Corporate Tax – Corporation Tax India Overview, Rates & Tax

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What is Corporate Tax?

The tax is collected in India based on two approaches, direct tax, and indirect tax. The direct tax is collected on all sorts of assessments. This is the reason why it is classified into 2 parts: Income tax and Corporate tax.

The Corporate tax is the registered companies’ tax under the Companies Act, 2013 on their financial year’s profit. These businesses’ profit is taxed at a specified rate, subject to change as per the government’s discretion.

Corporate Tax in India

In India, corporate tax is collected from both foreign and domestic companies. As taxpayers are required to pay income tax based on their income in a financial year; similarly, companies are also required to pay tax on their income, which is covered under the corporate tax. Some additional general names of corporate tax are; company tax, corporation tax, etc.

Definition of Corporate Corporate Tax

A corporate is an entity that has a separate legal identity from its founders or shareholders. The Companies Act 2013 defines the company as an entity incorporated under this Act or any previous law. The revenue earned from the business by the firm is evaluated and measured separately from the calculation of income for individuals.

Types of corporate

The firms or corporate in India are grouped into 2 categories:

  • Domestic Corporate: A company formed under any of the Indian Company Law is termed a domestic company. Besides, a foreign company whose control and management are wholly situated in India has also been termed a domestic company.
  • Foreign Corporate: A company that does not have its origin in India and has some control and management outside India is called a foreign company.

Corporation Tax AY 2021 – 22

Company Type New Corporate Tax Rate Additional Benefit
Companies that do not want to claim any exemption or incentives 22% + applicable cess and surcharge. The effective rate is 25.17%. No Minimum Alternative Tax to be paid by these companies.
Companies that intend to claim exemption or incentives 30% Minimum Alternative Tax reduced to 15% from earlier rate of 18.50%.
New Manufacturing Companies 15%, reduced from the earlier level of 25% These new manufacturing companies must have been incorporated on or before Oct 2019 and must start production before March 2023.

Corporation Tax Rates in India for Domestic Companies

The domestic firm or corporate is the entity whose management is situated completely in India. The corporate tax applicable to the domestic corporations for the F.Y. 2019-20 is imposed based on turnover in a fiscal year. The rates are given below:

Gross Turnover Tax Rate
Up to ₹ 250 Crore 25%
More than ₹ 250 crore 30%
  • In a fiscal year, if the annual turnover of a company exceeds ₹ 1 crore, then a surcharge of 7% is collected on such companies. If the turnover exceeds ₹ 10 crores, the surcharge is 12%.
  • A Health and Education Cess (HEC) of 4% applies to domestic companies.
  • If a domestic firm has an overseas branch, the state will impose the same rate on its total revenue, including domestic and foreign. Hence, it is to be noted that India’s corporate tax laws consider domestic companies’ abroad income.

Corporate Tax for Foreign Companies

A business that’s not of the Indian origin and its management is situated completely outside India. Such organizations are not listed under the Companies Act of 2013. Hence, the taxation policy for such organizations is different from domestic firms. The taxation policy in foreign corporates’ case depends on India’s tax agreement and the origin country of such a foreign company.

Income Tax Rate
Any royalty or fee for a foreign company’s technical services from an Indian concern or Indian government as per any agreement made before April 1, 1976, which the central government approves. 50%
Any other income 40%

A surcharge of 2% is collected if the wage is between ₹ 1 crore to ₹ 10 crores. If it exceeds ₹ 10 crores, then the applicable surcharge is 5%.

Corporate Tax Rebates

Various provisions in the income tax law provide rebates and deductions to the companies to calculate their income for corporate tax. A few of the key rebates and discounts are:

  • Some interest returns obtained by domestic corporations are deductible from the profit accounted for corporate tax.
  • In case the company has set up new infrastructure or sources of power, those are subject to deduction.
  • The corporation can carry forth the losses suffered for a maximum of 8 years.
  • If a domestic company receives a check from another domestic company.
  • The capital profits earned by corporate entities are not charged.
  • In the case of export and new ventures, write-offs are allowed in some cases.

Corporate Tax Planning

CTP means analyzing and working strategically on its financials to lessen the tax outgo and maximize profits. This goal is achieved by better employing the available omissions, rebates, and write-offs. Effective tax planning is complex and sometimes risky; that is why companies hire professionals for this job. These specialists are well-tuned with numerous tax provisions, and they keep themselves renewed with the latest advancements with regards to rules and regulations of the corporate tax.

An essential aspect to realize here is, tax planning is not tax avoidance. Tax evasion is punishable by law, while tax planning is regarding strategizing the company’s finances so that the net tax payable is less and profit is more within the structure of tax laws. Therefore, the organization must abide by the tax laws and should be well-versed with economic laws and rules set up by the Indian Government.

Dividend Distribution Tax

A dividend is an allocation of profits by the corporation to its shareholders. Dividend Distribution Tax (DDT) is accredited on the distributions of such gains. The company profits are distributed after subtracting the corporate tax obtained on the firm’s overall profit. Currently, the DDT is payable in the company’s hands at an adequate rate of 17.65%.

The Dividend Distribution Tax (DDT) is to be removed from F.Y. 2022. Hence the current A.Y is the last year for the applicability of Dividend Distribution Tax.

FAQs about Corporate Tax

What is corporation tax in India?

The corporation tax in India is the tax levied on its net profits after deducting applicable expenses and deductions. Visit Dialabank to get all the answers to your questions efficiently and easily.

What is a corporation tax rate?

The corporation tax rate for domestic companies with turnover up to ₹ 250 crores is 25%, and for companies with a turnover above ₹, 250 crores are 30%.

What is the difference between income tax and corporate tax? Corporate Tax - Corporation Tax in India

Income tax is levied on the income of individuals. In contrast, corporate tax is levied on companies’ income formed under the Companies Act, 2013 or any previous company law.

How do I calculate my corporation tax?

After paying interest on debts, the corporation’s net profit is multiplied by the tax rate to arrive at the payable corporation tax amount.

How much tax do I pay as a limited company?

The amount of tax you have to pay as a limited company depends solely on the amount of net profit for the concerned financial year.

Is corporation tax calculated on gross profit?

No, corporation tax is calculated on net profit after paying interest on debts.