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Corporate 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.

What is Corporate Tax in India?

In India, corporate tax is levied on both foreign as well as domestic companies. Similar to the concept of all individuals earning income paying taxes, their income, business houses too are supposed to a certain portion of their income earned as tax. This tax is commonly called corporate tax, corporation tax or company tax.

Corporate Tax Rate for Domestic Companies in India

In India, a domestic company refers to an enterprise that has the prime or base location in India and is of Indian origin. Listed below are the tax rate applicable to domestic businesses in the country.

  • 25% flat rate of corporate tax is levied on the income earned by a domestic corporate. If the income of the domestic corporate in the previous year 2016-17 doesn't exceed Rs. 250 crores

  • 12% surcharge is levied in case the turnover of a company is more than Rs.1 Crore for a specific financial year.

  • An educational cess of 4% is levied.

  • Also, corporate tax is levied on the global earnings of the domestic company. This considers the income earned by the company abroad.

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 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. Complete awareness and due diligence about every tax law and corresponding rules and regulations is extremely important to ensure healthy tax planning.

Corporate tax 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.

Highlights of Union Budget 2018 for Corporate Tax

In the Union Budget of 2017, the Government of India had declared a decrease in corporate tax rate to 25%. This was only applicable to companies who had turnovers less than Rs.50 crore during FY 2015-16. Under the recent Union Budget of 2018, Mr. Arun Jaitley, the Finance Minister announced that this specific decreased rate of 25% will be applicable even to companies that have had turnovers of up to Rs. 250 crore during the financial year of 2016-17.

The government has implemented this in order to help all companies that fall under the micro, small, and medium enterprises. This is especially because approximately 99% of these organisations’ employees file tax returns.

As per the Budget 2018, about 7,000 organisations out of 7 lakh organisations that file returns will be retained in the 30% tax rate slab. These particular companies will be those who have turnovers higher than Rs.250 crore.

There is an anticipation that the revenue that is sacrificed due to this specific move of extending the 25% decrease rate is Rs. 7,000 crore for the financial year 2018-19. This is deemed as a significant move by the Finance Minister which will cause a great economic reform to enhance the overall tax system of the country. This further helps to boost the competitive edge we have as a nation, over other countries.

Moreover, this reduced corporate income tax rate for majority of companies will enable them to provide more employment opportunities to the Indian population.

Frequently Asked Questions

What is the current corporate tax rate 2018?

Currently, the Corporate Tax Rate in India stands at 34.61 percent. In India, Corporate Tax Rate averaged 34.92 percent from 1997 until 2018, thereby reaching an all-time high of 38.95 percent in 2001 and a record low of 32.44 percent in 2011.

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.

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