Quick Guide to Corporate Tax in India – Tax Rates and Rebates

Corporate Tax in India- Tax Rates and Rebates

Income, wealth, and capital gains taxes are among the major taxes paid by customers in India. Corporate entities, whether domestic or international, also pay taxes in order to operate. So, a corporate tax, often known as a company tax, is one of the several taxes that corporations must pay to the government. Continue reading to know more about corporate tax In India.

What is Corporate Tax?

Corporate tax is a type of direct tax imposed on profits made by businesses over a specific time period for varying amounts of earnings earned by businesses, different rates of corporate taxes are imposed. Corporate tax is imposed on a company’s earnings after depreciation, COGS (cost of goods sold), and SG&A (selling general and administrative expenditures) have been deducted.

Therefore, the corporate tax, sometimes known as business tax, is a type of income tax levied on enterprises. Many countries levy a corporate tax to make the tax procedure easier for businesses. Distinct countries have different rules when it comes to income taxation.

History of Corporate Tax in India

Domestic Company – The domestic company is any business that started in India or any foreign company that has all of its control and management in India. In India, “originated” implies “registered” under the Companies Act of 1956.

Foreign Company – Any business that did not start in India and has control and management outside the country.

Tax liability determination: A company’s residential status determines its tax responsibility on earned revenue. If a company’s control and management are located in India, it is considered an Indian resident. Under corporation tax legislation, a resident company’s entire income is subject to taxation.

As a result, the problem of double taxation may arise. It refers to a corporation charging the same income twice due to differences in tax legislation between countries. Sections 90 and 91 of the  I.T. Act allow relief from double taxation.

Components of a Company’s Income

The overall income of the company that taxes under corporate taxation includes:

So, the revenue is adjusted according to section 79, set off and carried forward of losses in corporations, and the total gross income is determined. Chapter VI-A deductions are subtracted from total gross income to arrive at net income. The Final value of net income taxes.

Note: Salary money is not included in the company’s income.

Dividend Distribution Tax (DDT)

This is a tax on a domestic company’s distributed income. The tax law that applies to it is governed by Section 115-O of the Income Tax Act. DDT is charged in addition to the income tax, at the rate of 15%. Which is also subject to a 12% surcharge.

Note: According to the 2016 Budget Update, if a shareholder receives a dividend of more than Rs. 10 lakhs, DDT will be imposed at a rate of 10%.

Minimum Alternate Tax (MAT)

MAT was enacted because businesses discover several ways to avoid paying taxes. Companies pay a token tax through the minimum alternate tax. Companies are subject to MAT under Section 115JA of the Income Tax Act. All businesses must pay MAT if their entire taxable income is less than 18.5% of their book profits (plus surcharge and Secondary and Higher Education Cess). MAT can carry forward and offset against normal tax under certain conditions. It can carry forward for an additional 10 years. All companies, including foreign companies with income sources in India, are subject to MAT. Companies engaged in the life insurance industry (Sec 115B) and companies with shipping revenue are immune from its reach (Sec 115V-O).

Corporate Tax Rate in India for FY 2022-2023

Corporate Tax in India- Tax Rates and Rebates

Corporate Tax in India for Domestic Companies

Turnover Criteria Assessment Year 2023-24 Assessment Year 2022-23
The turnover or gross receipts for the previous year 2020-21 does not exceed Rs. 400 crore 25% NA
A company’s total revenue or gross receipts during the previous year 2019-20 do not exceed Rs. 400 crore NA 25%
Any other domestic company 30% 30%

Surcharge: The amount of income tax increases by a surcharge equal to the specified percentage of the tax: –

Range of income Rs. 1 Crore to Rs.10 Crore Above Rs.10 Crore
Surcharge rate 7% 12%

There will be a marginal reduction in the surcharge. 

Health and Education Cess: The amount of income tax and the applicable surcharge enhance further by a health and education cess of 4% of such income tax and surcharge. 

Domestic companies are subject to special tax rates. 

