts specifically included under section
2(24)

• Capital Receipts specifically included under section
2(24). At present, following capital receipts have been
specifically included in the definition of "Income":
• (a) Income by way of capital gains [Section 45]
• (b) Any sum received under a Keyman insurance
policy including the sum allocated by way of bonus on
such policy will constitute income.
• (c) Compensation on termination of employment or
modification of terms of employment.
• (d) Compensation or other payment due to or
received by some specified person covered under
section 28(ii) of the Act

• (e) Any sum whether received or receivable in cash or
in kind under an agreement for not carrying out any
activity in relation to a business or not sharing any
know-how, patent, copyright, trade mark, license, etc.
[Section 28(va)]
• (f) Any consideration received for issue of shares as
exceeds the fair market value of the shares [section
56(2)(viib)].
• (g) Any sum of money received as advance, if such
sum is forfeited consequent to failure of negotiation
for transfer of a capital asset [section 56(2)(ix)].
• (h) Any sum of money or value of property received
without consideration or for inadequate
consideration by any person [section 56(2)(x)].

• The price of the sale of a factory
is ordinarily a capital receipt, but
it may be an income receipt in
the case of a person whose
business it is to buy and sell
factories.

• In a recent decision before the Mumbai tribunal, a
film actor had invested in a company, where the
other shareholders desired to sell their shares.
• The actor was not willing to sell his shares, and
refused to sign the mandate to be given to the
merchant bankers to sell the shares at the best
possible price.
• He, however, found later that his signature was
forged on a sale mandate given to the merchant
bankers, and filed a criminal complaint with the
economic offences wing of the police in respect of
such forgery.

• Subsequently, the matter was settled, with the
actor receiving a compensation for withdrawal of
the criminal complaint, only on withdrawal of the
complaint.
• He claimed that such compensation
was not taxable, as it was a capital
receipt. The tax authorities,
however, sought to tax such
compensation as his income.

• The tribunal confirmed that the receipt by the
actor was a capital receipt, being in the nature of
damages or compensation for settlement of the
dispute relating to forgery of his signature.
• Such a receipt did not fall within the definition of
income under the tax law and was, therefore, not
taxable at all.
• A capital receipt may be taxable as a capital gain.
However, for a capital gain to be taxable, there has
to be transfer of a capital asset.

• A capital asset is defined as property
of any kind, and, under the Transfer
of Property Act, the right to sue is
not property.
• Therefore, there being no
transfer of a capital asset on
giving up the right to sue, such
compensation is not chargeable
to tax at all.

Other kinds of personal receipts

• The principle of this decision would also apply to
various other kinds of personal receipts, such as
compensation received in respect of a consumer
complaint, compensation granted by the Motor
Accidents Claims Tribunal in respect of an
accident, compensation received from airlines for
deficiency in service or loss of baggage, etc.
• All such receipts would continue to be exempt
under our tax laws, as they would not be in the
nature of income at all.

Company
• Company [Section 2(17)]: For all purposes of the Act
the term ‘Company’, has a much wider connotation
than that under the Companies Act.
• Under the Act, the expression ‘Company’ means:
• (a) any Indian company as defined in section 2(26); or
• (b) any body corporate incorporated by or under the
laws of a country outside India, i.e., any foreign
company; or
• (c) any institution, association or body which is
assessable or was assessed as a company for any
assessment year under the Indian Income tax Act,
1922 or for any assessment year commencing on or
before 1.4.1970 under the present Act; or

Company
• (d) any institution, association or body, whether
incorporated or not and whether Indian or non-
Indian, which is declared by a general or special
order of the CBDT to be a company for such
assessment years as may be specified in the CBDT’s
order.

Company
Classes of Companies
Domestic Company [Section
2(22A)]

Company
• There are two types of companies:
• (1) Domestic Company [Section 2(22A)]: means an
INDIAN COMPANY or any other company which, in
respect of its income liable to income tax, has
made the prescribed arrangements for the
declaration and payment of dividends (including
dividends on preference shares) within India,
payable out of such income in accordance with
section 194.
• (2) Foreign Company [Section 2(23A)]: Foreign
company means a company which is not a
domestic company.

