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Corporate Tax

Corporate tax (also referred to as company tax) is levied on a company’s net income. Both private and public companies registered in India under the Companies Act, 1956, are required to pay this tax.

A form of tax that is levied on profits earned by companies, businessmen in a certain period of time is called Corporate tax. Different rates of this kind of tax are levied for various levels of profits that are garnered by various business houses. Generally, Corporate tax is levied on the revenues of a company, after certain deductions like depreciation, SG&A or Selling general and administrative expenses, COGS or Cost of Goods Sold etc. have been considered.

Company tax or commonly, corporate tax can be considered as a form of Income Tax for income earned by businesses. Quite a few countries have levied corporate tax so as to ensure that the tax process for enterprises is carried out smoothly. Countries across the globe have various rules that apply to the process of taxing of income.

Lets understand all about Corporate Taxes:

What is Corporate Tax in India?

The taxation system in India is divided into two types: Direct Tax and Indirect Tax. Corporate tax falls under the direct tax category. Companies registered under company law in India are liable to pay this tax on the net profit that they make from businesses. It is taxed at a specific rate (directed by the Income Tax Act), subject to the changes in the rates each year by the IT department.

Corporate Tax Planning

To understand Corporate tax planning better, it can be summarised as strategizing one’s financial business affairs in such a way, that they maximize profit and minimize payable tax by taking into consideration the allowed benefits of deductions, rebates and exemptions. As tax management is considered to be a tricky and risky business, most companies with huge amount of money at stake have financial experts involved to manage their taxation process.

There are several financial players in our country as well that provide consultation and implementation of corporate tax India. Complete awareness and due diligence about every tax law and corresponding rules and regulations is extremely important to ensure healthy tax planning.

Corporate tax in India planning differs from non-payment or tax evasion. Tax planning can be referred to the act of planning an individual’s finances in such a way that the payable tax amount is reduced while the gains are maximized. One of the most important features of tax planning is that it is completely in-line with the legal and financial rules set by the Government of India.

Corporate Tax Rate for Domestic Companies in India

The Centre has brought down effective corporate tax to 25.17%, inclusive of all cess and surcharges, for domestic companies in India.

Finance Minister Nirmala Sitharaman said that the new tax rate would become applicable from the current fiscal, which commenced on April 1. A new provision that has been inserted in the Income Tax Act with effect from FY 2019-20 permits domestic firms to pay income tax at 22%, subject to the condition that they will not claim any incentive or exemptions. Manufacturing companies established after October 1 have the option to pay 15% tax. Effective tax rate for new manufacturing firms shall be 17.01% inclusive of surcharge & tax.

Corporate Tax Rate for Foreign Companies in India

An enterprise that has operations and origin in any other country except India is called as a foreign company. For foreign enterprises, the taxation rules are not as simple as they are for domestic businesses. Corporate tax on foreign companies is highly dependent on the taxation agreements that are made between India and other foreign countries. To cite an example, corporate tax on an Australian company in India will depend upon the taxation agreement between the governments of India and Australia.

Tax Rebates Applicable on Corporate Tax

If we leave the various types of taxes levied on company income aside, there are several provisions of tax rebates that exist for companies. A detailed list of all these rebates is mentioned below:

  • In a few cases, domestic companies are allowed to deduct dividend received from other domestic companies

  • Special provisions are applicable to venture capital enterprises and venture funds

  • In some cases, deductions are allowed for exports and new undertakings

  • New infrastructure and power sources set-up is subject to certain deductions

  • Business losses have the provision of being carried over for a maximum of 8 years

  • Interest, capital gains and dividends can also be deducted in some cases

Corporate Tax Rates AY 2019-20

The below rates are applicable to the domestic companies for AY 2019-20 on the basis of their turnover:

ParticularsTax Rate
Gross Turnover up to Rs. 250 crores in FY 2016-1725%
Gross Turnover more than Rs. 250 crores30%

Corporate tax rates for foreign companies AY 2019-20

ParticularsTax Rate
Fees or royalty received for technical services from an Indian concern or government under agreements made prior to April 1, 1976, approved by the central government50%
Any other income40%

FAQs on Corporate Tax

What is the current corporate tax rate?

The government has reduced the corporate tax rate from 30% to 22% for existing companies, and from 25% to 15% for new manufacturing companies. On taking surcharge and cess into account, the effective tax rate for existing firms would come to 25.17% from 35%.

What is the taxable income in India?

An individual’s salary is considered taxable in India if he earns more than Rs. 3 lakhs per annum from his profession.

What kind of tax is corporate tax?

Corporate tax is a type of direct tax that the taxpayer directly pays to the government.

What is the corporate tax used for?

Corporate tax is used to collect taxes on the profits earned by businessmen in a certain period of time, say a financial year.

Do small businesses pay corporate taxes?

No small businesses don’t need to pay corporate tax. The only type of organisations that need to pay corporate tax are ‘corporations’.

Is corporate tax included in national income?

Yes, corporate tax is included in national income as it is a direct tax.

How is income tax different from corporate tax?

Corporate tax is charged on the profits by companies, while income tax is levied on personal income.

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