Corporate tax in India depends on a company's income from business and commercial activities. However, there are several tax rebates and exemptions available that can lower the effective tax rate. Corporate tax is an extremely significant source of revenue for the Indian government and is a key component of the country's tax system. The corporate tax regime in India is complex, and the rules and regulations are constantly changing. As a result, it is imperative for businesses to stay up to date with the latest changes and to ensure that their tax affairs are in order.
Did You Know? The corporate tax rate in India is 25% of taxable income.
Corporate Tax - Overview
Corporate tax in India is imposed on the income of Indian companies and foreign companies with an office in India. The tax is levied on income earned during the fiscal/financial year in India, which runs from 1 April to 31 March. The surcharge is paid on the total income of the company. The tax amount is applicable to income from all sources. Tariff charges are also paid on income from a business, a profession, interest, dividends, and other sources.
Also Read: Everything You Need to Know About Surcharge on Income Tax
Types of Companies
There are four types of corporations in India: public sector units (PSUs), private sector companies (PSCs), foreign companies (FCs), and non-governmental organizations (NGOs). PSUs are owned by the government and are either owned or partially owned by the government. PSCs are privately owned companies that are not listed on any stock exchange. FCS are companies that are incorporated in India but have foreign ownership. NGOs are not-for-profit organizations that work for the welfare of society.
Corporate Tax Rates for Domestic Companies
Corporate tax is a tax levied on the profits of a company or corporation. In India, corporate tax is governed by the Income Tax Act of 1961. The tax is levied at the rate of 30% on a company's taxable income.
|
Section |
Tax Rate |
Surcharge & Cess |
Effective Tax Rate |
|
Section 115BA: Companies with a turnover of up to Rs 400 Crore in FY 2017-18 |
25% |
7% / 12%* 4% |
27.82% / 29.12% |
|
Section 115BAA: Domestic companies not claiming any exemptions/incentives |
22% |
10% 4% |
25.17% |
|
Section 115BAB: New domestic manufacturing companies |
15% |
0% 4% |
17.16% |
|
Companies not falling under any of the sections above |
30% |
7% / 12%* 4% |
33.38% / |
Corporate Tax Rates for Foreign Companies
Corporate tax is a major source of revenue for the government. It is estimated that corporate tax contributes around 10% of the total revenue of the government.
|
Section |
Tax Rate |
|
Royalties & Fees for technical services received from the Indian Govt or Indian corporates, based on approved agreements made before April 1, 1976. |
50% |
|
Any other income |
40% |
Surcharge Rates
The tax is payable based on the company's accounting year. The tax is payable within six months of the end of the financial year.
|
Total Income |
Surcharge Rate |
|
More than Rs 1 crore but below Rs 10 crore |
2% |
|
More than Rs 10 crore |
5% |
Corporate Tax Rebates
A corporate tax rebate refunds a portion of a company's tax liability. The government may provide rebates to encourage businesses to invest and grow in the economy. In India, corporate tax rebates are available to companies investing in certain projects. The government must approve these projects and they must be located in specific areas. The purpose of the rebate is to encourage investment in these areas and to create jobs. The rebate is typically a percentage of the total investment made by the company.
Tax Rebates Applicable to Corporate Tax
Corporate tax rebates are available in India for a variety of reasons. Some of the more common ones include
1. Rebates for Reinvestment of Profits
Organisations that reinvest their profits in certain specified activities are entitled to a corporate tax rebate.
2. Export Profits
Some companies engaged in export activities are entitled to a rebate on the corporate tax paid on their export profits.
3. Research and Development
These organisations engaged in research and development activities are entitled to a rebate on the corporate tax paid on their research and development expenditure.
4. Employment Generation
They generate employment and are entitled to a rebate on the corporate tax paid on their employment income.
5. Infrastructure Development
Companies engaged in infrastructure development are entitled to a rebate on the corporate tax paid on their infrastructure expenditure.
Corporate Tax Planning
Corporate tax planning in India is a process that helps companies minimize their tax liability and maximize their profits. It involves analyzing the company's financial situation and deciding how to structure its business affairs to minimize its tax liability. Companies can use several tax-planning strategies, including choosing the right business entity, taking advantage of tax deductions and credits, and properly timing income and expenses.
Choosing the right business entity is an essential part of corporate tax planning. In India, companies can be taxed as either a sole proprietorship, partnership, or corporation. Each business entity has different tax implications, so choosing the one that will result in the lowest tax liability is critical. Corporate tax planning is an integral part of doing business in India. Taking advantage of the above-mentioned strategies can minimize your company's tax liability and maximize its profits.
Various Rebates and Deductions for Corporate Tax
There are various rebates and deductions for corporate tax in India. These include
1. Investment-Linked Deduction
An investment-linked deduction would be available to Indian companies that are engaged in the business of innovation and development or improvement of products and services making a high profit with multiple employees.
2. Export-Oriented Unit Deduction
This deduction is available for export-oriented units and projects approved by the Government of India.
3. Deduction for New Industries
This deduction is available for investments made in new and existing industries in backward areas.
4. Deduction for Employment of Newly-Hired Workers
This deduction is available for investments made in employing new workers in the industrial sector.
5. Deduction for the Training of Newly-Hired Workers
This deduction is available for investments made in training new workers in the industrial sector.
Benefits of Corporate Tax
Corporate tax is a major source of revenue for the Indian government, and it plays a crucial role in the development of the country. Corporate tax is levied on the profits of companies, and it is used to finance various government initiatives and programs. Corporate tax is a valuable tool for the government to ensure that companies operating in India contribute to the development of the country.
Some of the key benefits of corporate tax in India are:
1. Corporate tax is a major source of revenue for the government, and it helps to finance various development programs.
2. Such taxes are a crucial tool for the government to encourage companies to invest in India.
3. It helps to create employment opportunities in the country.
4. There is a benefit that promotes the growth of the Indian economy.
5. Corporate taxes help to reduce inequalities in the distribution of wealth.
The Drawbacks of Corporate Tax
Corporate tax in India has been a controversial topic in recent years. There are several drawbacks to the current system that have been widely criticized.
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First, the current corporate tax system is complex. This complexity makes it difficult for businesses to comply with the law and results in a significant amount of tax evasion.
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Another major criticism of the current system is that it is unfair to small businesses. The current system favours large businesses, which can afford to hire expensive accountants and lawyers to help them minimize their tax liability.
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Finally, the current system is also criticized for being inefficient. Many businesses can avoid paying corporate taxes, which results in a loss of revenue for the government.
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Despite these criticisms, the corporate tax system in India remains in place. The government has made some reforms in recent years, but the overall system remains complex and unfair.
Conclusion
In conclusion, corporate tax is a crucial aspect of the business world and it is critical for companies to understand their obligations and responsibilities regarding it. The amount of tax a company has to pay varies depending on several factors such as its location, size, and financial performance. With ever-changing tax laws, it is advisable for companies to stay up to date with the latest developments and seek the advice of a tax expert to ensure they are in compliance with all regulations. Overall, corporate tax plays a significant role in shaping the economy and helps fund public services that benefit society as a whole.
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