Corporate Tax – Rates & Tax Liability for Businesses & Companies

March 17, 2021

9 min read

Tax is the biggest topic of discussion among people in India after cricket, be it in big offices or in small tea stalls; the people of India treat it as something bothering and inevitable yet a very interesting topic to have a discussion on. Every year, as soon as the Ministry of Finance releases the budget, the one thing everyone has their eyes on is whether the tax amounts have been affected or not, especially the income tax.

The Indian tax system is segregated into 2 types:

Direct Tax
Indirect Tax

Direct tax:

Direct tax refers to the income tax that is levied upon individuals and corporations as a whole. Therefore, the income tax can be a personal income tax (for individuals) or a corporate income tax (for a corporate organization). The income tax percentage differs upon the income groups that have been created. Any individual below the age of 60 years and earning above INR 2.5 lakhs per annum is liable to pay personal income tax to the Government of India. The segregation of the tax slabs is as follows:

An individual having an income up to INR 2.5 lakhs per annum is exempted from the income tax.
An individual earning between INR 2.5 lakhs to 5 lakhs per annum has to pay an income tax amounting to 5% of the total salary.
An individual earning between INR 5 lakhs to 10 lakhs per annum has to pay an income tax amounting to 20% of their total salary.
For individuals earning more than INR 10 lakhs per annum, the income tax is 30% of their total salary.

Corporate tax will be discussed in detail later in the article.

Indirect Tax

Indirect taxes are the taxes charged on good and services provided to the public through various organisations. In earlier times, there used to be just the excise tax that targeted the sale of particular goods and commodities and levied taxed on their sale such as alcohol, cigarettes, tobacco, etc. Then other taxes like the service taxes for various services provided, VAT (Value Added Tax) charged as state tax, etc., were added. In 2017, GST (Goods and Services Tax) was introduced, which was a measure to avoid hassle with different taxes for different products and services by having a single tax for all of them. The GST again has been segmented into a four-tier system:

5% GST
12% GST
18% GST
and 28 % GST depending on whether the product is a day-to-day life necessity or a luxury.

Corporate Income Tax in India

Corporate Income tax, as mentioned before, is a category of income tax that has to be paid by domestic and foreign companies for the revenue that they have earned in India. The corporate taxes are calculated from the profit that the corporation has made during its annual cycle, which means that the tax is not levied on the revenue as a whole but on the amount which is left after expenses have been subtracted from the total revenue.

The incomes of a corporation would include:

Capital gains.
Profit from business
Rent revenue, etc.

The expenditures of a corporation include:

Cost of goods sold.
Depreciation
Selling, transportation expenditures
Administrative costs, etc.

All the domestic companies registered under the Company Act of India, as well as the foreign companies who are liable to pay the corporate tax have to file for their respective income tax returns by 30^th September generally, but it can get an extension, subject to Government guidelines for that particular year. For a company having an annual turnover of more than INR 1 Crore per annum, a tax audit filed by a licensed Chartered Accounted is mandatory.

Tax distribution under normal provision:

Company type	Tax rate	Surcharge on income >1 Cr and < 10Cr	Surcharge on income>10 Cr
Domestic, with annual turnover </=250 Cr	25%	7%	12%
Domestic, with annual turnover >250 Cr	30%	7%	12%
Foreign company	40%	2%	5%

Note: A surcharge is an additional tax introduced by the government, which can be defined as a tax on the Corporate tax itself. To understand what a surcharge is, suppose a corporate has a profit of INR 100, and it has to pay an income tax of 20%, which is INR 20. An additional surcharge of 10% is levied on the corporation; then it has to pay an additional 10% of INR 20, INR 2. Thus, the corporation’s total corporate tax has to pay the Government is INR 22 for a profit of INR 100.

In 2019, new taxation rates under Section 115BAA and 115BAB have been introduced by the Government of India, under which several amendments have been made to the Income-tax Act of 1961 for domestic companies by creating further divisions as per annual turnover to help the corporates with low turnovers.

