This article discusses India’s corporate tax structure, tax rates, important deadlines, and business compliance requirements that you should be aware of to help you get a clearer picture of registering an Indian company

As tax is such a large percentage of any government’s revenue, India’s taxation system has been divided into two parts:

• Direct tax – This tax is imposed upon a person on his income or profits rather than on transaction tax. The burden to pay direct tax cannot be shifted. Ex. Income Tax.
• Indirect tax – This Tax is imposed upon transactions rather than on income or profits. The burden is always shifted from one person to another in the case of indirect tax. Ex. Goods and Service Tax (GST) and Customs Duty.

The Indian government collects taxes on its residents/entities to create revenue for projects designed to improve the country’s economy and raise its citizens’ living standards.

Hence, every person, be it an individual, a corporate, or a HUF, must get themselves registered with the tax authority by applying for a Permanent Account Number (PAN) (which is unique for every person), pay taxes, and file returns.

What Is The Corporate Tax Structure In India?

If you run a business in India, you must note that they can be classified into Domestic and Foreign Companies. Under the Income Tax Act, both domestic and Foreign companies must pay corporate tax.

They are explained in detail below:

• Domestic Company – They are registered under the Companies Act of India and include the company registered in another country but have control and management based entirely on India. It consists of both private and public companies. If you are a domestic company, then you will be taxed on your universal income.
• Foreign Company – Foreign companies, on the other hand, are not registered under the Indian Companies Act and have control and management outside of India. If you are a foreign corporation, then you are only taxed on income earned in India, generated or received in India.

What Is Considered As Income For Your Organisation?

There are four basic categories of revenue that your organisation can generate:

• Profits earned from running a business
• Capital gains
• Rental income
• Income from other sources like dividend, interest, royalties, etc

What Are The Corporate Tax Rates In India?

Here’s a detailed explanation to make you understand the corporate tax rates that apply to your business:

* Section 115BAA: Tax on the income of certain domestic corporations whose total income is estimated without specific deductions, set-off, or carry-forward of previous losses or additional depreciation.

** Section 115BAB: Income tax on new manufacturing domestic companies established or registered on or after October 1, 2019, and started manufacturing operations before March 31, 2023.

Domestic companies that pay tax under Sections 115BAA and 115BAB are exempt from the Minimum Alternate Tax(MAT).

The Minimum Alternate Tax is a tax imposed on profits as shown in books of accounts prepared in accordance with the law.

The surcharge is applied to the amount of income tax owed, not to the amount of income earned. In addition to income tax and surcharges, you will be charged a 4% health and education cess, regardless of your company’s status.

What Is The Tax Filing Timeframe?

The Financial Year (F.Y.) in India is from April to March. Your books of accounts and returns have to be prepared accordingly. It is also known as the previous year under the Income Tax Act.

Corporates with a presence in India will have to file four things with the income tax authorities as the financial year approaches:

• Tax Audit Report u/s 44AB (Depending on Turnover Limits).
• Transfer Pricing Report u/s 92E (Based on Transactions with Associated Enterprises).
• Income Tax Return (Mandatory).
• TDS compliances (Mandatory).

Here’s the Tax filing timeframe that you need to be aware of:

(As a result of Covid-19, the above-mentioned deadlines have been extended for FY 2020-2021.)

Note: Tax audits are required of entities with a total revenue or gross receipts of more than Rs. 1 crore.

The threshold limit for corporations whose cash transactions are less than or equal to 5% of total income and total expense has been increased to Rs. 10 crores (based on the Union Budget of 2021).

What Are The Business Compliance Requirements In India?

Let’s go over the most important compliance requirements to be aware of while forming a corporation in India.

To conduct business in India, companies must apply for three things:

• Permanent Account Number (PAN)
• Tax Deduction Account Number
• GST registration number

Note: If your corporation is newly formed, the Ministry of Corporate Affairs will issue you a PAN and TAN number on the day of incorporation.

Conclusion

India has one of the lowest corporation tax rates in the world. The procedure of incorporating and obtaining basic registration numbers in the area of Direct and Indirect Taxes has grown simpler and faster as a result of the introduction and constant up-gradation of technology, allowing firms to be set up quickly.