Arrangement for declaration and payment of
dividend - Meaning of

Declaration and payment of dividend - Meaning of
• Three requirements are to be satisfied
cumulatively by a company before it can be said
to be a company which has made the necessary
“arrangements for declaration and payment of
dividends in India”, within the meaning of section
194 :
• 1. The share register of the company for all
shareholders should be regularly maintained at its
principal place of business in India, in respect of any
assessment year, at least from April 1 of the
relevant assessment year.

Declaration and payment of dividend - Meaning of
• 2. The general meeting for passing of
accounts of the relevant previous
year and for declaring dividends in
respect thereof should be held only at
a place within India.
• 3. The dividends declared, if any,
should be payable only within India
to all shareholders.

Domestic Company
• A corporate is an entity that has a separate and
independent legal entity from its shareholders.
Domestic as well as foreign companies are liable to
pay corporate tax under the Income-tax Act.
• While a domestic company is taxed on its
universal income, a foreign company is
only taxed on the income earned within
India i.e. is being accrued or received in
India.

Domestic Company
• For the purpose of calculation of taxes under Income
tax act, the types of companies can be defined as
under:
• Domestic Company: Domestic company is one
which is registered under the Companies Act
of India and also includes the company registered in
the foreign countries having control and management
wholly situated in India. A domestic company includes
private as well as public companies.
• Foreign Company: Foreign company is one which is
NOT registered under the Companies Act of India and
has control & management located outside India.

Company
Indian company [Section 2(26)]

• Two conditions should be satisfied so that a
company can be regarded as an Indian company -
• the company should have been formed and registered under
the Companies Act, 1956 (2013) and
• the registered office or the principal office of the company
should be in India.
• The expression ‘Indian Company’ also includes the
following provided their registered or
principal office is in India:
• a corporation established by or under a Central,
State or Provincial Act (like Financial Corporation
or a State Road Transport Corporation);

• an institution or association or body which is declared
by the Board to be a company under section 2(17)(iv);
• a company formed and registered under any law
relating to companies which was or is in force in any
part of India [other than Jammu and Kashmir and
Union territories mentioned in (v) below];
• in the case of Jammu and Kashmir, a company formed
and registered under any law for the time being in
force in Jammu and Kashmir;
• in the case of any of the Union territories of Dadra and
Nagar Haveli, Goa, Daman and Diu, and Pondicherry, a
company formed and registered under any law for the
time being in force in that Union territory.

All Indian Companies are treated as ‘Domestic
Company’ under Income Tax but vice-versa is
not true.
Even a ‘Foreign Company’ which makes
prescribed arrangements for payment of
dividends in India shall also be treated as
Domestic Company.

Company
Foreign company [Section 2(23A)]

Income of a company
• Profits earned from the business
• Capital Gains
• Income from renting property
• Income from other sources like
dividend, interest etc.

DEDUCTION AT SOURCE AND ADVANCE PAYMENT
[SECTION 190]

TAX DEDUCTION AT SOURCE
• The total income of an assessee for the previous year
is taxable in the relevant assessment year. For
example, the total income for the P.Y. 2021-22 is
taxable in the A.Y. 2022-23. However, income-tax is
recovered from the assessee in the previous year
itself through –
• Tax deduction at source (TDS)
• Tax collection at source (TCS)
• Payment of advance tax
• Another mode of recovery of tax is from the
employer through tax paid by him under section
192(1A) on the non-monetary perquisites provided to
the employee.

• These taxes are deductible from the total tax due
from the assessee.
• The assessee, while filing his return of income, has to
pay self-assessment tax under section 140A, if tax is
due on the total income as per his return of income
after adjusting, TDS, TCS, relief of tax claimed under
section 89, relief of tax claimed under section 90, 90A
or 91 on account of tax paid in a country outside
India or specified territory outside India, tax credit
claimed to be set off in accordance with the
provisions of section 115JAA or section 115JD, any tax
or interest payable according to the provisions of
section 191(2) and advance tax.

• Explanation to this section provides that if any person,
including the principal officer of a company
– who is required to deduct tax at source; or
– an employer paying tax on non-monetary perquisites under
section 192(1A),
• does not deduct or after deducting fails to pay such tax, or
does not pay, Explanation to this section provides that if
any person, including the principal officer of a company
– who is required to deduct tax at source; or
• an employer paying tax on non-monetary perquisites under
section 192(1A), does not deduct or after deducting fails to
pay such tax, or does not pay, the whole or part of the
tax, then, such person shall be deemed to be an assessee-
in-default.
• However, if the assessee himself has paid the tax,
this provision will not apply.

