Implications of Direct tax code on Corporates

The corporate tax rate has been pegged at 30%, as against the earlier proposed rate of 25%.There would be no surcharge.

The Minimum Alternate Tax (‘MAT’) will be levied at a rather hefty 20% on book profits, as against the current rate of 18% plus surcharge.

Companies can carry forward the MAT credit for 15 years which is a good move.

In the case of foreign companies, the tax rate would be 30% and additionally, there would also be a branch profits tax of 15%.

SEZ Developers will continue to get the current tax breaks for all the zones notified up to end March 2010. There is no more incentive to move for SEZ for IT companies.

For SEZ Units, the existing tax breaks would continue to be available if they commence operations before the end of March 2014.

SEZ Developers and SEZ Units are NOT exempted from the payment of MAT and Dividend Distribution Tax, which is proposed at 15%.

In terms of international taxation, the DTCB provides that that the provisions of the DTAA would override those of the tax provisions and that, the assessee can choose between the domestic law or the treaty provisions, whichever is beneficial. (The earlier version of the DTC had proposed to take away the treaty override benefit).

Tax audit threshold limit is proposed to be increased to Rs 1 crore from the present applicable limit of Rs 60 lakhs.

In respect of a foreign company, the residence definition has been substituted by the internationally accepted definition.