Corporate Tax in India: Learn What It Is, Why Companies Pay It, and How It’s Calculated

Last Updated : May 16, 2023, 4:14 p.m.

Everyone pays taxes in one way or the other. Whether purchasing goods and products online or paying utility bills, taxes are part of the amount you are responsible for paying. The tax collection from multiple sources might lead you to consider certain things about taxes. So, what taxes are companies accountable for paying to offer their products and services? The tax that all business enterprises are liable to pay is the Corporate Tax. Such taxes account for a considerable share of the Indian Government’s revenue. All companies in India pay corporate tax. If you wish to know more about Corporate Tax in India, you can follow the guide.

What is a Corporate Tax?

Corporate Taxes are levied on the revenues of a business enterprise. They are paid on an organisation’s taxable income, including the profits minus the prices of the sold goods, selling, advertising, marketing, research, development, operational expenditures, etc. The rates on corporate taxes range from one country to another, with a few countries having low rates. Several deductions, subsidies from the government, and flaws in the tax system can lower corporate taxes. The effective rate of a Corporate Tax that a business organisation pays is lesser than the statutory rate, the rate mentioned before subtraction.

Corporate Tax in India

The Corporate Tax in India is imposed on companies and is an income source for the Indian Government. The calculation takes place depending on the net income of an organisation. The income types that a business entity are as follows:

• Revenue that a Business Gains- Such revenues are the financial perks that an entity realises when its overall profit tops the general expenses.
• Profits Earned on a Property Rent- Suppose a business enterprise rents its property. In that case, the profits generated from renting it fall under business income.
• Capital Gains- The rise in the value of an organisation’s capital assets is called capital gains. It can be short or long-term and asserted on income taxes.
• Additional Income Sources- Additional income sources of a company which is not taxable under other heads are taxable under income from other sources, including profits earned from dividends, interests, etc.

All companies, domestic or foreign, are bound to pay a yearly Corporate Tax. Hence, such taxes depend on a company’s profits in a fiscal year.

Corporate Tax Rate in India

The details given below are a summary of the Corporate Tax Rate in India:

Rate of Corporate Tax for Domestic Business Organisations

Public and private sector companies registered under the 1956 Companies Act are liable to pay Corporate Tax in India. The current rate for domestic companies is approximately 30%. Apart from the rate of 30%, the IT Act imposes a surtax of 7% in case the net income varies from one crore to ten crore Indian rupees. Suppose a business organisation’s net income exceeds ten crore Indian rupees. In that case, a 12% surtax is imposed on it.

Rate of Corporate Tax for Foreign Business Enterprises

Foreign Business Enterprises are liable to pay corporate income tax on the earned profits within a given time. The rate imposed on royalties or charges earned stands at 50%. On the other hand, additional income or the balance is taxable at a rate of 40%. If a foreign organisation’s net income varies from one crore to ten crore Indian rupees, a 2% surtax is applicable. On the other hand, if the net income is more than ten crore Indian rupees, a surtax of 5% is levied.

Other Charges

A 4% health and education cess is imposed on the income tax sum, including surtax, regardless of an entity’s net income level. Business enterprises availing privileges under Section 115BAA are excused from paying the MAT under the 115JB Section.

Planning of Corporate Tax

Planning of tax is an evaluation of your financial situation and its escalation to a high degree, which lets companies take advantage of tax exemptions, subtraction, and perks that reduce tax liability in a fiscal year. A few objectives of tax planning are as follows:

• Growing savings
• Investing productively
• Reducing litigation
• Decrease in tax liability
• Developing growth

Business Enterprises plan tax through various methods, which are as follows:

• Short-term Tax Planning
• Long-Term Tax Planning
• Permissive Tax Planning
• Purposive Tax Planning

The vital objective of tax planning is to apply existing rules to the earned profits in a given time. The intention behind planning corporate tax must not be to defraud the profits and can be in form and substance.

Tax Deductions

In addition to the taxes imposed on companies, tax rebates are available to corporations. Some of them are as follows:

• Specific rebates apply to installing new infrastructure and electricity sources.
• Reimbursements for new ventures and exports are allowed under certain conditions.
• Domestic organisations can subtract dividends earned from other companies under certain situations.
• In rare circumstances, there is also a reduction in dividends, interest, and capital profits.

Conclusion

The IT Act of 1961 imposes Corporate Tax on Indian and foreign business enterprises. With the help of the Act, the Government mandated that companies in India are liable to pay corporate tax depending on their net income. Foreign companies in India are responsible for paying based on their earned revenue accumulated or received in the country. If you want to learn more about corporate tax, you have landed at a good place. The article contains some essential information about corporate tax. Whether you are a founder of a start-up or an owner of a business, you can read the guide carefully to learn more about Corporate Tax in India .

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