Can someone please explain to me why the tax expense is nearly 75% of the profit before tax?
@Kiyoto_Kai Maybe share the entire document (or a public link to it)
so that someone interested can read it looking for relevant details
and explain/comment on it…
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From an annual year perspective (FY25) they are actually paying around 33% (₹231/₹697)
So the annual tax rate is ~33%
When it comes to Income tax, it is always better to look at it from an annual perspective (financial year), rather than on a quarterly basis.
This is because, normally, the quarterly tax (tax rate) is calculated based on estimation. And when your estimation of future profits change, so does the tax payable.
If Eternal estimated that it would earn ₹697cr profit at the beginning FY25, it would have spread this ₹231cr tax across the 4 quarters using a tax rate of 33%. But it’s not possible to estimate accurately at the beginning of the year. So as the year progresses, they keep re-estimating the taxes and profits for the remaining quarters.
So, when the actuals differ from the estimates, the tax expenses gets lopsided when viewed from a quarterly basis, because now, whatever they missed accounting as tax in previous quarters, get fully accounted in the next or last quarter.
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maybe because of this
Quote from their audited financials
The Company received demand orders during the quarter ended December 2024 and September 2024, against Show Cause Notices (SCNs) from Maharashtra GST authorities for INR 401 crores and West Bengal GST
authorities for INR 19 crores respectively. The demand orders required the Company to pay the tax along with applicable interest and penalty on the delivery charges collected by the Company from the end user on
behalf of the delivery partners for the period from October 2019 to March 2022. The Company has filed appeals against the demand orders issued by both Maharashtra GST authorities and West Bengal GST authorities
before the first appellate authorities in the respective states. There are no SCNs or orders for the period after March 2022. The Company, supported by the external independent expert’s advice, is of the view that it has a
strong case on merits.
Found this para in their audited financials. The auditors must have asked them to make provision. This is only my view need not be correct
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Only the direct tax (income tax) payable by a company will be reported under the current tax head in the P&L
Indirect tax like GST, will not be reported under the current tax head.
GST collected from customers, is not an expense for the company, and it would be reported as liability (GST payable).
Companies are merely agents, whatever they collect from the customer, they pay to the government, it is not an expense for them, even if it becomes an expense for some reason, it would not get reported under current tax head, it would fall under other expenses.
231 crore is for the full year. This quarter was 97?
Do corporates pay 33% as tax?
₹97cr is the PBT, the tax expense for Q4 is ₹74cr
What we see here in the P&L, is the book profit, this gets reported as per the accounting standards (IND AS)
The profit that gets reported in the income tax return will be different from this, as they need to be reported as per the Income Tax Act. And this the profit that is used for determining the tax payable.
33% does seem high, but i did the above calculation based on the book profit, maybe if we get the profit as per the tax returns, we would know the actual percentage of tax (tax rate) paid by the company.
Also the IT section under which a company opts to pay tax, determines the tax rate, not to forget the additional surcharge and health and education cess that gets added to the tax.
Also, if there are any capital gains, they get taxed at different rates.
So it is difficult to narrow down the actual tax rate from this P&L.
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Corporate tax in India is ~25% + surcharge/cess = ~30–33%, depending on company type and turnover.
But tax in any single quarter can look inflated due to timing adjustments, not because of the actual rate change.
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From what I understand, quarterly numbers can look high because companies adjust for earlier under or overestimates. Over the year, it usually averages out to around 30%. Happy to be corrected.