Company Tax Liability AY 2025-26

Calculation of Tax Liability for Companies (Assessment Year 2025-26)

• Tax liability computation involves calculation of total income.
• Total income is calculated by determining gross total income first.
• Gross Total Income is the sum of income from 5 heads, incorporating income clubbing and subtracting set off losses.
• Total income will then be calculated after subtracting deductions from gross total income.
• Domestic companies generally face a 30% tax rate.
• Long-term capital gains before July 23, 2024, are taxed at 20%.
• Short-term capital gains under Section 111A before July 23, 2024, are taxed at 15%.
• Deductions under 80C to 80U are permissible from total income, excluding those from specific capital gains.

Tax Calculation Example

• Income from house property is ₹10 lakh.
• Business income is ₹60 lakh.
• Long-term capital gains before July 23, 2024 are ₹45 lakh.
• Short-term capital gains u/s 111A before July 23, 2024 are ₹15 lakh.
• Deductions under 80C to 80U total ₹2 lakh.
• Total income is calculated as: ₹10 lakh + ₹60 lakh + ₹45 lakh + ₹15 lakh - ₹2 lakh = ₹1.28 crore.
• Tax is calculated separately for special income and normal income.
• The 20% tax on ₹45 lakh long-term capital gains amounts to ₹9 lakh.
• The 15% tax on ₹15 lakh short-term capital gains (Section 111A) equals ₹2.25 lakh.
• The 30% tax on remaining income (₹68 lakh) is ₹20.40 lakh.
• Total tax is ₹31.65 lakh.
• A surcharge of 7% is applied due to income exceeding ₹1 crore, which equals ₹2.21 lakh.
• A 4% health and education cess is also applied.

Comprehensive Tax Computation for Partnership Firms and Individuals

• Tax liability computation starts with determining total income.
• Determining total income involves calculating gross total income.
• Gross total income calculation can include income from salary, house property, business or profession, capital gains, and other sources.
• Deductions under sections 80C to 80U are subtracted from the gross total income to arrive at the taxable total income.
• Partnership firms are taxed at a flat rate of 30% on total income.
• Individual tax calculations involve progressive tax slab rates and consideration of special income rates like capital gains and lottery winnings.

Key Considerations

• Capital gains before July 23, 2024 are taxed at 20%.
• Short-term capital gains under Section 111A before July 23, 2024 are taxed at 15%.
• Lottery income is taxed at 30%.
• Normal income is taxed as per applicable slab rates for individuals, or 30% for partnership firms.
• Surcharge and health & education cess apply to partnership firms based on total income levels.
• Individuals can claim deductions and exemptions to reduce taxable income and avail rebate if total income up to 5 Lakh.

Comprehensive Tax Calculation Example

• Income from house property: ₹12 lakh
• Income from business or profession: ₹1.10 lakh
• Long-term capital gains (before July 23, 2024): ₹2.30 lakh
• Short-term capital gains: ₹2.90 lakh
• Short-term capital gains u/s 111A (before July 23, 2024): ₹2 lakh
• Lottery income: ₹2 lakh
• Other income: ₹61,000
• Deductions (80C to 80U): ₹2 lakh
• Taxable income for the firm as ₹29.61 lakh
• 30% tax on ₹23.31 Lakh other income = ₹6,99,300
• 20% tax on Long Term Capital Gains: ₹46,000
• 15% tax on Short Term Capital Gains: ₹30,000
• 30% tax on Lottery Income: ₹60,000
• Total tax is ₹8,35,300 plus 4% cess.

Tax Planning and Optimization

• Utilizing all available deductions and exemptions can significantly reduce tax liability.
• Understanding the differential tax rates on various types of income aids in strategic tax planning.
• Correctly applying surcharge and cess based on income levels is essential for accurate tax calculation.
• Partnership firms do not have progressive tax slab rates.