DEDUCTION OF TAX AT SOURCE
Salary [Section 192]

• This section casts an obligation on every person
responsible for paying any income chargeable to
tax under the head ‘Salaries’ to deduct income-tax
on the amount payable.
• Such income-tax has to be calculated at the average rate
of income-tax computed on the basis of the rates in force
for the relevant financial year in which the payment is
made, on the estimated total income of the assessee.
Therefore, the liability to deduct tax at source in the
case of salaries arises only at the time of payment.
• Average rate of income-tax means the rate arrived at by
dividing the amount of income-tax calculated on the total
income, by such total income.

ITC Ltd v. CIT (2016) 384 ITR 14

• The issue under consideration before
the Supreme Court was whether
“tips” received by the hotel-company
from its customers and distributed
to the employees fell within the
meaning of “Salaries” to attract tax
deduction at source under section
192.

• The Supreme Court observed that in respect of
tips collected by the company from the
customers and distributed to the employees, the
person responsible for paying the employee was
not the employer at all, but a third person, namely
the customer.
• As income from tips would be chargeable in the
hands of the employees as “Income from Other
Sources”, on account of such tips being received
from customers and not from the employer,
section 192 would not get attracted at all.

• The Supreme Court further observed that there was
no vested right in the employee to claim any amount
of tip from his employer.
• Tips are purely voluntary amounts that may or may
not be paid by customers for services rendered to
them, and hence, would not fall within the meaning
and scope of section 15.
• Further, the amount of tips collected from the
customers by the employer and paid to the
employees has no reference to the contract of
employment at all.
• Tips were received by the employer in a fiduciary
capacity as trustee for payments that were received
from customers which they disbursed to their
employees for service rendered to the customer.

• There was, therefore, no reference to the contract
of employment when these amounts were paid
by the employer to the employee.
• Due to this reason the tips received by the
employees could not be regarded as
profits in lieu of salary in terms of
section 17(3).
• The contract of employment not being the
proximate cause for the receipt of tips by the
employee from a customer, such payments would
be outside the scope of sections 15 and 17.

Credit Card Payments including TIPS

• The payments of collected tips included and paid
by way of a credit card by a customer, would not
be payments made “by or on behalf of” an
employer.
• The contract of employment not being the
proximate cause for the receipt of tips by the
employee from a customer, such payments would
be outside the scope of sections 15 and 17.

Interest on securities [Section 193]

• Person responsible for deduction of tax at source
• This section casts responsibility on every person
responsible for paying to a resident any income by
way of interest on securities.
• Rate of TDS
• Such person is vested with the responsibility to
deduct income-tax at the rates in force from the
amount of interest payable.
• The rate at which tax is deductible under section
193 is 10%, both in the case of domestic
companies and resident non-corporate assesses.

• What is Section 194A?
• Section 194A covers the provision for TDS
deduction on interest other than securities.
• This means it covers interest earned on fixed
deposits, recurring deposits, unsecured loans and
advances, etc.
• Who is liable to deduct TDS under Section 194A?
• The person who is making payment of interest,
other than interest on securities, is liable to
deduct TDS if the conditions mentioned for
deduction in Section 194A are met.

• When TDS under Section 194A is to be deducted?
• The general rule is that the payer has to deduct TDS if
the amount of such interest paid or credited is more
than Rs.5000 in a financial year.
• But. in case of payer being a Bank, Cooperative
society, Post office – the TDS will be deducted only if
the interest is more than Rs.40,000 / 50,000 for
senior citizens in a year.
• What is the rate of TDS under Section 194A?
• Rate of TDS is 10% when the PAN is provided by the
payee. This rate was 7.5% for interest credited from
14th May, 2020 until 31st March, 2021 as a COVID-19
relief measure by the government.

