Difference Between Trust, Society & Section 8 Company

Budget 2024 Latest Update on Corporate Tax Rate

Finance Minister Nirmala Sitharaman has proposed a reduction in the corporate tax rate for foreign companies, bringing it down from 40% to 35% in the 2024 budget.

Subdivisions of Direct Taxes

Direct taxes in India are categorized as follows:

1. Personal Income Tax
   
   • Paid by individual taxpayers based on their income.
   • Taxed according to predefined slabs at different rates.
2. Corporate Income Tax (CIT)
   
   • Paid by domestic and foreign companies on their income earned in India.
   • The CIT is levied at rates specified by the Income Tax Act, subject to annual revisions in the Union Budget.

What is Pvt. Ltd. Tax Rate?

The Pvt. Ltd. tax rate refers to the corporate income tax rate applicable to private limited companies in India. Under the Income Tax Act, 1961, domestic companies are generally taxed at 30% on their total taxable income, with variations based on turnover and certain conditions.

For companies with a turnover of less than ₹400 crore, the tax rates are as follows:

• Turnover up to ₹1 crore: Taxed at 25%.
• Turnover between ₹1 crore and ₹10 crore: Taxed at 25% on profits exceeding ₹25 lakh, plus an additional ₹25 lakh.
• Turnover above ₹10 crore: Taxed at 30%.

A 4% Health and Education Cess is levied on the total tax payable.

Companies may also opt for a reduced tax rate of 22% under Section 115BAA, provided they forgo certain exemptions and deductions. This option also includes the surcharge and 4% cess.

Additionally, new manufacturing companies incorporated after October 1, 2019, can avail a 15% tax rate (plus surcharge and cess) under Section 115BAB, subject to specific conditions.

Corporate Income Tax Rate for AY 2022-23

The Corporate Income Tax Rate for the Assessment Year 2022-23 varies based on the company's turnover and the applicability of surcharge and cess. Here's a table summarising the effective tax rates:

For Companies with Turnover Above ₹400 Crore

For Companies with Turnover Below ₹400 Crore

Key Budget 2022 Updates

1. No Changes in Tax Rates: The corporate tax structure remained unchanged.

2. Updated Surcharge Cap for Cooperatives: Surcharge capped at 7% for cooperatives with income between ₹1 crore and ₹10 crore.

3. Set-Off for Losses in Case of Start-ups: Extended incorporation date for start-ups to claim tax holiday under Section 80-IAC to 31 March 2023.

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Income Tax Rate for Domestic Manufacturing Companies for AY 2022-23

New manufacturing companies incorporated in India on or after October 1, 2019, and commencing production before March 31, 2023, can avail a concessional tax rate for private limited companies of 15% under Section 115BAB. However, this is subject to certain conditions, such as:

• The company should be engaged in the business of manufacture or production of any article or thing
• It should not be formed by splitting up or reconstruction of an existing business
• It should not use any plant or machinery previously used in India (with certain exceptions)
• The option to avail Section 115BAB must be exercised in the first year of operation

The applicable tax rates for domestic manufacturing companies for the assessment year 2022–23 are outlined below:

Education Cess for Companies

Private limited companies are required to pay an education cess at the rate of 4% on the total income tax, including the applicable surcharge. Below is a detailed explanation of the corporate income tax rates for FY 2021–22 or AY 2022–23:

For companies with a turnover of up to ₹400 crore:

• Income up to ₹1 crore is taxed at 25%.
• Income exceeding ₹1 crore but up to ₹10 crore is taxed at 25% plus ₹25,00,000. A 7% surcharge applies.
• Income above ₹10 crore is taxed at 25% plus ₹2,50,00,000, with a 12% surcharge.

For companies with a turnover exceeding ₹400 crore:

• Income up to ₹1 crore is taxed at 30%.
• Income exceeding ₹1 crore but up to ₹10 crore is taxed at 30% plus ₹3,00,000. A 7% surcharge applies.
• Income above ₹10 crore is taxed at 30% plus ₹3,00,00,000, with a 12% surcharge.

The education cess of 4% is uniformly applicable to the total tax payable, including any surcharge, regardless of turnover.

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Income Tax Rate for Foreign Company

Foreign companies, i.e., those incorporated outside India but earning income from Indian sources, are taxed at a basic rate of 40% (plus applicable surcharge and cess). The surcharge is levied at 2% on income between ₹1 crore to ₹10 crores and 5% on income exceeding ₹10 crores.

