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Corporate Tax in India: Everything you need to know

Ashish M. Shaji

| Updated: May 12, 2021 | Category: Corporate Tax

Corporate Tax in India: Everything you need to know

There are various types of taxpayers registered with the income tax department in India, and they pay taxes at different rates. Taxes on income, wealth and capital gains are some of the significant taxes paid by customers. One of the taxes that corporates must pay is called corporate tax or company tax. In this article, we shall discuss about Corporate Tax in India.

Corporate Tax in India- Introduction

A corporate is an entity having a separate legal entity and an independent legal entity from its shareholders. Domestic companies and foreign companies are liable to pay corporate tax under the Income Tax Act[1].

While a domestic company is taxed on universal income, a foreign company is taxed only on the income earned within India, which is being accrued or received in India.

To calculate taxes under the Income Tax Act, the types of companies can be defined as under-

Corporate Tax in India- Introduction
  • Domestic Company

It is a type of company which is registered under the Companies Act of India and includes company registered in the foreign countries as well having control and management wholly situated in India. A domestic company means it can be a private or public company.

  • Foreign Company

It is a type of company which is not registered under the Companies Act of India, having control and management located outside India.

Corporate Tax Rates (AY- 2021-22)

Corporate Tax in India: Tax Rates for Domestic Companies

Income RangeTax Rate
  Up to 400 crore rupees gross turnover   25%
  Gross turnover that exceeds 400 crore rupees  30%

Surcharge rates along with the rates above

ParticularsTax Rate for Domestic Companies  
  If the total range of income is between 1 crore and 10 crore rupees  7% according to the rate of tax above
  If the total range of income exceeds 10 crore rupees  12% according to the rate of tax above

Corporate Tax in India: Tax Rates for Foreign Companies-

Nature of IncomeTax Rate
  Royalty of fees obtained for technical services from the government or an Indian concern, approved by Central Government  50%
  Any other form of income  40%

Surcharge rates along with the rates above

ParticularsTax Rate for Foreign Companies  
  If the total range of income is between 1 crore and 10 crore rupees  2% according to the rate of tax above
  If the total range of income exceeds 10 crore rupees  5% according to the rate of tax above

Health and education cess

Further, 4% of the income tax calculated and applicable surcharge would be added to the amount of the total tax liability before the health and education cess. 

Minimum Alternate Tax

The minimum alternate tax should not be less than 15% for both domestic as well as foreign companies. It is based on the book profits according to section 115 JB. Minimum Alternate Tax is levied at the rate of 9% plus surcharge and cess applicable in case of a company, being a unit of international financial services centre, which gets its income in convertible foreign exchange.

Liability of Minimum Alternate Tax

In case the total payable tax applicable of a company on the total income is below 15% of the profit that is recorded in the books, then the company would be liable to pay token tax money in the form of Minimum Alternate Tax.

What is Income of a Company?

To calculate corporate tax on the income of a company, we must know what factors make up the total income of any company. They are as follows:

  • Profits from business;
  • Income from property;
  • Capital gains;
  • Income from other sources like foreign dividends etc.

Corporate Tax in India: Tax rebates

Apart from the different types of taxes imposed on the income of the company, there are many provisions of tax rebates available to companies. The list of tax rebates are as follows:

  • In some cases, domestic companies may deduct dividend obtained from other domestic companies;
  • Special provisions apply to venture fund and venture capital enterprises;
  • In some cases, deductions are permitted for exports and for new undertakings;
  • New infrastructure and power sources that are set up is subject to deductions;
  • In some cases, Interest, capital gains and dividends may also be deducted.

Corporate Tax in India: Tax Planning

Taxpayers require some sort of tax planning that will help them to make most of their profits by reducing the burden of tax payment. Corporate tax planning involves strategy development to meet the goal thus, corporations hire professionals who are well versed will all rules and regulations pertaining to payment of tax. As businesses are not immune from financial risk, proper corporate tax planning is imperative. 

Tax planning helps to determine the amount of tax to be paid in a way that the corporate is left with more profit and less tax to pay. Corporations should be aware of all laws relating to corporate tax in India for successful corporate tax planning in India.

Conclusion

Corporate tax in India is a crucial subject that needs proper attention from taxpayers. Understanding details of it may not be an easy task thus, it is advisable to take the assistance of a professional in order to better understand this form of taxation in India.

Read our article: Corporate Tax Exemptions: An Overview

Ashish M. Shaji

Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on criminal and corporate law. He is a creative thinker and has a great interest in exploring legal subjects.

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