Corporate

Corporate Tax in India

LegalKart Editor
LegalKart Editor 06 min read 596 Views
Last Updated: Nov 06, 2023
Corporate Tax in India: Tax Rates, Rebates and Tax Audit

Corporation/Corporate Tax is a direct tax levied on the profit or net income of a corporate entity from their business, which may be foreign or domestic. This Tax can be imposed by countries at national, state and local levels.

Tax Audit

Tax audit refers to the exercise of verification of account books that are maintained by the taxpayer. Purpose of the tax audit is to ensure compliance with the Income tax laws. It is carried out to catch any discrepancy or mistake that may have occurred in the accounts, which may lead to disclosure of wrong information to the authorities. In India, the income tax Act mandates a company to get an audit done, the audit report as well as the Income tax return have to be submitted.

Corporate Tax in India

In India, the corporate tax is regulated under the Income Tax act, 1961. Resident Indian companies have to pay corporate tax on their worldwide incomes while non-resident countries have to pay it on their income accrued from India.

Domestic Corporate

The importance of this differentiation is that domestic and foreign corporates are taxed differently. Under the Indian law a domestic company is that which is registered under the companies act of India which also includes those companies registered abroad but having management and control based in India.

Foreign Corporate

In India, a foreign corporate is that which is not registered under the companies act and is not controlled or managed from India. The Taxation rules of foreign corporates are completely dissimilar to the domestic corporations. They are dependent on the agreement between the nation in which the foreign company is based and India. Hence it would vary according to the corporate and its country.

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What is Income of a Company?

Taxable Income of a company is the income obtained by it minus the allowed tax deductions. This is the amount of Income which a company makes on which the government imposes taxes. Under the Income Tax Act,1961 income is defined as a sum of profits and gains, dividends and various other components mentioned in section 2(24), it is not an exhaustive but inclusive definition.

Tax Rates Applicable

Domestic Corporations

No.

OPTIONS

TAX RATES

Sur Charge

Cess

Effective Tax Rate

1

Turnover<400 crores in previous FY

25%

7%(income>1crore)

12%(income>10crore)

4%

 

2

Opted section 115BA

25%

7%(income>1crore)

12%(income>10crore)

4%

 

3

Opted section 115BAA

22%

10%

4%

25.17%

4

Opted section 115BAB

15%

10%

4%

17.16%

5

Others

30%

7%(income>1crore)

12%(income>10crore)

 

 

Source:incometax.gov.in

 

Foreign Corporations

No.

Nature of income

Tax Rates

Surcharge Rate

Cess

1

Royalty or fees received from the government for any technical services or any indian regard under an agreement made on or before April 1,1976 approved by the central Government

50%

2%(income>1crore)

5%(income>10crore)

4%

2

others

40%

2%(income>1crore)

5%(income>10crore)

4%

Source: incometax.gov.in

 

Everything about Filing Income Tax Return by Corporates

 

Due Date

There is a due date for filing income tax returns, which in India is 30 October every year, if a venture has come into existence in that year it has to file the return on or before 31st October. However, these dates were extended during the pandemic.

Forms to be Filed by the company

Form ITR 6: All the companies have to fill this form except the companies who are claiming deduction under section 11.

Form ITR7: All the companies which are registered under section 8 of companies Act,2013 have to fill ITR7.

Tax Audit

Tax audit refers to the exercise of verification of account books that are maintained by the taxpayer. Purpose of the tax audit is to ensure compliance with the income tax laws. It is carried out to catch any discrepancy or mistake that may have occurred in the account, which may lead to disclosure of wrong information to the authorities. In India, the income tax Act mandates a company to get an audit done, and submit the audit report as well as the Income tax return.

The date for submitting tax audit report is September 30.

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Application and Exemption of Minimum Alternate Tax (MAT)

MAT is applicable to companies not individuals, partnerships etc. All the Corporations are mandated to pay MAT, if the Income tax payable(which includes Sur charge and cess) is less than 15% of the book profit plus cess and surcharge. Moreover, it is not applicable to any income obtained by a company from life insurance business and shipping income liable to tonnage taxation.

MAT will not be applicable to a foreign company if:

  • the company belongs to a country or territory with which the government of India has an agreement as per Section 90 (1) or the company lacks a permanent establishment in the country as agreed to the Central Government under Section 90A(1) and
  • the company does not have the above agreement and is further not required to seek registration under any law relating to companies
  • It is a foreign company whose total income comprises of profits and gains arising from businesses mentioned in sections 44AB, 44BB, 44BBA or 44BBB of the income tax Act (section 115JB(4A)).

Tax Rebates Applicable on Corporate Tax

The rebates allowed to corporates in India are:

  • Domestic companies can deduct the dividends that they have received from other domestic companies.
  • Section 10 of Income Tax act applicable to venture fund and venture capital enterprises.
  • Deduction allowed for exports and new undertaking in special cases.
  • New infrastructure and power source setup subject to deductions.
  • Provision of Business losses being carried over for upto 8 years.
  • Interest, capital gains and dividends can also be rebated in some cases.

Corporate Tax Planning

Corporate tax planning is the simple process of strategizing financial business affairs in such a way so as to maximise the profits accrued and minimize the taxes payable. This has to be done by taking into account the deductions, rebates and exemptions that are available. A very Central factor of tax planning is to do so while remaining within the legal limits. It has to be done carefully by experts as huge money of the corporates remain at stake.

Health and Education Cess

It is a cess levied at 4% of the tax payable, by the government for the various welfare programs in the primary and secondary education and the development of the health infrastructure. In the budget of 2022 the finance minister has stated that this cess is not a business expenditure, which means corporations cannot claim its deduction.

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