In addition, all compliances are now done entirely online. The necessity to visit departments has been virtually eliminated, resulting in a business-friendly environment.

Why Choose Incorp?

The Indian taxation system is a complicated system of laws, rules, and regulations that requires a thorough understanding of tax-related issues at the district, state, and central levels.

We at Incorp realise how complex corporate and regulatory tax compliances can be. We are happy to assist you in navigating them.

That’s where our expert team of tax professionals, with expertise in Indian corporate taxation laws, can help you. When you partner with us, you will have access to the following services:

• Direct Tax Services
• Indirect Tax Services
• Transfer Pricing
• International Tax
• M&A Tax
• Tax Controversy & Dispute Resolution

Companies spend a lot on local and inter-state traveling by hiring motor vehicles to attend business meetings, conferences, etc. Further, manufacturing companies are generally located at remote locations and provide transport facilities to their employees. In this article, we discuss the GST Implications on Renting of Motor Vehicles for the Transportation of Employees.

Services provided by  Buses, Mini Buses, Van, Cabs, Auto-rickshaw are chargeable to GST. However, there is confusion among industries concerning:

• Input Tax Credit (ITC) of GST, if it can be availed or not.
• When the supplier doesn’t charge GST on its invoice:
  • whether the recipient has to charge GST on a Reverse charge basis.
  • Further, do they have a right to claim to ITC  on the same?

Firstly, let us understand the key concepts.

What Is Forward Charge Mechanism?

• In GST, the seller collects GST from Buyer and remits it to the government.
• The seller remits the amount after deducting GST paid by him on his own purchases (subject to other provisions).
• This is known as forward charge, wherein the seller pays the GST amount to govt.

What Is Reverse Charge Mechanism (RCM)?

• In some cases, GST on a particular transaction is paid by Buyer himself to the government.
• In such a case, the seller will raise the invoice without levying GST and Buyer will pay GST on the same directly to the government.
• This is known as Reverse charge mechanism (RCM).

The service, “Renting of Motor Vehicle, designed to carry passengers,” falls under the Forward charge mechanism and Reverse charge mechanism.

Now let us take a look at the following situations:

• When should the supplier of motor vehicles charge GST under forward charge?
• When is the recipient of service liable to charge GST on an RCM basis?

Case 1: Services of Renting Motor Vehicle covered under RCM:

RCM is applicable in the following case:

Service category:

• Services are provided by renting any motor vehicle designed to carry passengers.
• Here, the cost of fuel is included in the consideration charged from the service recipient.

Supplier of Service:

• Any person.
• An exception to the above is a body corporate who supplies the service to a body corporate. Also, he does not issue an invoice charging GST at 12% to the service recipient.

Service Recipient:

• A body corporate located in the taxable territory.

Here is an example to help us understand RCM better.

• Tata Steel Ltd (Body Corporate) enter into a contract with Heena Tours & Travels (Proprietorship concern).
• They take the services of renting motor vehicles for its employees. Here, GST at 12% is not charged by Heena tours and travels.
• Then, Tata Steel Ltd will be liable to pay GST @ 5% on a reverse charge basis.

Case 2: Services of Renting Motor Vehicle covered under Forward Charge Mechanism:

Apart from the above cases covered in RCM, all other cases shall be covered under forward charge.

It implies that the supplier should charge GST under forward charge.

Further, even if the service supplier is not registered under GST law and doesn’t charge GST on its invoice, then the recipient of service will not be liable to pay GST on RCM basis in the following cases:

• where Cost of fuel is not included in consideration
• where Service Provider is a Body Corporate & registered under GST.
• where Service Recipient is Other than Body Corporate
• where Service Recipient is Body Corporate located in Non-taxable territory.

Now we move on to discuss the availability of Input tax credit (ITC).

 ITC will be available to the recipient of service subject to certain conditions.

With the introduction of new provisions with effect from 01/02/2019, ITC on renting, leasing, and hiring motor vehicles has been disallowed only for vehicles having capacity up to 13 seats (including driver) subject to 2 exceptions.

