Income tax, Wealth tax, and capital gains are some of the essential taxes customers pay annually in India. Like other types of taxes, corporate tax, be it domestic or foreign, is also an essential tax that the corporate house must pay yearly. Various corporate tax rates in India are categorised as per the types of corporate houses. We will briefly learn about what corporate tax is all about and the different types of tax rates.
The Indian economy survives on the taxes like income, wealth, and capital gains that we pay yearly. Moreover, corporate tax is also one of the most significant taxes the corporate houses must pay annually to the government of India. But what is a corporate tax? What are corporate tax rates in India for the financial years 21-22? We will learn in detail about the importance of corporate tax and the current tax rates.
What is a Corporate tax?
Corporate tax is a direct tax levied on the profits earned by a company in a particular period. Further, the tax rates are levied based on different profits earned by the corporate house or company. It is further decided based on the revenues earned by the company after essential deductions like depreciation are taken into account. Moreover, tax is a form of income tax levied on income earned by businesses. Like other countries, India has a set of rules that apply to taxing income.
Further, India levies the tax on corporate houses based on the types of companies to which the individual’s company belongs. There are two types of companies in India. Domestic, wherein the company is a foreign company that is controlled and managed by India as per the Companies Act of 1956.Next is the foreign corporation, wherein the company is of foreign origin, and some of its control and management is done outside India.
Importance of Tax planning:
Tax planning is equivalent to strategizing financial business affairs, maximising profit, and minimising payable tax. Further, they also help in providing benefits like deductions, rebates, and exemptions. Tax management can be risky when it involves a considerable amount of money at stake. But if you hire a professional for handling the taxation process, then they will help in taking care of the entire process without incurring the loss of the huge amount of money that is invested.
In India, there are various legal-financial firms that provide consultation and further ensure the proper implementation of the corporate tax. Most of all, assessment and total awareness about the tax laws in India and their corresponding rules and regulations also help in healthy tax planning.
Company Tax Rates
Company tax rates for domestic companies
| Range of Income | Rate of tax |
| Upto 400 crores gross turnover | 25% |
| Gross turnover exceeding Rs 400 crore | 30% |
Surcharge rates
| Particulars | Domestic companies tax rates |
| Total income range between Rs 1 crore and Rs 10 crore | 7% per rate of tax above |
| Total income range exceeding Rs 10 crore | 12% per rate of tax |
Company tax rates for foreign companies
| Nature of Income | Rate of tax |
| Royalty or fees received for any technical services from the government or an Indian concern as per agreements before April 1, 1976, | 50% |
| Any other kind of income | 40% |
Surcharge rates
| Particulars | Foreign companies tax rates |
| Total income range between Rs 1 crore and Rs 10 crore | 2% as per the rate of tax |
| Total income range exceeding Rs 10 crore | 5% as per the rate of tax |
Top Company tax refunds
Tax provides various tax refunds or rebates. They are:
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Domestic company companies help deduct dividends from other domestic companies.
One of the most important tax rebates is that it helps domestic companies deduct dividends from other companies. Further, the most critical provision comes under the benefits of tax refunds.
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The company tax refunds are applicable to venture into funds and capital enterprises investments.
Another area where companies can avail of tax refunds is to venture into investments of funds and capital enterprises. With the help of tax refunds, corporate houses can venture into investing funds and further into capital enterprises.
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Deductions allowed in exports and undertakings.
The following most important tax rebates you can avail yourself of from tax refunds are for exports and undertakings. When the company undergoes the exporting process and undertakings, it can avail of tax deductions.
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New infrastructure and power sources can also avail company tax refunds.
Another tax refund you can avail of is when you invest in new infrastructure and power sources. After all, when you venture into new infrastructure and power sources, tax payments for the same are pretty much a headache.
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Company tax rebate also helps business losses with provisions to carry the same for a maximum of 8 years.
One of the most important benefits of a tax refund is that it helps business losses that have provisions to carry over the same for a maximum of 8 years. Moreover, it lessens the repercussions of business losses and continues to do the same for eight years.
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Interests, capital gains, and dividends are deducted along with tax rebates.
Apart from the tax rebates for the houses, interests, capital gains, and dividends are also deducted. This reduces the excess expense that houses can face while payment of interests, capital gains, dividends, and taxes.
Thus, these are the tax rebates/refunds the corporate houses can claim under the tax.
Income of a Company:
The income of a company, for the purpose of taxation, includes profits and gains from its business activities, whether conducted in India or abroad. It encompasses various sources, such as revenue from the sale of goods, provision of services, capital gains, and other forms of income generated through investments or operations. The income is subject to tax after deducting allowable expenses, exemptions, and deductions as per the provisions of the Income Tax Act, of 1961.
Corporate Tax as a Direct Tax:
Corporate tax is classified as a direct tax in India. Direct taxes are those levied directly on the income, wealth, or assets of individuals and corporations. As opposed to indirect taxes, which are imposed on the production, sale, or consumption of goods and services, direct taxes are borne by the entities on which they are imposed. Corporate tax is a significant direct tax, ensuring that companies contribute their fair share to the nation’s development and public services.
Corporate Tax Rate in India:
The corporate tax rate in India is determined by the Finance Act, which is passed annually by the Parliament of India. The tax rates are applicable to different categories of companies based on their turnover, legal structure, and other factors. As of my knowledge cutoff in September 2021, India had a two-tier corporate tax system:
Domestic Companies:
For domestic companies, the corporate tax rate was 25% for companies with a turnover of up to INR 400 crore in the financial year 2019-2020. However, a higher rate of 30% was applicable to companies with a turnover exceeding this threshold.
Foreign Companies:
Foreign companies operating in India are subject to a corporate tax rate of 40% on their income generated within the country. This rate may vary for specific sectors or industries, depending on the tax treaties or agreements between India and the respective foreign countries.
Corporate Tax Planning:
Corporate tax planning refers to the strategic management of a company’s financial affairs to minimize its tax liability within the legal framework. It involves the identification and utilization of available tax incentives, exemptions, deductions, and allowances to optimize the tax burden while ensuring compliance with the tax laws. Effective tax planning can help companies improve their profitability, cash flow, and overall financial performance.
Companies engage in various tax planning activities, such as optimizing their capital structure, utilising tax incentives for specific sectors or regions, exploring tax-efficient investment options, and managing transfer pricing among related entities. It is important to note that tax planning should be undertaken with prudence and in adherence to the principles of fiscal responsibility and ethical business practices.
Conclusion
Hence, corporate tax in India is a direct tax imposed on the income of companies operating within the country. The corporate tax rate varies based on factors such as turnover and legal structure. Corporate tax planning plays a vital role in minimizing tax liabilities while ensuring compliance with the relevant tax laws. By understanding the nuances of corporate tax, companies can navigate the tax landscape effectively, contribute to the nation’s development, and achieve sustainable financial growth.
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