All about Company, taxation & ROC Compliances

Hello Everyone! Welcome to our last blog of the series forms of Business. In our earlier blog we have discussed Proprietorship, partnership and LLP. In this blog we will discuss the Company.  So let's get started.

What is a company?

Company is the association of people who come together for a common business objective. Company has its own identity. In the eyes of law it is a separate legal entity which means a company can enter into an agreement on its own.

The owners of the company are known as shareholders. Indian companies are governed by 'The Companies Act, 2013'. 

 

The shareholders hold shares of the company and in exchange of shares they give money to the company. This is one of the ways to raise funds. The company can raise funds through debt as well. 

In company the management and ownership lies with different people. As discussed, shareholders are the owners whereas directors are the people who are responsible for the management of the company.

Types of companies

Company can categorized into 3 types on the basis of membership OPC, Private limited company and Public limited company 

Private limited company must have 2 members. The maximum numbers of members should not exceed 200.

There is no minimum paid up share capital requirement in case of a private limited company. The private limited company should suffix 'Private Limited' to its name.

Public limited company must have 7 members. There is no limit for the maximum number of members. A public limited should suffix the word limited to its name.

OPC means one person company. OPC has 1 member only. Every OPC company should have the OPC word in their name.

Audit Requirements 

It is very important to understand that the company may be required to audit their books of account under 1 or more laws. In India, all companies are required to get their books of account audited as per the Companies Act, 2013. This is called Statutory audit. On the other hand if a company's turnover exceeds the threshold prescribed under income-tax act then they also have to get their books audited under income-tax act which is called Tax Audit.

Taxpayers who enter into an international transaction or specified domestic transaction are required to obtain a report from a chartered accountant u/s 92E. They need to be furnished at least one month before the due date of filing of return u/s 139(1) i.e. 31st October of the Assessment Year a report from a chartered  accountant containing details of all international transactions or specified domestic transactions.

Tax

In India, Income tax rate for companies depend upon their turnover. A company may opt for a lower tax rate if they fulfill certain conditions so they pay tax under specific sections like 115BA, 115BAA and 115BAB. Let's have a look at the slab rate for Domestic Co.-

1) It the turnover or Gross Receipt in previous year 2018-19 not exceed ₹ 400 crores then the tax rate is 25%

2) If opted for Section 115BA then 25%

3) 22% if  opted for Section 115BAA 

4) 15% if opted for Section 115BAB

5) Any other Domestic Company then 30%

 

Surcharge, Marginal Relief and Health & Education Cess

What is Surcharge?

Surcharge is an additional charge levied for persons earning income above the specified limits, it is charged on the amount of income tax calculated as per applicable rates.

7% - Taxable income above ₹ 1 crore– Up to ₹ 10 crore

12% - Taxable income above ₹ 10 crore

10% - If Company opting for taxability u/s 115BAA or Section 115BAB

What is Marginal Relief?

Marginal Relief is a relief from surcharge, provided in cases where the surcharge payable exceeds the additional income that makes the person liable for surcharge. The amount payable as surcharge shall not exceed the amount of income earned exceeding ₹ 1 crore and ₹ 10 crore respectively

What is Health and Education cess?

Health and Education cess @ 4% shall also be paid on the amount of income tax plus surcharge (if any).

 

Note:

A Company shall be liable to pay Minimum Alternate Tax (MAT) at 15% of book profit (plus surcharge and Health and Education cess as applicable) where the normal tax liability of the Company is less than 15% of book profit. 

A Company opting for special rate taxation under Section 115BAA and 115BAB are exempt from paying MAT.

The Companies opting for special rate of taxation u/s 115BAA or 115BAB will not be allowed certain deductions like section 80IA, 80IAB, 80IAC, 80IB and so on, except deduction u/s 80JJAA and 80M.

ROC compliance 

Apart from tax Compliances company has to file annual compliance form with the Registrar of companies. All companies are required to file AOC 4 and MGT 7 annually. AOC 4 is used for filing financial statement and other documents. MGT 7 is used for filing Annual Return by Companies having share capital.

Apart from this they have to file forms in ROC to comply with the provisions of the Companies Act, 2013.

Conclusion 

We hope you have understood company as a form of Business and its tax rules. Although the company incorporation fee is high as compared with other forms of business, it comes with other advantages. So, analyze what your business needs are and then choose the right form. Thank you.