It is important to note that foreign companies can avail beneficial provisions under the Double Taxation Avoidance Agreement (DTAA) between India and their country of residence to minimize their tax liability.

Minimum Alternate Tax for Company

The Minimum Alternate Tax (MAT) provisions apply to companies whose tax payable under the normal provisions of the Income Tax Act is less than 15% of their book profits. In such cases, MAT is levied at 15% (plus applicable surcharge and cess) of the book profits.

However, MAT is not applicable to companies opting for the concessional tax regimes under Section 115BAA and Section 115BAB. Further, the credit for MAT paid is allowed to be carried forward for 15 years to be set off against future tax liabilities.

H2 - How to Calculate Total Income for a Company?

To arrive at the taxable income for a private limited company, the following steps are involved:

The Corporate Income Tax Rate is then applied to this taxable income to determine the tax liability of the private limited company.

Returns Applicable for Domestic Company for AY 2022-23

Private limited companies are required to file their income tax returns annually. For the assessment year 2022-23, the following returns are applicable:

1. ITR-6: This return is applicable for companies other than those claiming exemption under Section 11 (income from property held for charitable or religious purposes).

2. ITR-7: This return is applicable for companies claiming exemption under Section 11.

The due date for filing the return is 31st October of the assessment year. However, for companies required to furnish a report in Form No. 3CEB under Section 92E (relating to international transactions), the due date is 30th November of the assessment year. Companies must also ensure timely compliance with advance tax payments, TDS/TCS obligations, and tax audit requirements (if applicable) to avoid penal consequences.

Domestic Company Tax Slab for AY 2024-25

For the Assessment Year (AY) 2024–25, the income tax rates for domestic companies depend on their turnover or gross receipts during the financial year (FY) 2020–21, as well as the tax provisions they choose to apply under specific sections of the Income Tax Act. The applicable rates are as follows:

• If the total turnover or gross receipts during FY 2020–21 do not exceed ₹400 crores:
  
  • Tax rate: 25%
• If the company opts for Section 115BA:
  
  • Tax rate: 25%
• If the company opts for Section 115BAA:
  
  • Tax rate: 22%
• If the company opts for Section 115BAB:
  
  • Tax rate: 15%
• For any other domestic company:
  
  • Tax rate: 30%

These rates are exclusive of surcharge and cess, which will be applied additionally based on the applicable income slabs.

Frequently Asked Questions

What is an Asset Reconstruction Company?

An Asset Reconstruction Company (ARC) is a specialised financial institution that buys NPAs or stressed assets from banks and other lenders. By transferring these assets to ARCs, banks can focus on fresh lending and growth, while ARCs work to recover value from distressed accounts.

The importance of ARCs lies in their ability to:

• Clean up bank balance sheets.
• Strengthen financial stability.
• Contribute to economic growth by reviving stressed businesses.

In simple terms, ARCs buy bad loans from banks and try to recover as much as possible, either by reviving the business or liquidating its assets.

Background of Asset Reconstruction Companies in India

The Narasimham Committee first recommended ARCs in India in 1998, recognising the growing problem of NPAs in the banking system. This led to the enactment of the SARFAESI Act, 2002 (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act), which provided the legal foundation for ARCs.

Key points about ARCs in India:

• ARCs must register with the Reserve Bank of India (RBI) under Section 3 of the SARFAESI Act.
• They primarily acquire secured NPAs from banks and financial institutions.
• Their role includes asset reconstruction and securitisation, simplifying lender balance sheets.

The Evolution of ARCs

Over the years, ARCs have evolved as a vital solution to the rising NPAs that hamper the profitability and liquidity of banks. By purchasing and managing these stressed assets, ARCs not only reduce risk exposure for banks but also:

• Create investment opportunities in the distressed debt market.
• Provide a structured framework for debt recovery.
• Support economic stability by reviving potentially viable businesses.

How Does ARC Work?

The ARC business model typically involves the following steps:

1. Acquisition of Assets: ARCs purchase NPAs from banks, usually at a discount, either in cash or through the issuance of Security Receipts (SRs) to the banks.
   
   
2. Management of Assets: Once acquired, ARCs restructure, reschedule, or attempt to revive the borrower’s operations.
   
   
3. Recovery Mechanisms: Recovery can happen via settlement with borrowers, enforcing collateral, selling assets, or bringing in new investors.
   
   
4. Return on Investment: ARCs earn returns by successfully recovering dues and distributing proceeds to banks or SR holders.

