Certain Accounting Issues
1. Depreciation:
Companies can use depreciation rates based on asset classes, applying either the straight-line method or the reducing balance method. Minimum rates of depreciation are prescribed, but companies can use a higher rate based on a genuine technological evaluation, with adequate disclosure in the annual accounts.
2. Dividend:
While there is no limit on the dividend rate, certain conditions govern the computation of profits available for distribution. Generally, dividends can only be paid from profits of the financial year after making provisions for depreciation. Distribution can also be from accumulated profits.
3. Repatriation of Profits:
Companies must retain a maximum of 10% of profits as reserves before declaring dividends. These reserves can be converted into equity through bonus shares. Once investment approval is granted, dividends are freely repatriable.
4. Imposition of Taxes:
Domestic companies are taxed at 35.875%, while foreign companies are taxed at 41%, including a surcharge of 2.5%. Minimum Alternate Tax (MAT) applies if the income tax liability is less than 7.5% of book profits. Companies also face a dividend distribution tax of 12.8125% (including a surcharge of 2.5%) on distributed dividends.
Companies must withhold taxes on certain payments and from non-residents as per domestic laws or tax treaties.
Permission for Foreign Companies
Foreign companies engaged in manufacturing and trading abroad can open branch offices in India with permission from the Reserve Bank of India. The purposes include representing the parent company, conducting research, engaging in export and import trading, and fostering technical and financial collaboration.
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