Corporate Tax in India

Have you heard about Corporate Taxes ? probably yes or no, As we know, We all pay taxes in some way or the other, so let me tell you something about corporate taxes as we all are gonna end up in corporate life someday or the other.

What is Corporate tax ?

The taxation system of India is divided into two types:

Direct and Indirect tax. Corporate tax basically falls under direct tax system in which companies registered under Indian company Act, 2013 are liable to pay this tax on net profit that they make from businesses. It is taxed at a specific rate(directed by Income tax Act), subject to the changes in the rate each year by IT Department.

For e.g. An Individual and a Company are not taxed at a same rate, therefore direct taxes are again subdivided as:

Personal Tax: The Income tax paid by the individual taxpayer is the personal income tax and Individual gets taxed according to tax slabs at different rates.

Corporate Tax: The Income Tax paid by domestic and International companies on their income in India is Corporate Income Tax(CIT) and its rate changes every year according to union budget.

Now, you understood how a personal income tax is different from corporate income tax lets take a quick review on what is it and how it is taxed,

A Corporate is separate legal entity which has independent entities than its shareholders.

While, Domestic companies are taxed on its universal Income, a foreign company is taxed only on the income earned within India.

What is Income of a Company ?

Before understanding the rate of taxes and how taxes are calculated based on the income of a company, We must know about type of income which a company earns.

1. Profits from Business
2. Income from renting property
3. Capital gains
4. Income from other sources like dividends, Interest, etc.

Corporate Tax Rates :

The tax rates of Domestic companies for FY 2020–21 on basis of their turnover is taxable at 30%. However, the tax rate is 25% if turnover or gross receipt of the company does not exceed ₹400 crore in the previous year.

Likewise, tax rates of foreign companies for FY 2020–21 on basis of their turnover is taxable at 40%, surcharge is 2% of taxable income if net income exceed 1 crore but does not exceed 10 crore and 5% if net income exceed 10 crore. However, the surcharge will be subject to marginal relief, for health and education cess of 4% of Income Tax plus surcharge.

So, Countries may tax corporation on its net profit and may also tax shareholders when the corporation pays a dividend. Where dividends are taxed, a corporation may be required to withhold tax before the dividend is distributed. Therefore, the tax incidence is uncertain in nature and varies from country to country.