Under the Section 115BAA, it is stated that the domestic companies, with no regards to annual turnover, have an option to pay income tax at the rate of 22% + applicable surcharge of 10% and cess of 4%, provided that the company opting for this, agree not to make use of exemptions and incentives under the provisions of the income tax. The companies had to apply to be taxed under this section by 15^th February 2021 (extension received as per Government guidelines due to Covid-19 pandemic).

MAT (Minimum Alternate Tax) is not applicable if they pay their taxes under this section’s protocols.

What is MAT?

MAT (Minimum Alternate Tax) amounts to 15% on book profits+ additional surcharge and cess. In layman’s terms, it is the minimum amount that a corporate tax is liable to pay as income tax. It was seen that many corporates were making huge profits by misusing the exemptions and incentives under the normal provisions of the Income Tax Act, so to ensure that there was a minimum amount of tax that they paid every year.

What is cess?

Cess is applied on the calculated Income tax along with surcharge as a tax meant to promote health and educational infrastructure in India. 4% of cess is applicable to corporate taxation.

Under the Section 115BAB, a company that has been set up and registered on or after 1st October 2019 and has commenced manufacturing on or before 31st March 2023 can avail benefits under this section, which is that it has to pay a corporate tax of around 17% per annum (15% base tax rate, 10% surcharge and 4% cess). This amount is quite lower than the normal provisional amount of corporate tax, and MAT doesn’t apply here either. This is meant to promote new manufacturing companies to set up their roots in the Indian market and have a steady flow of income. The company has to opt for paying taxes under this section before filing the income tax returns, which is usually on 30^th September, every year.

Tax Planning

As one can guess easily, corporate taxes amount to a large part of the profits of an organization, so these big corporates hire professionals who are experts related to taxes and law to plan the taxes effectively and efficiently so that they can come up with proper tax management systems and can retain maximum profits even after paying the taxes, without disrupting the legal norms.

Note: Tax planning doesn’t mean tax evasion. Tax evasion is punishable by law as it means the revenues aren’t recorded, and hence, taxes aren’t paid for that particular revenue, which in turn is called ‘black money.

Corporate Tax FAQs:

1. What is the corporate tax filing deadline?

The general time for filing Corporate Income Tax (CIT) is generally 30th September every year, but it is subject to Government extensions.

2. What was the corporate tax return filing date in 2020?

The Corporate Income Tax return filing date was extended to 31st December 2020 and later to 31st January 2021 due to the Covid-19 pandemic.

3. Can corporate tax be paid online?

Yes, corporate taxes can be paid online through the Income Tax Department’s E-Tax payment system, provided that the taxpaying corporation has an account with a net banking facility.

4. What is the general corporate tax rate for a foreign company?

The tax rate for a foreign company is 40% in India, which rises to around 41.40, 42.43 or 43.68%, after surcharge and nuc.

5. Is the information regarding corporate tax returns made public?

No, as per law, an individual’s tax returns or a corporation cannot be made available for the general public.

6. What is the general corporate tax rate for a domestic company in India? Is there any lower tax option for the corporates?

A domestic company’s general tax rate is 25% or 30% plus surcharge and cess, varying as per annual turnover. But, as per the changes made to the tax provisions, the companies can opt for taxation under the new sections and pay a lower tax rate, amounting to around 25 % (inclusive of surcharge and cess) and around 17% for the new manufacturing companies.

7. How will corporate tax cut affect the Indian economy?

It is predicted that cutting down corporate tax will boost economic growth as letting corporates keep a bigger share of their profits would create an incentive to work harder, produce more and contribute to the economy.

8. What are the new sections added to affect corporate tax in 2019?

The new sections added are the 115BAA and the 115BAB.

9. Who benefits the most from the changes that have been made in corporate taxation in 2019?

The final tax rate, including surcharge and cess, is 25.17% under section 115BAA and 17.16% under section 115BAB. The first section covers all domestic companies, and the second is for new manufacturing companies. Therefore, the large domestic companies benefitted the most, as they have to pay taxes at the rate of 25.17% now, as compared to the 30+% that they were paying earlier. Manufacturing companies that were incorporated post 1st October, 2019 have also been benefitted. Moreover, Mat isn’t applicable under these 2 sections.

10. What is the exact rate of MAT (Minimum Alternate Tax)?

MAT covers 15% book charge and additional surcharge and cess.