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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Tax Planning and Nature of Business

A company is an Offshore Banking Unit whose total income is Rs 100 lakh, of which Rs 40 lakh is income referred to in section 147(3). Under section 218 of the Income-tax Act, 2025, assume the rates in force on the balance are 25%. What is the tax payable, ignoring surcharge and cess?

The tax is Rs 21 lakh. The Rs 40 lakh of section 147(3) income is taxed at 15%, giving Rs 6 lakh, and the remaining Rs 60 lakh is taxed at the assumed 25% rate in force, giving Rs 15 lakh.

  1. ARs 21 lakhCorrect
  2. BRs 25 lakh
  3. CRs 16 lakh
  4. DRs 15 lakh

Explanation

Section 218 taxes the section 147(3) income at 15%: 40 x 15% = Rs 6 lakh. The remaining income is 100 - 40 = Rs 60 lakh, taxed at the 25% rate in force = Rs 15 lakh. Total = Rs 21 lakh. Rs 25 lakh wrongly taxes the whole amount at 25%; Rs 16 lakh applies 15% to 40 and 25% to only 40 instead of 60.

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