Tax Computation with Consideration of Age and Resident Status

• Tax liability calculation for individuals is influenced by age and resident status.
• Key factors include resident status, age, and exemptions.
• Exemptions include ₹2.5, ₹3, and ₹5 Lakh based on age.

Scenario 1: Resident Individual (Age 68)

• Total Income: ₹8,69,000.
• The unutilized basic exemption limit can be used for capital gains tax calculation.
• Key steps:
  • Lottery winnings will be taxed at a rate of 30%.
  • The exemption limit will be considered for long term capital gains.
  • Section 111A benefits will then be calculated.

Scenario 2: Resident Individual (Age 81 years)

• If total income does not exceed taxable income, the tax is nil.

Scenario 3: Non-Resident Individual

• Resident status is considered before calculating tax; in some cases, deductions do not apply to non-resident individuals, leading to increased taxable income.

Tax Calculation: Income and Rebate Example

• If ₹10,000 lakh of exemption limit is used and total income is ₹10,000, taxable income after rebate is ₹0.
• A 20% tax on ₹10,000 would be ₹2,000.
• A rebate of ₹2,000 results in a nil tax liability, marking the end of the calculation.
• Take notes of balance exemption, rebate, etc.

Tax for Non-Residents (NR)

• The balance exemption limit cannot be used for Non-Residents.
• Rebates are not applicable for Non-Residents.

Tax Calculation Examples for Non-Residents

• On a casual income of ₹3.5 lakh, apply a 30% tax rate, plus 4% cess, with no rebate.
• For ₹4.4 lakh income, tax at 15% plus cess, with no rebate.
• Long-term gains under section 112, such as ₹2.8 lakh, attract a 20% tax rate, plus 4% cess; no rebate is allowed.
• For casual income, irrespective of age, a 30% tax plus 4% cess apply, with no rebates.
• A 64-year-old Non-Resident's short-term capital gain of ₹44,000 is taxed at 15% plus cess.

Clarifications on Tax Rules

• The rules regarding balance exemption and rebate apply only to Resident Indians, not Non-Residents.
• Non-residents do not get basic exemption limit, so tax applies on each and every income.

Homework Assignment

• Complete questions 22 and 12 from the question bank (page 1.16 and page 1.13).

Question 30: Income Tax Calculation

• Given ₹6 lakh salary income and ₹2 lakh casual income, deductions of ₹1.8 lakh are available only against the normal income.
• Casual income is fully taxable at 30%.
• For the remaining income (₹6 lakh - ₹1.8 lakh = ₹4.2 lakh), apply the applicable slab rates.
• ₹2 lakh casual income has tax of ₹60,000.
• ₹4.2 lakh income remains after deducting ₹1.8 lakh, out of which ₹2.5 lakh is exempt; the balance ₹1.7 lakh is taxed at 5% = ₹8,500.
• No rebate is available if total income exceeds ₹5 lakh (₹6 lakh salary + ₹2 lakh casual).
• The total tax before cess is ₹68,500 (₹60,000 + ₹8,500).
• Adding 4% cess to ₹68,500 results in a final tax of ₹71,240.

Scenario: High Deductions

• If total income is ₹8 lakh (₹6 lakh salary and ₹2 lakh casual), with deductions also at ₹8 lakh, then the deductions can only be applied to ₹6 lakh, as deductions are applicable on salary income and not casual income.
• The entire ₹2 lakh casual income is taxable at 30%, amounting to ₹60,000.
• A rebate is applicable since total income is ₹2 lakh, which is less than ₹5 lakh.
• After deducting the rebate of ₹12,500, the taxable amount becomes ₹47,500.
• Adding 4% cess results in a final tax liability.
• Casual income cannot be set off to use exemption limits.

Key Points to Remember

• Deductions are applicable on salary income only.
• There is no carry forward of balance income, the ₹6 lakh cap will apply.
• Exemption limits may not be used for casual income.

Additional Information for Students

• Students should do all set questions multiple times
• A chart book for income tax will be provided.
• A question bank for GST will be provided in the said link.
• Revise Residential Status chapter