Basic Indian tax laws for every company

Last Updated at: Feb 08, 2021
Basic Indian Tax Laws for every company

All corporations must be aware of the obligations placed on them by the Companies Act of 2013. Fulfilling all the necessary mandates is vital if you do not want to face any problems in the operation of your business. The arrival of penal provisions has made it even more crucial.

The practice of taxation dates back to the ancient time. Several kinds of taxes are imposed by governments of different countries. In India, some of the frequent taxes paid by customers are on income, capital gains and wealth. Companies also, be it, domestic or foreign, are obligated to pay taxes for running their business. One of the many Indian tax laws that companies are obligated to comply is company tax or corporate tax.

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Company tax or corporate tax is a kind of tax imposed on profits earned by the businessmen in a specified period of time. Different rates of company taxes are imposed for various levels of profits earned by the companies. Company tax is generally imposed on the revenues of a company after deductions such as depreciation, SG&A (selling general and administrative expenses) and COGS (Cost of goods sold) have been taken into consideration.

There are some basic tax laws which every company should be aware of.

Dividend distribution tax

Company tax is the tax paid by the companies on revenues earned minus definite expenses. In the same way, dividend distribution tax is the tax paid by the companies on the dividend that they pay to the shareholders. Company dividend tax is the percentage of the dividend paid. Presently, the dividend distribution tax in India is 15%.

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Indian income tax law

The following rates are applicable to the Indian companies for AY (Assessment Year) 2019-20 based on their turnover-

Particulars Tax rate
Gross Turnover up to Rs.250 Crores in FY 2016-17 25%
Gross Turnover exceeding  Rs.250 Crores 30%

The following rates are applicable to the foreign companies for AY (Assessment year) 2019-20 based on their turnover.

Nature of income Tax rate
Royalty received or fees for any technical services from the government or any Indian concern under an agreement made before April 1, 1976, and  approved by the central government 50%
Any other source of income 40%

Surcharge rate

Particulars Tax rate
If total income is more than Rs. 1 Crore but not more than Rs. 10 Crore 7% of the tax calculated on the Indian company and 2% of the tax calculated on the foreign company as per the above rates.
If the total income is more than Rs. 10 Crores 12% of the tax calculated on the Indian company and 5% of the tax calculated on the foreign company as per the above rates.

Health & Education Cess

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

Minimum Alternate Tax (MAT)

All the companies along with the foreign companies are obligated to pay a minimum alternate tax at the rate of 18.5% on the book profits if the tax is calculated as per the above rates are less than 18.5% of book profits.

Corporate tax rate

Depending upon the kind of company, Indian or foreign and depending upon the income earned in one financial year, company or corporate tax rates are different and are not the same for all the companies.

Important date for filing an income tax return

Companies irrespective of Indian or foreign should file their income tax return on or before September 30 every year. Even if a company has come into existence only in the same financial year, then also, it should file the income tax return for that time period on or before September 30.

Tax return forms

ITR 6- All the companies except companies requesting deduction under Section 11 need to file their return by using Form ITR 6.

ITR 7- All the companies which are registered under Section 8 of the Companies Act, 2013 are obligated to file their return by using Form ITR 7.

Tax audit

Per the Income Tax Act companies must get their accounts audited and duly submit an audit report to the IT department along with the IT return. This audit is generally known as a tax audit. This tax audit report should be compulsorily submitted by entitled companies by September 30.

Awareness of the taxation related laws and adhering to their provisions is an integral part of keeping your company legitimate. You must have understood the legal actions that can be taken against you because of acts of tax evasion and avoidance. Hence, you must avoid them at all costs.