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Business income tax calculation

Dileep (Software Professional) (33 Points)

02 March 2017

Dear All, I am willing to start a business (a Pvt. Ltd. company). At this point my main objective is customer acquisition. However in the long run I will be obliged to pay relevant taxes. I would be more than happy if any one of you could help me in determining the tax calculation applicable for a given revenue. I have jotted down list of common taxes applicable. Sales Revenue: Rs.5,00,00,000/- My business management expense is estimated at 20% of the revenue from Sales. I am also willing to pay 10% of annual sales revenue as commission to partners. How are the below taxes calculated? Service Tax (for online advertising business) Corporate Tax Dividend Distribution Tax (also how much does investor of Dividend will have to pay?)

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5 Replies

Studentsca (CA Practice ) (3577 Points)
Replied 02 March 2017

Dear Dileep,

The taxes are calculated in the following manner

1. VAT will be applicable on Sales Revenue depending upon the state.

2. Expenditure incurred will be claimed as deduction from Gross Income thereby reducing Income Tax liability for the company.

3. Service Tax will be applicable at 15% on the value of services provided.

4. Dividend Distribution Tax is payable by a company if it distributes dividend. Dividend income above Rs. 10 lakh is taxable in the hands of shareholder.

Dileep (Software Professional) (33 Points)
Replied 02 March 2017

Thank you. If I decide to pay Service Tax by hand instead of collecting from customer, will it be charged on Gross Income or on Gross Income after deductions?

Studentsca (CA Practice ) (3577 Points)
Replied 02 March 2017

Service tax is allways leviable on gross bill amiunt. Service tax collected by you will be payable to the government. If you do not collect service tax from your customers you will have to bear the tax burden yourself resulting in a loss.

The service tax liability in such a case would be determined by back calculation.

Dileep (Software Professional) (33 Points)
Replied 02 March 2017

What is back calculation?

Studentsca (CA Practice ) (3577 Points)
Replied 02 March 2017

Suppose the bill for a client Mr. A is Rs 5,00,000/-. Now the service tax including cess @ 15% is Rs 75,000/-.

You collect this from Mr. A and pay it to the government. This is normally how it works.

However if you don't collect service tax from Mr. A it will be assumed that the Rs. 5,00,000/- bill you collected from Mr. A is including the service tax component.

In this case service tax liability would be calculated using the back calculation in the following manner

(500000*15)/115 = Rs. 65,217/-

and the value of service would be Rs. 5,00,000-65,217 = Rs. 4,34,783/-.

Thus you end up bearing service tax liability from your own pocket resulting in a loss.