These exceptions are as follows:

• Case 1:-
  • The Vehicle has an approved seating capacity of more than 13 persons (including driver),
  • The service of leasing, renting or hiring is used for business
  • The service provider furnishes invoice as prescribed,
  • And all other conditions are complied with as per law.
• Case 2:-
  • The Vehicle has an approved seating capacity of upto 13 persons (including driver),
  • An employer must provide the same to its employee under any law for the time being in force,
  • The service of leasing, renting, or hiring is used for business.
  • The service provider furnishes invoice as per Section 31 and Rule 46,
  • And all other conditions are complied with as per law.

Why Choose Incorp?

We provide comprehensive advice and assistance on various indirect tax levies including Goods and Services Tax (GST) and Customs Duty. Our experts can help you with the following:

• Assisting entities to charge GST under forward charge or reverse charge correctly.
• Assisting entities to avail correct Input Tax Credit (ITC) in regular return filing
• Assist in solving any problems faced by the entities during assessment proceedings

Frequently Asked Questions

These days various innovative business models are coming up under E-commerce. As a result, you can find many practical issues regarding the GST provisions and laws. There are provisions made under GST law to suit the requirements of the e-commerce industry. In this article, we discuss the impact of GST on E-commerce on different business models.

Firstly, Let Us Try To Understand The Key Terms:

Accordingly, you need to understand the different business models of E-Commerce companies. This, in turn, will help you understand the relevant GST implications.

Implications Of GST On E-Commerce Under Different Business Models:

Information websites

• Today, you can find a lot of information freely available on various websites.
• Readers could use this information to promote or understand the technical aspects of certain goods/ services. It could also be used to generate some interest in a particular topic.
• However, you must note that these websites do not supply goods/ services over an electronic network. Hence, these websites cannot be considered as e-commerce operators.
• Further, if a consumer purchases such goods/ services offline through the information of goods or services displayed online, it shall not be considered as supply over E-Commerce.
• For example, Ms. T is selling a laptop and displays the specifications of the products online. Ms. M, a customer, buys the laptop offline after looking at these specifications online on the portal. This will not be considered as a supply over E-Commerce.

A personal website

• It is an E-Commerce portal that buys the goods themselves and supplies them directly to customers. It is also known as direct selling over the internet.
• Under this model, you do not allow any third party to share information or make any supply over your personal website.
• As these websites supply goods/ services over an electronic network for some consideration, they will come under electronic commerce. Further, you will be termed an electronic commerce operator if you own, operate, or manage such websites.
• However, supplies are made directly by the electronic operator. Hence, specific E-commerce GST provisions will not be applicable.
• For example, Bigbasket has its own website where all purchases are made on its own account. Bigbasket website does not list products of other sellers.

E-Commerce portals providing an online platform/ marketplace

• In this case, a supplier can upload their product details on the E-commerce platform. This platform is also known as a Marketplace. It enables the supplier to display and promote the goods or services online. Potential buyers visit these platforms, select products, and place orders with the supplier.
• The details of the order placed are then forwarded to the seller by the E-Commerce portal.
• The seller will send the goods directly to the purchaser.
• The seller raises sales invoices; however, the E-Commerce portal receives the payment.
• The E-Commerce portal then raises the bill of service charges towards the seller. They shall deduct their dues towards their service charges and remit the balance amount to the seller.
• All such electronic commerce operators and their suppliers of goods must obtain registration under the GST law mandatorily. It includes cases where they do not exceed the threshold limit of turnover for registration.
• However, suppliers of services will not require mandatory registration if they do not exceed the threshold limit of turnover for registration.
• For example:
  Supplier N is in the business of supplying mobiles online through Flipkart. Since supplier N is using the marketplace platform of Flipkart for selling goods, both Flipkart and Supplier N require mandatory registration under the GST law.

Fulfillment model

• This model is similar to the previous one, with one exception.
• Here, the packing and shipping is done by the electronic commerce operator. Goods for sale are stored in the E-Commerce operator’s warehouse. When the E-Commerce operator receives a sales order, he packs and delivers the goods to the customer under the seller’s invoice.
• GST implications are the same as the previous model.

