Corporate Tax in India - Overview, Rates & Tax Liability

Corporate Tax in India - Overview, Rates & Tax Liability

Corporate taxes in India are sub-headed into two categories: direct taxes and indirect taxes. 

Various types of taxpayers are registered with the Income Tax Department and pay taxes at various rates. 

During a fiscal year, direct taxes are levied on different business entities' profits.

Concluding it, Direct Taxes are later categorised as follows:

Personal Income Tax: It signifies the income tax paid by individual taxpayers. 

Individuals are taxed at a variety of rates depending on tax slabs.

Corporate income tax is the income tax paid by domestic and foreign companies on their income in India (CIT). 

The CIT is levied at a specific rate set by the Income Tax Act, which is subject to annual currency fluctuations in the Union Budget.

Corporate Tax in India

A corporate is a legal sense which is unique from its shareholders. 

The Corporate tax Act requires both domestic and foreign corporations to pay corporate tax. 

The total income of a domestic company is taxed. Thus, it varies in terms of whether a foreign company is only taxed on income earned within India.

The following types of companies can be defined to calculate taxes under the Corporate Tax Act:

  1. Domestic Company: A domestic company is registered under the Companies Act of India and registered in a foreign country but has control and management in India. 

A domestic company can be either private or public.

  1. Foreign Company: A foreign company is not registered under the Companies Act of India and has control and management outside India.

What is a company's income?

Before we can understand the tax rates and how the tax will be calculated on a company's income, we must first understand the different types of income that a company can earn.

Here you go:

  • Profits generated by the business
  • Gains on Capital
  • Income from property rental Income 
  • applicable tax rates

Income taxation

These rates apply to domestic companies for AY 2020-21, depending on their turnover;

Sections

Tax rate

Surcharge

Section 115BA (Companies having turnover up to Rs 400 crore in FY 2017-18)

25%

7%/12%*

Section 115BAA

22%

10%

Section 115BAB

15%

10%

Any other case

30%

7%/12%*

*An addition if a corporation is taxed under Section 115BA. 

Surcharges are levied at a rate of 7% if the total income exceeds one crore rupee but is at most Rs 10 crore. 

If your total income exceeds Rs 10 crore, you will be charged a 12% surcharge. 

Although, if a company selects to be taxed under Section 115BAA or Section 115BAB, the surcharge is 10% regardless of total income.

These rates apply to foreign companies for AY 2020-21, depending on their turnover;

Nature of Income

Tax Rate

Royalties or fees for technical services received from the government or any Indian concern under an agreement signed prior to April 1, 1976, and approved by the central government.


50%


Any other income


40%

In addition to the above rates:

Surcharge rate:

Particulars

Corporate Tax Rate

If total income exceeds Rs. 1 crore but not Rs. 10 Crore

7% of tax calculated on domestic company/ 2 % of tax calculated on the foreign company as per above corporate tax rates


If total income exceeds Rs. 10 crores

12% of tax calculated on domestic company/ 5 % of tax calculated on the foreign company as per the above rates

Education and health Cess: An additional 4% of premeditated taxable income and an applicable surcharge will indeed be added to the figure of total tax liability before this cess.

Minimum Alternate Tax (MAT): Alternatively, if the tax calculated using the above rates is less than 15% of book profits, all companies (including foreign companies) are required to pay a minimum alternate tax of 15% on book profits. This will apply if the company does not select Section 115BAA or Section 115BAB.

Things to know on filing your income tax return

1. Income tax return filing deadline

Companies, including foreign corporations, must file their income tax returns on or before October 30th of each year. 

Even if the company was founded during the same fiscal year, it must file its income tax return for that period on or before October 31.

Due to the pandemic, the deadline for FY 2019-2020 (AY 2020-21) has been extended to 30 November 2020.

2. Forms of tax return to be filed by the company

ITR 6: Except for companies claiming a deduction under Section 11, all businesses must file their returns using Form ITR 6. 

Form ITR 7 is required to be filed by all companies registered under Section 8 of the Companies corporate tax Act of 2013.

3. Tax Audit

The Income Tax Act requires certain businesses to have their accounts audited and submit an audit report to the IT department along with their tax return. 

This is known as a Tax Audit. 

Eligible companies must also submit this tax audit report by September 30th. 

However, the deadline for submitting the tax audit report for FY 2019-20 (AY 2020-21) is October 31, 2020. 

The corporate tax act is a vast ocean of regulations that all businesses must follow.

Read more,

Valuation Of Shares Under Income Tax Act

Depreciation Rate as Per Income Tax Act

Individual Personal Income Tax Services

Conclusion

The primary goal of tax planning is to apply current laws to the revenue received by a company during a given tax period. 

However, the goal of tax planning should not be to defraud the government. As a result, it must be correct in both form and substance.

Corporate taxes are a significant source of revenue for governments, particularly in developing countries such as India. 

In fact, corporate tax in India collection for the fiscal year 2019-20 was Rs. 5.56 lakh crores, which was lower than in previous years. 

This tax effectively ties the country's entire tax system together. As a result, corporate tax is irreplaceable and an essential tool for India's economic growth.

FAQs

  • What is regular assessment tax, and how is it paid?

According to the Income-tax Act, everyone is responsible for correctly calculating and paying their taxes. When the Department discovers an understatement of income and the resulting tax due, it takes steps to calculate the actual tax amount that should have been paid. This demand imposed on the individual is known as Tax on regular assessment. The tax on regular assessment-400 must be paid within 30 days of receiving the demand notice.

  • Is my obligation under the Income-tax Act discharged once I have paid my taxes?

No, you are then responsible for ensuring that the tax credits are available in your tax credit statement and TDS/TCS certificates and that full particulars of income and tax payment are submitted to the Income-tax Department in the form of a Return of Income, which must be filed by the due date specified.

  • What is Tax Planning for Corporations?

The desire to expand business operations drives them to seek out tax-saving strategies. Tax planning entails analysing one's financial situation and optimising it to the greatest extent possible. This enables businesses to make the best use of tax exemptions, deductions, and benefits, reducing their tax liability over the course of a fiscal year.

  • What are the objectives of tax planning?

A taxable entity uses the following methods to implement tax planning:

Short-term tax planning:

 It refers to the planning and implementing strategies to reduce taxable income at the end of a fiscal year.

Long-term tax planning: 

At the start of an income year, businesses create a long-term tax plan that is followed throughout the year.

Permissive tax planning:

 It entails making plans related to the provisions permitted by law, such as earning income under Section 10(1) and so on.

Purposive tax planning: 

It entails applying tax provisions to provide tax benefits based on asset replacement, correct investment selection, diversifying business activities and income, and so on.

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