This article throws light upon the three features of taxation provision in different forms of business organization. The features are: 1. Proprietorship 2. Partnership 3. Company.
The most important feature of taxation provision or proprietorship is that profits of the business are taxed in the hands of the owner, whether it is retained in the business, paid out in the form of salaries or withdrawn as profits. Tax rate applicable to this form is the same that applies to an individual. Furthermore, profit is taxed only once.
At present, income of the sole proprietary concern is taxed at the following rates:
There is a surcharge of 10 percent on tax payable on total income exceeding Rs. 10 lakhs. In addition, an additional surcharge = Secondary and Higher Education Cess will have to be paid @ 2. percent. Tax rebate to the extent of Rs. 1,00,000 shall be available to the sole proprietor under sections 80c, 80cce, and 80ccd.
Besides, a proprietor having taxable income up to Rs. 1.5 lakhs is entitled to 20% tax rebate u/s 88 of IT Act. However, no surcharge would be payable by persons having income of Rs. 60,000 or below for investment up to Rs. 80,000.
However, for those having taxable income in excess of Rs. 1.5 lakhs but up to Rs. 5 lakhs, the maximum permissible deduction would be Rs. 80,000, but the rate of deduction would be up to 10%. No rebate is allowed in the case of proprietors having taxable income over Rs. 5 lakh.
As per Income Tax Act (Sections 184 and 185) a partnership firm is taxed as a separate entity and no distinction is made between registered and unregistered firms. After allowing remuneration and interest to partners, the balance income of the firm is subject to tax at 30%.
The tax payable by firms would be enhanced by a surcharge @ 10% of the tax payable. In addition, a firm will have to pay additional surcharge @2% in the form of secondary and higher education cess.
In the case of a domestic company Tax Rate/30%
In the case of a company other than a domestic company.
(i) On so much of the total income as consists of
(a) Royalties received from Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern after 31st march, 1961 but before 1st April 1976 or
(b) Fees for rendering technical services from Government or an Indian concern in pursuance of an agreement made by it with the government or an Indian concern made by it after the 29th February, 1964 but before 1st April 1976……………….. 50%
(ii) On the balance, if any, of the total income……………. 40%
The amount of income-tax payable by a company shall be increased by a surcharge:
(i) In the care of every domestic company at the rate of 10% of such income tax
(ii) In the case of every company other than a domestic company at the rate of 2.5%.