• Which interest incomes are not covered under Section 194A?
• There are exceptions to this rule of TDS which means in
certain scenarios no TDS will be deducted from the interest
income:
• Interest earned on a saving bank account
• Interest on income tax refund
• Interest paid by partnership firm to partner is also not subject
to TDS
• Interest paid to any bank, LIC, UTI or any insurance company
• Interest paid by co-operative society to any member or any
other co-operative society.
• However, there was an amendment to this, which was if the
co-operative society’s last years turnover is more than Rs.50
crore, then TDS will be deducted if the interest paid is more
than Rs.50,000 to senior citizens and Rs.40,000 in the case of
others.

• Time of tax deduction at source
• Tax should be deducted at the time of credit of
such income to the account of the payee or at
the time of payment thereof in cash or by issue of
a cheque or draft or by any other mode,
whichever is earlier.

• Applicability of TDS under section 194
• The principal officer of a domestic company is
required to deduct tax on dividend distributed or paid
by it to its resident shareholders.
• The provisions of tax deduction at source under
section 194, therefore, applies only to dividend
distributed or paid to resident shareholders.
• The rate of deduction of tax in respect of such
dividend is 10%.
• No tax is to be deducted in case of a shareholder, being an
individual, where the amount of such dividend or aggregate
of dividend distributed or paid or likely to be distributed or
paid during the financial year by the company to such
shareholder does not exceed Rs.5,000.

• Applicability of TDS under section 194
• The principal officer of a domestic company is required to
deduct tax on dividend distributed or paid by it to its
resident shareholders.
• The provisions of tax deduction at source under section
194, therefore, applies only to dividend distributed or paid
to resident shareholders.
• The rate of deduction of tax in respect of such dividend is
10%. (this rate will be increased to 20% in the absence of
PAN submission by the recipient of dividend income.) (7.5%
with PAN as a COVID-19 relief measure 20% without PAN)
• No tax is to be deducted in case of a shareholder, being an
individual, where the amount of such dividend or aggregate of
dividend distributed or paid or likely to be distributed or paid
during the financial year by the company to such shareholder
does not exceed Rs.5,000.

Tax collection at source (TCS)

• Sale of certain goods
• Under section 206C(1), sellers of certain goods
are required to collect tax from the buyers at the
specified rates. The specified percentage for
collection of tax at source is as follows:

Nature of Goods Percentage
(a) Alcoholic liquor for human consumption 1%
(b) Tendu leaves 5%
(c) Timber obtained under a forest lease 2.5%
(d) Timber obtained by any mode other than (c) 2.5%
(e) Any other forest produce not being timber or tendu leaves 2.5%
(f) Scrap 1%
(g) Minerals, being coal or lignite or iron ore 1%

• Lease or a licence of parking lot, toll plaza or mine or
a quarry
• Section 206C(1C) provides for collection of tax by
every person who grants a lease or a licence or enters
into a contract or otherwise transfers any right or
interest in any -
• parking lot or
• toll plaza or
• a mine or a quarry
• to another person (other than a public sector
company) for the use of such parking lot or toll plaza
or mine or quarry for the purposes of business. The
tax shall be collected as provided, from the
licensee or lessee of any such licence, contract or
lease of the specified nature, at the rate of 2%.

Sale of motor vehicle of value exceeding Rs. 10 lakh

• Sale of motor vehicle of value exceeding Rs. 10 lakhs
• Section 206C(1F) provides that every person, being a
seller, who receives any amount as consideration for
sale of a motor vehicle of the value exceeding Rs.10
lakhs, shall collect tax from the buyer @1% of the sale
consideration.
• To bring high value transactions within the tax net,
section 206C has been amended to provide that the
seller shall collect the tax @ 1% from the purchaser
on sale of motor vehicle of the value exceeding Rs.
10 lakhs. This is brought to cover all transactions of
retail sales and accordingly, section 206C(1F) will not
apply on sale of motor vehicles by manufacturers to
dealers/distributors.

Overseas remittance or an overseas tour package

• Overseas remittance or an overseas tour package
• Section 206C(1G) provides for collection of tax by
every person,
– being an authorized dealer, who receives amount, under
the Liberalised Remittance Scheme of the RBI, for overseas
remittance from a buyer, being a person remitting such
amount out of India;
– being a seller of an overseas tour programme package,
who receives any amount from the buyer who purchases
the package at the rate 5% of such amount.
• Tax has to be collected at the time of debiting the
amount payable by the buyer or at the time of
receipt of such amount from the said buyer, by any
mode, whichever is earlier.

