Corporate Tax: Introduction

CORPORATE TAX

Indian taxation system is divided into two types

One is Direct Taxes and other is Indirect Taxes.

Direct taxes are levied on the income that different types of business entities earn in a financial year. There are different types of taxpayers registered with Income tax department and they pay taxes at different rates. For eg, An individual and a company being a taxpayer are not taxed at the same rate. Therefore, Direct Taxes are again subdivided as:

Income Tax: This tax is paid by the taxpayers other than companies registered under company law in India on the income earned by them. They are taxed on the basis of slabs at different rates.

Corporate Tax: This tax is paid by the companies registered under company law in India on the net profit that it makes from businesses. It is taxed at a specific rate as prescribed by the income tax act subject to the changes in the rates every year by the IT department.

Corporate Tax in India

Domestic as well as foreign companies are liable to pay corporate tax under the Income-tax Act. While a domestic company is taxed on its universal income, a foreign company is only taxed on the income earned within India i.e. is being accrued or received in India.

For the purpose of calculation of taxes under Income tax act, the types of companies can be defined as under

Domestic Company: Domestic Company is one which is registered under the Companies Act of India and also includes the company registered in the foreign countries having control and management wholly situated in India. A domestic company includes private as well as public companies.

Foreign Company: Foreign Company is one which is not registered under the companies act of India and has control & management located outside India.

What is meant as Income of a company?

Before understanding about the rate of taxes and how will the tax be calculated on income of the companies, we should learn about the types of income which a company earns. Here it is :

1. Profits earned from the business
2. Capital Gains
3. Income from renting property
4. Income from other sources like dividend, interest etc.

Tax rates applicable

Taxes on Income

The following rates are applicable to the domestic companies for AY 2019-20 based on their turnover

Particulars	Tax Rate
Gross Turnover upto Rs. 250 Crore in FY 2016-17	25%
Gross Turnover exceeding  Rs. 250 Crore	30%

The following rates are applicable to foreign companies for AY 2019-20 based on their turnover

Nature of Income	Tax Rate
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	50%
Any other income	40%

In addition to above rates

Surcharge rate

Particulars	Tax Rate
If total income exceeds Rs. 1 crore but not Rs. 10 Crore	7% of tax calculated on domestic company/ 2 % of tax calculated on foreign company as per above rates
If total income exceeds Rs. 10 crore	12% of tax calculated on domestic company/ 5 % of tax calculated on foreign company as per above rates

Health & education Cess :

Further 4 % of income tax calculated and applicable surcharge will be added to the amount of total tax liability before this cess.

Minimum Alternate Tax (MAT)

Alternatively, all the companies (including foreign companies) are required to pay minimum alternate tax at the rate of 18.5 % on book profits if the tax calculated as per above rates are less than 18.5% of book profits.