The corporate tax rate in India on income, wealth and capital gains are some of the biggest taxes that Indian consumers have to pay. Both local and international corporate houses must pay taxes in order to operate their businesses. The corporate tax rate in India, often known as company tax, is one of the several taxes that corporations are expected to pay to the Indian government.
How does the corporate tax rate in India work?
A type of direct tax known as corporate tax rate in India is assessed on the profits made by businesspeople during a specific time period. For varying amounts of earnings made by company houses, different rates of corporate taxes are imposed. The corporate tax rate in India is often assessed on a company’s profits after deductions like depreciation, COGS (cost of goods sold), and SG&A (selling general and administrative expenses).
The Corporate Tax Rate in India
A corporation is a business that has a distinct legal personality from its stockholders. According to the Income-tax Act, both domestic and international enterprises are required to pay their respective corporate tax rate in India. A foreign corporation is only taxed on the money earned within India, that is, the income that is being accumulated or received in India, whereas a local firm is taxed on its overall income.
Concept of a Corporate
A corporation is a legal entity that is considered to be distinct and independent from its stockholders. A company’s income is calculated and evaluated independently from the dividends it pays to its shareholders. These dividends are counted as part of the shareholder’s income rather than being included in the company’s tax computation.
The following categories of corporations can be categorised for the purposes of calculating taxes under the Income Tax Act:
- Domestic Company: A domestic company is one that is registered in accordance with the Indian Companies Act, as well as any foreign-registered business that has its whole control and management in India. Among domestic businesses are private ones.
- Foreign Company: A foreign company is one whose management and control are situated outside of India and which is not registered under the Indian Companies Act.
In India, there are two different sorts of taxes: direct taxes and indirect taxes. In terms of direct taxes, they are assessed on the revenue that various corporate organisations generate over the course of a fiscal year. The Income Tax Department registers many taxpayer kinds, and each of these taxpayer types pays taxes at a different rate. For instance, although taxpayers, an individual and a firm are not taxed at the same rate.
As a result, the direct corporate tax rate in India is further separated into:
- Personal Income Tax: The type of income tax that is paid by individual taxpayers. Individuals are subject to various rates of taxation based on tax slabs.
- Corporate Tax: The income tax that both local and international businesses in India must pay on their income (CIT). The income tax statute sets a precise rate for the CIT, which is subject to annual rate adjustments in the union budget.
What does “Income of a Company” mean?
Before learning about the corporate tax rate in India and how taxes are applied to corporate profits, it is important to understand the many forms of income that corporations may generate. This is it:
- Profits generated by the company
- Capital Gains
- Income from property rentals
- Income from dividends, interest, other sources, etc.
Based on their turnover, the following rates are applicable to domestic businesses for AY 2020–21:
- Section 115BA (Companies having turnover up to Rs 400 crore in FY 2017-18): 25% tax rate, 7%/12%* surcharge
- Section 115BAA: 22% tax rate, 10% surcharge
- Section 115BAB: 15% tax rate, 10% surcharge
- Any other case: 30% tax rate, 7/12% surcharge
*Plus a fee if a firm is subject to section 115BA taxation. When the total income exceeds one crore rupees and is between one crore and ten crore rupees, there is a 7 per cent surcharge. If your whole income is more than Rs 10 crore, there is a 12 per cent fee. However, the surcharge is 10% regardless of the total revenue if a firm chooses to be taxed under sections 115BAA or 115BAB.
The following rates are applicable to foreign companies for AY 2020-21 based on their turnover :
- Royalty received or fees for technical services from government or any Indian concern under an agreement made before April 1, 1976, and approved by central government: tax rate 50%
- Any other income: 40% tax rate
In addition to the above rates:
Surcharge rate :
- If total income exceeds Rs. 1 crore but not Rs. 10 Crore: the tax rate is 7% of tax calculated on domestic company/ 2 % of tax calculated on the foreign company as per the above rates
- If total income exceeds Rs. 10 crore: 12% of tax calculated on domestic company/ 5 % of tax calculated on the foreign company as per the above rates
Health and Education Cess: The amount of the overall tax payable prior to this cess will be increased by an additional 4 per cent of the income tax calculation and appropriate surcharge.
Alternate Minimum Tax (MAT): Alternatively, if the tax determined using the aforementioned rates is less than 15% of book earnings, all businesses (including international businesses) are obligated to pay a minimum alternative tax at the rate of 15% on book profits. If the business chooses neither Section 115BAA nor Section 115BAB, then this will apply.
Information on submitting an income tax return
The deadline for submitting a tax return
Companies, even those that are international, are required to file their income tax returns annually by October 30. Even if the business was founded within the same fiscal year, it must still submit its income tax return for that time period by October 31. Due to the pandemic, the deadline for FY 2019–2020 (AY 2020–21) has been extended until 30 November 2020.
Forms for the corporation to file tax returns
ITR 6: All businesses must submit their returns using Form ITR 6, with the exception of those seeking deductions under Section 11. ITR 7: All businesses have to comply with the Companies Act of 2013’s Section 8 to file their return using the form ITR 7
An audit of a class of firms’ accounts is mandated by the income tax statute, and they must submit the audit report to the IT department with their income tax return. Tax Audit is the name of this audit. Eligible enterprises must also submit this tax audit report by the deadline of September 30. However, the deadline for filing the tax audit report is 31 October 2020 for FY 2019–20 (AY 2020–21). Corporate tax regulations are a vast sea of requirements that all businesses must abide by. Continue reading to learn more about the guidelines and requirements that businesses must abide by.
In conclusion, the corporate tax rate in India poses a significant responsibility for both local and international corporations operating within the country. This direct tax is levied on business profits and varies based on the earnings and deductions applicable to each company. Understanding the different categories of corporations and the types of income subject to taxation is vital for determining the appropriate tax rates. Timely compliance with the income tax return filing deadline and submission of the required forms, such as ITR 6 and ITR 7, are crucial for businesses to fulfill their obligations. Additionally, tax audits play a crucial role in ensuring adherence to tax regulations. By adhering to corporate tax requirements, businesses can operate legally and contribute to the growth of the Indian economy.