Note: ARCs must maintain a minimum Net Owned Fund (NOF) of ₹100 crore to operate legally.

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The Core of the ARC Business Model

The ARC business model is built on three core pillars:

1. Acquisition: Buying NPAs at a discounted value from banks and financial institutions.
2. Restructuring: Developing strategies to revive stressed businesses, including debt restructuring or converting debt into equity.
3. Recovery: Enforcing security interests, liquidating assets, or monetising businesses to recover maximum value.

These pillars determine the sustainability and profitability of ARCs.

Process of Asset Reconstruction by ARCs

The process of asset reconstruction typically involves:

• Management takeover of the borrower’s business.
• Sale or lease of part or entire business.
• Debt rescheduling to provide repayment flexibility.
• Enforcing security by selling collateral.
• Possession of secured assets for liquidation.
• Conversion of debt into equity, enabling ARCs to hold a stake in the borrower company.

This multi-step process maximises recovery and ensures balance sheet clean-up for lenders.

What are the Services Provided by Asset Reconstruction Companies?

ARCs provide a wide range of services, including:

• Acquisition and management of distressed assets.
• Debt restructuring and settlement.
• Recovery and asset monetisation.
• Investor management through security receipts.
• Advisory services for stressed asset management.

While they operate under the SARFAESI Act, 2002 and RBI guidelines, ARCs must adapt to challenges like economic downturns, legal delays, and shifting regulations. Technology adoption is also becoming critical in driving recovery efficiency and risk management.

Recent Changes in ARC Regulations by RBI

The RBI has introduced significant regulatory reforms to strengthen governance in the ARC sector. Recent updates include:

• Stronger corporate governance with mandatory independent directors.
• Enhanced transparency through periodic performance disclosures.
• Revised investment norms for security receipts (SRs), encouraging higher skin-in-the-game from ARCs.

Challenges Faced by ARCs

While ARCs play a vital role, they face multiple hurdles:

• Legal and Judicial Delays: Court proceedings and enforcement under SARFAESI or IBC can be time-consuming.
• Regulatory Changes: Frequent shifts in RBI and government policies impact operations.
• Capital Requirements: ARCs often struggle with limited capital for large NPA acquisitions.
• Economic Uncertainty: Market downturns can reduce asset valuation and recovery potential.

Best Practices for Aspiring ARCs

For ARCs to thrive, the following best practices are essential:

• Build a robust risk management framework.
• Continuously innovate restructuring strategies.
• Leverage technology and analytics for recovery.
• Develop strong relationships with regulators and stakeholders.
• Invest in training and upskilling teams.

Frequently Asked Questions (FAQs)

Entrepreneur Vs Businessman: Know the Differences Now!

To clearly understand the difference between entrepreneur and business man, let's compare their key characteristics:

By examining these key differences, you can begin to understand the distinct mindsets and approaches that define an entrepreneur and a businessman. While entrepreneurs bring innovation and disruption to industries, businessmen excel at optimising existing models for profitability and longevity.

Who is a Businessman?

A businessman is an individual who operates within the confines of an existing market, focusing on profitability and stability. They typically follow proven business models, work with lower risks, and aim for steady growth rather than groundbreaking innovation. Businessmen are skilled at identifying opportunities within established industries and leveraging their expertise to maximise returns.

Qualities of a Businessman

To succeed as a businessman, one must possess a unique set of qualities that enable them to navigate the challenges of running a business effectively. Some of the essential qualities of a successful businessman include:

• Strong decision-making skills to navigate complex business situations
  
• Effective risk management to minimise potential losses
  
• Excellent leadership abilities to guide teams towards common goals
  
• Financial acumen to optimise budgets and maximise profits
  
• Adaptability to changing market conditions and consumer demands
  

A businessman with these qualities can effectively steer their organisation towards profitability, make sound financial decisions, and lead their team to achieve targets and milestones.

Types of Businessman

Businessmen can be categorised based on their business model and operations. Some common types of businessmen include:

• Small Business Owners: These individuals own and operate small-scale businesses, often in local markets or niche industries.
  
• Traders: Businessmen who engage in buying and selling goods or services for profit, often in wholesale or retail markets.
  
• Manufacturers: Those who own and manage manufacturing facilities, producing goods for sale to other businesses or consumers.
  
• Franchise Owners: Businessmen who operate a business under a franchising agreement, following established business models and brand guidelines.
  
