“Two things are certain in life – Death and Taxes.”
Yet, large corporations always seem to find a way to avoid paying them. Even in profitable years, you might have heard of companies paying zero taxes on their profits. And no, it’s not done illegally.
These companies have used the law to their advantage and avoided paying taxes to the government without any sort of manipulation or fraudulent practices. To top it off, some of these companies might even go on to receive a tax rebate! This blog will take you through How Big Companies Avoid Paying Taxes?
Understanding Corporate Taxation in India
In India, taxes are charged or levied on both individuals and businesses on two fronts
1. Direct Taxes
2. Indirect Taxes
Direct Taxes are Again Further Subdivided Into Two Categories
1.1 Personal Income Tax
This is the income tax paid by Individual taxpayers – Salaried employees, freelance professionals, government employees, etc.
The taxes are charged based on slab rates that differ based on individual incomes.
1.2 Corporate Tax
Taxes paid by companies – Domestic as well as foreign companies operating in India. CIT rates differ every year based on the Union Budget.
A corporation is a legal entity that has its own identification and authority, under which business is conducted. This identity is separate from its founders and shareholders. Corporations are taxed differently from Individuals. Even under CIT, companies are divided into two categories
1.2.1 Domestic Companies
These are business entities that are incorporated and operate within the borders of India. They are taxed at a universal tax rate. Even domestic companies that have operations in foreign countries but the parent company is wholly controlled in India come under this tax bracket.
1.2.2 Foreign companies
Quite commonly known as MNCs, a foreign company is a firm operating in India with the control and management run abroad in a different country.
How Big Companies Avoid Paying Taxes?
Let’s try understanding How Big Companies Avoid Paying Taxes by comprehending the following points.
1. Depreciation/Accelerated Depreciation
Businesses that have assets such as equipment and machinery get to add depreciation to their tax filing statements every year. Aside from this, they also get to add an additional 20% depreciation if the assets were bought in the same year of filing, which saves companies a lot of money. Given the size and value of the assets of the firm, 20% is a huge margin just from depreciation alone.
2. Traveling Expenses
Business owners, entrepreneurs, and founders have special perks that allow them to use the company’s line of credit for their own expenses and have them written off as business expenses. This is applicable provided they use the company’s account to pay for the asset or service.
This is particularly useful while traveling. When the managing director or CEO of the company has to travel for whatever reason, he or she can write off the travel expenses as business expenses.
Donations have been and continue to be one of the biggest tax-saving schemes worldwide. If you make donations to a registered charity or NGO, and you receive a receipt for your donation from the organization, then your firm will be eligible for certain tax benefits.
This is especially useful for publicly listed companies that have CSR objectives as well. Not to mention the fact that every major company has its own charitable foundation as well.
4. Housing Loan
The idea of buying a house through credit or long-term loans seem unattractive. But the concept of home loans can be beneficial in more ways than one. You can claim the interest on the loan as a tax deduction from the house property.
5. Deduct Incomes Taxable Under Other Heads
Indirect incomes earned from sources other than operations are usually filed under the total profits. If you are not aware of this, you might even end up paying higher taxes than normal. The fact is that certain indirect incomes can be filed under different heads and that can save you taxes or might even fetch tax rebates.
6. Taxation on Long-Term Capital Gains
In India, short-term capital gains are charged at a higher rate than long-term capital gains. If you hold an asset such as shares and securities for 36 months/3 years or longer and then decide to sell it, then it is considered a long-term capital gain. Short-term gains are taxed a flat 15% in India.
To save on all the above transactions and more, it is important to note that every transaction needs to have an invoice or receipt to file taxes and make claims.
Along with that, filing taxes on time can also be a money saver as late fees and interest payments are a penalty for entities as well as individuals who file their taxes after the final filing deadline.
Along with that, there are yearly updates on tax reforms which are important to stay in touch with the newest laws and regulations regarding taxation.
That concludes the article on How Big Companies Avoid Paying Taxes, we hope you found it interesting.
This might be an excellent time for investors to enter the market. However, investors with little knowledge can take courses on FinGrad to make the right investment strategy. Happy Investing!
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