The following are the special income-tax rates that apply to domestic businesses:

Domestic company Tax rate
Where it opted for section 115BA 25%
Where it opted for section 115BAA 22%
Where it opted for section 115BAB 15%

Corporate Tax in India for New Companies (As per section 115BAB)

In Budget 2022, the start date for manufacturing of any article or thing is being proposed to be moved from March 31, 2023, to March 31, 2024, according to section 115BAB. Specifically, the change will be effective on April 1, 2022, and it will be effective for the assessment year 2022-23 and all subsequent assessment years.

Surcharge: In the case of a corporation opting for taxability under Section 115BAA or Section 115BAB, the surcharge rate is a flat 10%, regardless of total income. 

Health and Education Cess: The amount of income tax and the applicable surcharge enhance further by a health and education cess of 4% of such income tax and surcharge. 

MAT: Domestic companies that have chosen a special taxing regime under Sections 115BAA and 115BAB are excluded from the MAT provisions. When section 115BA is selected, however, no exemption is provided.

Corporate Tax in India for Foreign Companies

Nature of Income Tax rate
Royalty received from the Government or an Indian concern pursuant to an agreement entered into with the Indian concern after March 31, 1961, but before April 1, 1976, or fees for rendering technical services pursuant to an agreement entered into with the Indian concern after February 29, 1964, but before April 1, 1976, and where such agreement has been approved by the Central Government in either case. 50%
Any other income 40%

Surcharge: The amount of income tax increases by a surcharge at the specified percentage rate:-

Range of income Rs. 1 Crore to Rs.10 Crore Above Rs.10 Crore
Surcharge rate 2% 5%

The surcharge, however, will be subject to marginal relief. 

Health and Education Cess: The amount of income tax and the applicable surcharge enhance further by a health and education cess of 4% of such income-tax and surcharge.

Tax Rebates Applicable on Corporate Tax

Apart from the numerous forms of taxes imposed on corporate earnings, there are several tax refund possibilities accessible to businesses below is a list of all of these rebates.

  • Firstly, Domestic corporations can deduct dividends received from other domestic companies in certain circumstances.
  • Venture funds and venture capital firms are subject to special rules.
  • Exports and new ventures are eligible for deductions in specific situations.
  • Certain deductions apply to the installation of new infrastructure and electricity sources.
  • Business losses are allowed to be carried over for up to eight years.
  • In some situations, you can deduct interest, capital gains, and dividends.

Corporate Tax Planning in India

Corporate Tax in India- Tax Rates and Rebates

Corporate tax planning means organizing one’s financial business affairs in order to maximize profit while minimizing tax liability by making use of available deductions, rebates, and exemptions. Tax administration is a risky and complicated industry, and most corporations with significant financial stakes use financial experts to handle their taxation. As a result, several financial professionals in India provide corporate tax counseling and implementation. It is necessary to fully understand all tax laws and their corresponding rules and regulations to ensure healthy tax planning.

Tax evasion or non-payment is not the same as corporate tax planning. Tax planning is the process of organizing one’s finances in such a way that the amount of tax is minimum while gains are maximum. The most important characteristic of good tax planning is that it adheres exactly to the legal and financial requirements of the Indian government.

Conclusion 

Governments, particularly in emerging nations like India, rely heavily on corporate taxes as a source of revenue. This tax effectively ties the country’s whole tax system together. As a result, corporate tax is an essential tool for India’s economic development.

FAQ

1. What is Corporate Tax in India?

Corporate tax in India is a type of direct tax applicable on a corporation’s or other business’s net revenue or profit. 

2. What are the applicable tax rates?

Every year, the Finance Act, which is passed by Parliament, contains the rates of income tax and corporate taxes. You can also check your tax liability using www.incometaxindia.gov.in free online tax calculator.

3. What is corporation tax meaning?

Corporation tax is a direct tax applicable on a company’s net income or profit from its operations. Public and private companies registered in India under the Companies Act 1956 are required to pay corporation tax.

4. What are the types of corporate tax in India?

The income tax legislation divides corporations into two groups to calculate the corporate tax in India: domestic companies and foreign companies.

5. What is Corporate Tax Planning?

Corporate tax planning means organizing one’s financial business affairs to maximize profit while minimizing tax liability by making use of available deductions, rebates, and exemptions.

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