• Corporate Businessmen: High-level executives or managers within large corporations, responsible for overseeing departments or entire business units.
  

Each type of businessman contributes to the economy in their own way, whether by providing employment opportunities, generating revenue, or contributing to the overall growth of their industry.

Who is an Entrepreneur?

An entrepreneur is an individual who identifies a problem or opportunity, takes on the risk of starting a new venture to address it, and comes up with innovative ideas to disrupt the market. Entrepreneurs are driven by a passion for solving problems and creating value, often venturing into uncharted territories to bring their vision to life.

Entrepreneurs focus on building scalable businesses from the ground up, constantly seeking new ways to innovate and improve upon existing solutions. They are not afraid to challenge the status quo and take bold risks in pursuit of their goals. Some famous examples of entrepreneurs include Bill Gates (Microsoft), Steve Jobs (Apple), Elon Musk (Tesla, SpaceX), and Jeff Bezos (Amazon), all of whom founded highly innovative companies that revolutionised entire industries.

Qualities of an Entrepreneur

Successful entrepreneurs possess a distinct set of qualities that enable them to navigate the challenges of starting and growing a business. Some of the key qualities of an entrepreneur include:

• Innovative thinking to come up with original, impactful ideas
  
• Comfort with taking risks to bring unproven concepts to market
  
• Resilience to overcome the many challenges of starting a business
  
• Strong leadership skills to build and inspire talented teams
  
• Adaptability to pivot business strategies as needed
  
• Creative problem-solving abilities to navigate uncharted territory
  

These qualities help entrepreneurs blaze new trails and create value in the world.

Entrepreneurs with these qualities are well-equipped to identify market gaps, develop unique solutions, and persevere through the ups and downs of building a successful venture.

Types of Entrepreneur

Entrepreneurs can be classified based on their approach, industry, and level of innovation. Some common types of entrepreneurs include:

• Small Business Entrepreneurs: These individuals start and run small businesses, often serving local markets or niche industries.
  
• Scalable Startup Entrepreneurs: Entrepreneurs who focus on building high-growth, innovative companies with the potential to scale rapidly and disrupt markets.
  
• Social Entrepreneurs: Those who start ventures with the primary goal of creating social or environmental impact, often addressing pressing societal issues.
  
• Corporate Entrepreneurs (Intrapreneurs): Entrepreneurs who operate within large corporations, driving innovation and new business development from within.
  
• Innovative Entrepreneurs: Entrepreneurs who consistently push the boundaries of their industries, introducing groundbreaking products, services, or business models.
  

Each type of entrepreneur brings a unique perspective and set of skills to the table, contributing to the overall diversity and dynamism of the business world.

Similarities Between Entrepreneurs and Businessmen

Despite their differences, entrepreneurs and businessmen share some common traits and characteristics that contribute to their success. These similarities include:

1. Leadership skills: Both roles require the ability to lead and motivate teams, set goals, and make critical decisions.
   
2. Goal orientation: Entrepreneurs and businessmen are driven by their goals, whether it's building a successful startup or growing an established company.
   
3. Financial management: Both must be skilled at managing finances, creating budgets, and making sound financial decisions.
   
4. Market understanding: A deep understanding of their target market, customer needs, and industry trends is essential for both entrepreneurs and businessmen.
   

While their approaches may differ, both entrepreneurs and businessmen play crucial roles in driving economic growth, creating jobs, and generating value for their stakeholders. Recognising these shared traits can help aspiring entrepreneurs and businessmen focus on developing the skills and qualities that are most likely to contribute to their success, regardless of the path they choose.

Final Thoughts

Choosing between the path of an entrepreneur or a businessman ultimately depends on your individual goals, risk appetite, and preferred work style. If you thrive on stability, have strong management skills, and prefer working with established business models, the path of a businessman may be right for you. On the other hand, if you're a passionate risk-taker with a drive to solve problems and disrupt industries with innovative ideas, entrepreneurship could be your calling.

Regardless of the path you choose, understanding the difference between a businessman and an entrepreneur is crucial in aligning your skills and passions with your professional goals. By recognising the key differences between entrepreneur and business man, you can make an informed decision about which route best suits your unique strengths and aspirations.

Ultimately, both entrepreneurs and businessmen contribute significantly to the economy, and society needs each type to thrive. The key is to align your career path with your unique strengths, passions, and goals. Whether you choose to be an innovator or an optimiser, the business world offers endless opportunities for growth and success.

Frequently Asked Questions