Dormant Company Meaning: Section 455 of Companies Act 2013

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

DIR-3 KYC

Form DIR-3 KYC is an important annual compliance step that every person holding a Director Identification Number (DIN) must complete. Whether you're currently a director in a company or not, if you have a DIN, you must file this form each year.

The Ministry of Corporate Affairs (MCA) mandates filing this form every year to ensure that directors’ records are current and accurate.

Failing to file this form within the deadline will lead to the DIN being marked as “Deactivated due to non-filing of DIR-3 KYC,” restricting a director from participating in company matters until compliance is restored.

Purpose of the Form DIR-3 KYC

The purpose of DIR-3 KYC is to keep director information in sync with official records and maintain a transparent and compliant corporate ecosystem. It ensures that directors update their information annually with the MCA.

Who Has to File e-Form DIR-3 KYC?

Every individual who holds a DIN, regardless of whether they are currently serving as a director, must file the e-Form DIR-3 KYC with the MCA each year. This includes:

• Directors of private and public companies
  
• Individuals whose DIN is active or approved but inactive
  

There are no exemptions, so it's essential to comply regardless of your status or position.

Applicable Fee For Form DIR-3 KYC

• Filing Fee: Free if filed on or before September 30
  
• Penalty: ₹5,000 if filed after the due date, and the DIN will be deactivated until payment is made
  

Due Date for Filing DIR 3 KYC Form

The KYC form must be submitted by September 30 every year. There are two formats:

• DIR-3 KYC: For first-time filers or those updating details
  
• DIR-3 KYC Web: For those who have filed previously and have no changes
  

Penalties for Late Filing of the Form DIR-3 KYC

Missing the September 30 deadline results in:

• DIN Deactivation
  
• A penalty of ₹5,000 to reactivate the DIN
  

Documents Required to File DIR-3 KYC Form

Directors need the following documents:

• Self-attested PAN card
  
• Self-attested Aadhaar card
  
• Passport (if available)
  
• Valid mobile number and email ID
  
• Digital Signature Certificate (DSC)
  

Key Verification Steps for Filing the Form DIR-3 KYC

Filing the DIR-3 KYC form may seem straightforward, but following the steps carefully is important to ensure successful submission and avoid any delays or penalties. Here's a detailed breakdown of the process:

Step 1: Collect Personal Documents

Before starting the filing process, gather all the required documents.

Step 2: Ensure Accuracy of Details

Ensure that all the information you enter in the form matches the details mentioned in your official documents (especially PAN and Aadhaar). Any mismatch can lead to rejection or delays in processing.

Step 3: Verify with OTP

Once you enter your email ID and mobile number, an OTP (One-Time Password) will be sent for verification. This is an essential part of the KYC process and ensures that your contact information is valid and belongs to you.

Step 4: Sign with a Digital Signature Certificate (DSC)

The DIR-3 KYC form must be digitally signed by the director using a valid DSC (Class 2 or Class 3). This step certifies the authenticity of the information being submitted.

Step 5: Get it attested by a Professional

After signing the form with your DSC, the form must be certified by a practising professional like a Chartered Accountant (CA) or a Company Secretary (CS). The professional must verify the form’s contents and affix their own digital signature. Their membership number, certificate of practice number, and contact details must also be provided.

Step 6: Upload the Form to the MCA Portal

Once the form is digitally signed and attested, upload it on the Ministry of Corporate Affairs (MCA) portal.

Process After Submitting the DIR-3 KYC Form

Once the DIR-3 KYC form is successfully submitted on the MCA portal, the following steps take place:

• SRN Generation: An SRN (Service Request Number) is instantly generated upon submission. This SRN is important for tracking your application and for any future correspondence with the Ministry of Corporate Affairs (MCA).
  
• Email Acknowledgement: The director receives an acknowledgment email at their registered email address. This email confirms the receipt and approval of the DIR-3 KYC form and usually includes a receipt of the submission. It is advisable to save this receipt for your records.
  
• MCA Verification: The MCA system verifies the details provided in the form. If all information is correct, the status of the Director Identification Number (DIN) is updated to reflect successful KYC completion.
  
• Error Handling: If there are any errors or discrepancies in the submitted information, the form may be rejected, and the director will be required to correct the errors and resubmit the form.
  
• Late Filing Consequences: If the DIR-3 KYC form is filed after the due date (generally 30th September), a late fee of Rs. 5,000 is applicable. In such cases, the DIN remains deactivated due to non-filing until the form is submitted and the late fee is paid.
  

Key Points to Remember:

• Save the SRN and acknowledgment receipt for future reference.
  
• Check your email for approval or any further instructions from MCA.
  
• If filed late, ensure payment of the prescribed penalty to reactivate your DIN.
  

Conclusion

Filing your DIR-3 KYC might feel like just another task, but it plays a big role in keeping things smooth and compliant for you as a company director. It helps the government maintain updated records, ensures transparency, and keeps your Director Identification Number (DIN) active.

If you miss the September 30 deadline, your DIN can be deactivated, which means you won’t be able to sign documents or carry out official duties as a director. So, take a few minutes each year to check your details, fill out the form, and stay compliant.

Frequently Asked Questions

Why are Government Schemes important for Startups?

Government support plays a pivotal role in nurturing and sustaining startups for several reasons:

1. Access to Funding

• Government-backed schemes and initiatives provide access to funding and financial assistance, which is crucial for startups, especially in their early stages of development.
• These funds can help cover initial capital expenditures, research and development costs, and other operational expenses.

2. Regulatory Support

• Governments often create favorable regulatory environments and offer incentives such as tax breaks, exemptions, and subsidies to encourage entrepreneurship and innovation.

3. Infrastructure Development

• Government investment in infrastructure development, including technology parks, startup incubators, and innovation hubs, provides startups with access to essential resources, facilities, and networking opportunities.

4. Skill Development and Training

• Government-sponsored programs and initiatives focus on skill development, entrepreneurship training, and capacity-building for aspiring entrepreneurs. By imparting essential business skills, knowledge, and mentorship, governments empower startups to navigate challenges effectively.

5. Market Access and Promotion

• Government initiatives aim to facilitate market access for startups by promoting domestic and international trade, fostering industry partnerships, and facilitating market linkages through trade fairs, exhibitions, and business delegations.

6. Innovation and Research Support

• Governments incentivize research and innovation through grants, subsidies, and funding programs aimed at supporting startups engaged in technology development, product innovation, and scientific research.

7. Job Creation and Economic Growth

• Government support for startups leads to the creation of new job opportunities, stimulates economic activity, and contributes to GDP growth by fostering entrepreneurship, innovation, and productivity.

List of Government Schemes for Startups in India

To conclude, the government of India has been actively participating in boosting the startup ecosystem, and numerous initiatives are launched each financial year to contribute to the growth of MSMEs. For detailed features, eligibility, process and benefits, visit the respective page for schemes and if you feel any of these schemes can give wings to your startup dreams, you can go through the given details and apply.