E-Commerce portal as intermediary

• Under this model, E-Commerce Portals operate as a Marketplace to connect service providers and service recipients and charge fees for the said activity separately.
• For example, A Customer visits the online movie booking website and selects the movie and the place. Then the payment method is selected.
• Online movie booking website collects the entire price of the movie ticket and its own convenience charges.
• Once you pay, a code is created; when shown at the ticket counter of the movie hall, the movie ticket is generated.
• Thus, a movie ticket is generated by the movie hall operator and not by an online movie booking website.
• The online movie booking website keeps the convenience charges. The ticket charges are remitted back to the Movie Hall Operator, who issues the final movie ticket.
• In this case, GST is charged by the seller and E-commerce operator on its respective revenue from its customer.

Let Us Try And Understand The Specific Provisions Of GST On E-Commerce Services:

For a specified category of services, the service provider uses the electronic commerce operator’s platform. As the service provider is a small entity, they can’t register on their own and pay taxes.

Hence, paying taxes and complying with the GST provisions is on the E-commerce operator.

The list of the services within this category are as follows:

In respect of these services, the electronic commerce operator is considered the supplier of services for paying taxes. The invoice is issued by the operator as if the operator itself has made the supply.

Regarding the services specified under (2) and (3), the operator is liable for making payment of taxes only if the original supplier is below the threshold limit of turnover for registration.

In such cases, the actual service provider will be liable to register itself and pay taxes if the supplier exceeds the threshold limit.

Under point (1) above, the operator will always be the person liable for making payment of taxes as the supplier, without considering the service provider’s actual turnover. So, the suppliers will not be liable to register themselves or pay taxes in such cases.

For example – Uber’s drivers provide Taxi services to the passenger after using the UBER platform. Here Uber is liable to pay GST.

What Is Online Information And Database Access Or Retrieval Services (OIDAR)?

• This E-commerce model is similar to the supply of goods over your website. Here the services are supplied by website owners on their own account.
• However, the difference in this model is that the services are provided online with no or minimum human intervention.
• GST Act has some special provision for this E-commerce model as follows:-
• OIDAR services cover services that are automatically delivered over the internet, or an electronic network, with minimal or no human intervention.
• Practically they could be either:
  • • Where the provision of the digital content is entirely automatic

  For example – A consumer clicks the ‘Buy Now’ button on a website. The content downloads onto the consumer’s device, or the consumer receives an automated e-mail containing the content.

  • Where the provision of the digital content is truly automatic.
    Further, the small amount of manual process involved does not change the nature of the supply from an OIDAR service.

How Do You Determine The Place Of Supply In OIDAR?

The place of supply of OIDAR services shall be the location of the service receiver.

• Suppose the location of the supplier is outside India and the location of the recipient is within India.
• The GST registered recipient is liable to pay GST under the reverse charge mechanism since India is the place of supply of OIDAR service.
• However, suppose the location of the registered GST supplier is within India, and the location of the recipient is outside India.
• In that case, the given OIDAR service will qualify for Export of service since the supply is outside India (Provided other export conditions are also satisfied).
• Suppose OIDAR services are supplied by any person located in a non-taxable territory; and received by a non-taxable online recipient.
• In that case, the supplier of services located in a non-taxable territory shall be liable for paying integrated tax on such a supply of services.

Non-taxable online recipient means:

• Any government, local authority, governmental authority, an individual, or any other person not registered;
• and receiving OIDAR services in relation to any purpose (other than commerce, industry, or any other business or profession) located in taxable territory.

Here the GST law states that when a non-taxable online recipient uses an OIDAR service, the service provider will be liable to pay GST on the same even if they are located outside India.

Concluding Remarks

• With the evolving nature of businesses for e-commerce, various business models are being tested under the purview of the GST law. The above models of the electronic commerce operator are illustrative.
• You should evaluate the nature of the business very diligently before concluding if your business is covered under the definition of electronic commerce.
• It is extremely important that you not accept the coverage under electronic commerce on a prima facie basis. You should make a deeper analysis of the business structure to determine the business’s tax structure.

Why Choose Incorp?

At Incorp, we have the expertise and skills to guide you on various indirect tax levies including Goods and Services Tax (GST). We have with us professionals having in-depth knowledge and wide-ranging experience to help you in the effective planning and structuring of your business to ensure compliance with the regulations.