In our day-to-day lives, we all pay taxes in one form or another. Whether it is about buying items online or paying utility bills, taxes form a part of the amount we are liable to pay. This tax collection at different sources might have made you wonder:
‘What kind of taxes do businesses need to pay to offer products/services?’
The simplest answer is ‘Corporate Tax’.
If you want to know more in this regard, you’ve come to the right place. Here, we will cover various sides of corporate tax in detail. Before we proceed with this subject, let us help you know more about Indian taxation.
The road to corporate tax in India
Basically, there are two types of taxes in India:
- Direct tax – the one that is levied on the income earned by different types of business entities in a financial year
- Indirect tax – the one that can be passed on to another entity or individual (e.g. excise duty, custom duty, etc.
Direct taxes are again classified into:
- Personal income tax (meant for individual taxpayers)
- Corporate tax (meant for domestic and foreign companies)
Got a hint of corporate income tax in India? Let’s get into the details now.
What is a corporate tax in India?
The corporate tax, as mentioned above, is a type of direct tax that is levied on the profits earned by a corporate/business entity in a particular period. Also known as company tax, it can also be considered the income tax for businesses in layman’s terms.
Company tax is levied at different rates for different levels of profits earned by a company. In general, this tax is levied on the company revenues after taking into account various deductions, such as Cost of Goods Sold (COGS), Selling General & Administrative (SG&A) expenses, and depreciation.
You should also know that the rules related to taxing the income of a business in India may differ from those in other countries.
For your information:
A corporate is a separate and independent legal entity from its shareholders. Hence, its income
is computed separately from the dividends it offers to various shareholders. Besides this, the dividends are covered as a part of the shareholders’ income.
You May Also Like to Read: What is GST? Goods and Services Tax Explained
Corporate tax calculation process
In India, corporate tax is levied on both domestic and foreign companies. Before we dig deeper into the corporate tax rates, you should also know that the companies in India are broadly classified into two categories for business tax calculation purposes:
Domestic corporate
A domestic company is the one that is registered:
- Either Indian or
- Foreign but having the full control and management situated in India
Foreign corporate
A foreign corporate does not have Indian origin and has a part of control and management located beyond Indian borders.
Applicable corporate tax rates in India for AY 2021-22
Corporate tax rate for domestic companies for AY 2021-22
Based on the income, the business tax rates for domestic companies are as follows:
| Income range | Tax rate |
| Gross turnover up to Rs. 400 crore | 25% |
| Gross turnover exceeding Rs. 400 crore | 30% |
In addition to the above rates, a surcharge is also levied at the following rate:
| Income range | Surcharge rate |
| If the total income is between Rs. 1 crore and Rs. 10 crore | 7% |
| If the total income is above Rs. 10 crore | 12% |
** In case the company opts for taxation under Section 115BAA and 115BAB, the surcharge rate is 10% irrespective of the income.
Corporate tax rate for foreign companies for AY 2021-22
| Nature of income | Tax rate |
| Fees or royalty received for technical services from the Indian concern or the government under agreements made before 1 April, 1976 and approved by the central government | 50% |
| Any other form of income | 40% |
In addition to the above rates, a surcharge is also levied at the following rate:
| Income range | Surcharge rate |
| If the total income is between Rs. 1 crore and Rs. 10 crore | 2% of tax calculated above as per the above rates |
| If the total income is above Rs. 10 crore | 5% of tax calculated above as per the above rates |
Health and education cess
To the total corporate tax liability as per the rates detailed above, a 4% of calculated income tax and applicable surcharge will be added before this cess.
Minimum alternate tax (MAT)
All the corporates – both domestic and foreign, are required to pay MAT at the rate of 15% of book profits if the tax calculated as per the above-mentioned rates is less than 15% (of book profits). This is applicable if the company does not opt for taxation under Sections 115BAA and 115BAB.
More about filing ITR to pay business tax
Due date to file an income tax return
All the corporates including foreign companies have to file their income tax return on or before October 30 every year. This is also applicable to the companies that come into existence in the same financial year.
Forms for corporate tax returns
Form ITR 6 is meant for all the companies except those claiming deduction under Section 11. On the other hand, the companies registered under Section 8 of the Companies Act, 2013 need to file the return using Form ITR 7.
Tax audit
The Income Tax Act also requires a certain set of companies to get the tax audit done and submit the audit report to the IT department along with the ITR before September 30.
What does the Income of a Company include?
The corporate tax calculation also requires you to know about various components of the total income of a company. These include:
- Profit from business
- Income from property
- Income from other sources, such as interests, dividends, etc.
- Capital gains
Applicable tax rebates on corporate tax
In relation to various components of corporate tax levied on the income of companies, there are several provisions that cover tax rebates available to them. These include:
- A domestic company can deduct dividends received from another domestic company in certain cases.
- There are some provisions applicable to venture capital enterprises and venture funds.
- Tax deductions are also allowed for exports in some cases.
- Certain deductions are applicable to new infrastructure and power source setup.
What is corporate tax planning?
Corporate tax planning is often considered a way to strategize the financial business affairs of a company to maximize profit while also minimizing the total payable tax. This also takes into account the benefits of rebates, deductions, and exemptions.
Since most corporates have huge amounts of money at stake, tax management becomes risky for their business. This is why they need to hire financial experts to take care of the taxation process. Hence, it is important for them to be aware of the tax laws and related regulations for efficient tax planning.
You should also know that corporate tax planning is in-line with the rules and regulations set by the Indian government. It is not the same as tax evasion or non-payment of taxes.
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