What is Corporate Tax in India: Meaning & Types of Corporate Taxes Explained
In a direct taxation system, the income made by an individual or a business entity is taxed as per the prescribed rate. Depending on the categories of taxpayers, this direct tax can be subdivided into personal and corporate tax.
This article summarises the essential aspects of corporate tax in India. Hence, interested readers must keep reading to know more about it.
What Is a Corporate Tax in India?
A corporate tax is a direct tax chargeable on the income earned by foreign and domestic companies in India.
What Are Different Types of Corporates in India?
A corporate implies a juristic person who is a legal body independent from its shareholders. An income generated by a corporate is assessed and evaluated separately from the dividends it provides to its stakeholders. It is not considered in calculating the tax for a corporate but is assessed as a shareholder's income.
A corporate is further divided into 2 categories which are summarised in the following table:
| Corporate Type | Meaning |
|---|---|
| Foreign Corporate | A foreign corporation denotes a company that is not Indian in its origin and registered under the Companies Act of India, where some proportion of management and control rests outside India. |
| Domestic Corporate | A corporate recognised under the Companies Act of India is referred to as a domestic company. It also covers foreign companies where the management and control are entirely based in India. |
What Are the Corporate Tax Rates in India?
Corporate Tax Rate for Domestic Company for AY 2023-24 & 2022-23
| Income Range | Tax Rates for AY 2023-24 | Tax Rates for AY 2022-23 |
| Total turnover or Gross Receipts during the previous year 2020-2021 is not above ₹ 400 crores | 25% | 25% |
| Other domestic companies | 30% | 30% |
| If opted under Section 115BA | 25% | 25% |
| If opted under Section 115BAA | 22% | 22% |
| If opted under Section 115BAB | 15% | 15% |
Corporate Tax Rate for Domestic Company for AY 2021-22
| Income Range | Tax Rates for AY 2021-22 |
|---|---|
| Total turnover of up to ₹ 400 crores in the fiscal year 2018-2019 | 25% |
| Total turnover of ₹ 400 crores for the fiscal year 2019-2020 | NA |
| If opted under Section 115BA | 25% |
| If opted under Section 115BAA | 22% |
| If opted under Section 115BAB | 15% |
Corporate Tax Rate for Foreign Companies for AY 2023-2024 & 2022-23
| Income Range | Tax Rates |
|---|---|
| Royalty earned from an Indian resident or Government after 31st March 1961 but before 1st April 1976/ Fees received from rendering technical services after 29th February 1964 but before 1st April 1976, given the approval from the Central Government | 50% |
| Any Other income | 40% |
What Is the Surcharge Rate and Additional Cess on Corporate Tax?
Following are the surcharge rates and additional cess for AY 2023-2024, 2022-2023, and 2021-2022 which are to be added to the rates mentioned above:
Domestic Companies
| Particulars | Surcharge Rate |
|---|---|
| Aggregate turnover is more than ₹ 1 crore but within ₹ 10 crores | 7% |
| Aggregate income is more than ₹ 10 crores | 12% |
| If opted under Section Section 115BAB and Section 115BAA | 10% |
| Health and education cess | 4% |
| MAT (Minimum Alternate Tax) on profits, applicable when the tax is calculated according to Section 115JB | 15% |
Foreign Companies
| Particulars | Surcharge Rates |
|---|---|
| Aggregate turnover is more than ₹ 1 crore but within ₹ 10 crores | 2% |
| Aggregate income is more than ₹ 10 crores | 5% |
| Health and education cess | 4% |
What Are the Types of Income That a Company Earns?
Knowing about the components that constitute the total income of a company is essential to compute corporate tax on it. Here are the following types of income that makes up the income of a company:
- Profits
- Capital gains
- Income arising from renting a property
- Additional sources of income, such as interest and foreign dividends
Things to Consider for Calculating Net Income of a Corporate
Once an individual understands what comprises an income of a corporation, it's easier to calculate its net income. A corporation usually calculates corporate tax on net revenue. The latter is the remaining amount after deducting the required expenses from income. The components of income have been discussed above. Now, the expenditures of a corporate include-
- Depreciation
- The cost of selling commodities
- Expenditures associated with administrative purposes etc.
Thus, after assessing both, use the following formula to calculate the net income of a corporate-
Net Income = Gross Income – (Expenditures + Depreciation)
What Are the Tax deductions Available on Income Tax of a Corporate?
Here is the list of tax rebates available on income tax of companies -
- A domestic company can eliminate the dividends received from another domestic company while calculating its income.
- Deductions are available for new undertakings and export
- A company can claim deduction on newly established infrastructure and power sources
- Certain provisions are available for venture capital enterprises and funds.
- A company can take forward a business loss for up to 8 years.
- In specific cases, deductions are applicable on dividends, interest and capital gains.
Knowing about the details of corporate tax in India will assist a company in planning their finances in advance and managing their tax liabilities accordingly. However, one can take help from professionals to avoid any inconvenience later.
Frequently Asked Questions
Do companies need to pay MAT other than corporate tax?
Yes. According to Section 115JB, corporate taxpayers are eligible to pay MAT in a particular year. This is valid when the income tax payable towards the overall income is calculated according to the Income Tax Act and is below 15% of its book profit, in addition to health and education cess and surcharge.
Has the Government extended a concession on corporate tax?
Yes, the Government has offered a concession on corporate tax by 15%, which is available up to March 2024.