• Rate of TCS in case of collection by an authorized
dealer
S. No. Amount and purpose of remittance Rate of TCS
(i) (a) Where the amount is remitted for a purpose other
than purchase of overseas tour programme package;
and
(b) the amount or aggregate of the amounts being
remitted by a buyer is less than Rs. 7 lakhs in a
financial year
Nil
(No tax to be collected at
source)
(ii) (a) where the amount is remitted for a purpose
other than purchase of overseas tour programme
package; and
5% of the amt or agg. of
amts in excess of Rs. 7 lakh

(b) the amount or aggregate of the amounts in excess of Rs.
7 lakhs is remitted by the buyer in a financial year
(iii) (a) where the amount being remitted out is a loan obtained
from any financial institution as referred under section
80E, for the purpose of pursuing any education; and
(b) the amount or aggregate of the amounts in excess of
Rs.7 lakhs is remitted by the buyer in a financial year
0.5% of the amt or agg. of amts
in excess of Rs.7 lakh

• Sale of goods of value exceeding Rs.50 lakh
• As per section 206C(1H), tax is also required to be
collected by a seller, who receives any amount as
consideration for sale of goods of the value or
aggregate of such value exceeding Rs.50 lakhs in a
previous year [other than exported goods or goods
covered under sub-sections (1)/(1F)/(1G)].
• Tax is to be collected at source @0.1% u/s 206C(1H)
of the sale consideration exceeding Rs.50 lakhs, at the
time of receipt of consideration.
• Tax is, however, not required to be collected if the
buyer is liable to deduct tax at source under any
other provision of the Act on the goods purchased by
him from the seller and has deducted such tax.

TCS to be paid within prescribed time [Section
206C(3)]

• Any amount collected under this section shall be
paid within the prescribed time to the credit of
the Central Government or as the Board directs.
• Time limit for paying tax collected to the credit of
the Central Government [Rule 37CA]
• On or before 7 days from the end of the month in
which the collection is made.

ADVANCE PAYMENT OF TAX [SECTION 207 TO 219]

ADVANCE PAYMENT OF TAX
• An assessee has to estimate his current income
and pay advance tax thereon.
• Where an obligation to pay advance tax has
arisen, the assessee shall himself compute the
advance tax payable on his current income at the
rates in force in the financial year and deposit the
same.

ADVANCE PAYMENT OF TAX
Due date of instalment Amount payable
On or before 15th June Not less than 15% of advance tax liability
On or before 15th September Not less than 45% of advance tax liability, as reduced by the
amount, if any, paid in the earlier instalment.
On or before 15th December Not less than 75% of advance tax liability, as reduced by the
amount or amounts, if any, paid in the earlier instalment or
instalments.
On or before 15th March The whole amount of advance tax liability as reduced by the
amount or amounts, if any, paid in the earlier instalment or
instalments.

Education cess
• Cess is a form of tax and an additional levy by the
Central Government to raise funds for specific
purposes.
• Cess is imposed by the Government only when
there is a need to meet specific expenditure for
the Public welfare.
• Cess is to be discontinued once the objective is
met. If a person’s income comes under the non-
taxable slab of the Income Tax Taxation slab, they
are not required to pay the cess amount.

Education cess
• An Education cess is an additional levy that is applied on
the basic tax liability by the Government to generate
additional revenue to fund primary, secondary and higher
education.
• Corporates are required to pay this cess every year at rates
determined during the annual budgets.
• This money is used by the Government in improving the
existing educational infrastructure and in providing
increased access to quality education within the country.
• Educational cess is used to fund expenses such as midday
meals, opening of new Government schools & colleges,
educational loans for deserving candidates from low-
income background, salaries for staff and faculties working
in Government-funded educational institutions, for funding
specialized schemes etc.
• Health and Education Cess is levied at the rate of 4% on the
amount of income-tax plus surcharge.

Surcharge
• The amount of income-tax shall be increased by a
surcharge at the specified rate percentage of such
tax.
• Range of Income Rs.1 Crore to Rs.10 Crore
Surcharge Rate 7%
• Above Rs. 10 Crore Surcharge Rate 12%
• Foreign Company Range of Income Rs.1 Crore to
Rs.10 Crore Surcharge Rate 2%
• Above Rs.10 Crore Surcharge Rate 5%

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