What is Corporate Tax: Rates, Fees, Tax Return Forms and Due Dates
There are different types of taxes that Indian organisations pay to the government on income, wealth, or capital gains. Likewise, corporate houses, too, have to pay a certain amount of tax to carry on their business. Among the many taxes, one is corporate tax or company tax that corporations pay to the Indian government. Learn about it in detail below!
What is Corporate Tax?
Corporate tax is a type of direct tax levied by the Indian Government on the profits earned by foreign or domestic corporate entities. The rate at which the government imposes the tax is known as corporate tax rate.
Furthermore, the tax slab rates vary depending on the various revenue amounts of corporations and the type of entity. The types include the following:
- Foreign Company: An entity comes under a foreign company group if it is not registered under India’s Companies Act and its management and control system is outside the country.
- Domestic Company: A domestic company is registered under the Companies Act of India and has its control and management system inside India. This may also include companies registered in a foreign country with control and operations in India.
What Does Income of a Company Mean?
To understand the different tax rates and how much income tax is payable, one must know about the different types of income they are dealing in. It includes:
- Capital gains
- Business profit
- Income from renting properties
- Income from other sources like interest, dividends, etc.
How to Calculate Net Income for Corporates?
Corporate tax is levied on the net income or net revenue of the company. It is the amount calculated after making necessary deductions. These include expenses that a company has to incur for carrying on their business. Some of these expenses are as follows:
- Selling expenses
- Depreciation
- Administration cost
- Cost of goods sold
The income includes heads like rental income, profits earned, capital gains, and income from other sources like dividend and interest income.
The formula of net income or net revenue is given below:
Net Revenue = Gross Revenue – (Expenses + Depreciation)
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Corporate Tax Rates & Slabs
Refer to the following tables to understand the tax rates for different entities and the applicable tax slab:
1. Corporate Tax Rate for Domestic Companies (AY 2021-22)
| Range of Income (Gross Turnover) | Tax Rate |
| Up to Rs. 400 crore | 25% |
| Above Rs. 400 crore | 30% |
2. Surcharge Rates Applicable in Addition to the Above Rates
| Total Income Range | Tax Rate for Domestic Companies |
| From Rs. 1 crore to Rs. 10 crore | 7% as per the tax rate above |
| Above Rs. 10 crore range | 12% as per the tax rate above |
3. Corporate Tax Rate for Foreign Companies (AY 2021-22)
| Nature of Income | Tax Rate |
| The government provides fees or royalty in exchange for technical service or any concern mentioned under the Indian agreement formed before April 1 1976 and approved by the central government. | 50% |
| Other Income | 40% |
4. Surcharge Rates Applicable in Addition to the Above Rates
| Total Income Range | Tax Rate for Domestic Companies |
| From Rs. 1 crore to Rs. 10 crore | 2% as per the tax rate above |
| Above Rs. 10 crore | 5% as per the tax rate above |
Other Taxes
1. Minimum Alternate Tax (MAT)
The government introduced Minimum Alternate Tax because many were trying to evade taxes. It serves as a token of tax for companies. However, the MAT rate cannot be less than 15% for foreign and domestic companies.
The basis of this tax system comes from Section 115JB. It is levied at a rate of 9% plus surcharge and cess if the company is a unit of an international financial service centre whose primary income source is convertible foreign exchange.
It is vital for one to know these two key points regarding MAT:
- Liability: If the company has a total taxable income of less than 15% of its profit as recorded in the books, it can pay a token of tax as Minimum Alternate Tax. There is also an option of carrying forward or adjusting it against regular tax. The limit for carrying forward MAT extends up to 10 years.
- Application and Exemption: MAT is applicable to all companies, even the foreign companies whose primary income sources are in India. That said, there are also exemptions as laid down by MAT regulations. For example, life insurance providers will be out of the purview of MAT. In addition, companies that generate revenue from shipping will also be exempted from MAT.
2. Dividend Distribution Tax
Tax levied on distributed income of a domestic company is referred to as Dividend Distribution Tax. In other words, it is the tax paid on the dividend amount that companies distribute every year to their shareholders. According to Budget 2016, DDT of 10% would be levied if a shareholder received a dividend of more than Rs. 10 lakh. Note that DDT was abolished in Budget 2021.
3. Health and Education Cess
Health and education cess is levied on the total taxable amount. It means a rate of 4% will be imposed on the calculated income tax and surcharge.
Types of Corporate Tax Rebate
As companies have to pay different types of corporate taxes, there are also multiple provisions made under the tax rebate section to protect the interest of taxpayers. The important ones are as follows:
- Capital gains earned by a corporate entity are not subject to tax.
- Certain types of interest income qualify as deductions.
- IT Department provides a carry forward facility to corporate entities for the loss incurred by them for up to 8 years.
- Dividends may also come under tax rebates. However, there are terms and conditions applied.
- If a corporation undertakes new projects and exports, the government provides them with some deductions.
- Government allows several deduction provisions if the corporation plans to fund enterprises.
- If a domestic corporation gains some dividend from other domestic corporations, they can treat them as a rebate.
Things to Know before Filing Income Tax Return
There are a few things that every corporate taxpayer must know to avoid lawsuits and penalties:
1. Tax Return Forms that the Company must File
Except for those companies that have claimed deduction under Section 11, all corporations need to file their return using Form ITR-6. However, companies registered under Section 8 of the Companies Act, 2013 must file their return using Form ITR-7.
2. Due Date before which Corporations must File ITR
The due date for companies, including foreign ones, is October 30 of every year. So, taxpayers must file their ITR before that. This also includes companies that have come into existence in the same financial year. It means they, too, must file ITR before October 31.
However, in the financial year 2019-20 (AY 2020-21), the IT Department extended the due date for filing a return to November 30 2020, due to the pandemic.
3. Tax Audit
According to the Income Tax Department guidelines, a particular class of companies must audit their accounts and submit a report mentioning return on income tax. This check is known as a tax audit.
It is mandatory for eligible companies to submit the tax audit report to the IT Department by September 30. However, for FY 2019-20 (AY 2020-21), the officials shifted the due date for submitting the report to October 31 2020.
Final Word
Look at the above information to identify if you are liable to pay corporate tax and under what tax slab you fall. In addition, you will also find an explanation of different tax terms to avoid any confusion. Note that in the above section, we have mentioned different types of tax rebates to help you find out if you have any deduction allowed.
FAQs
Ans: If you fall under any of these categories, you are liable to pay corporate tax in India:
A. Corporations incorporated in India
B. A foreign company that has established itself in India
C. Corporations working on Indian revenue and carrying on business with the same
D. Corporations that have to earn Indian resident titles for tax payment purposes
Ans: A corporate tax that the government collects on the company’s income is used to source the country’s revenue. However, we have to deduct income depreciation and the costs from the overall cost of goods sold for determining operating earnings.
Ans: Income tax is a tax levied on the income of an individual, Hindu Undivided Family (HUF), firm, etc. On the other hand, corporate tax is paid only on a company’s net profit. So, corporate tax is the income tax for the net income that businesses earn.
Ans: Recently the Government of India has reduced the tax rate from 30% to 22% for companies existing before. However, it has decreased from 25% to 15% for new manufacturing companies. In addition to this, there’s a surcharge and cess that needs to be taken into account. So, the effective tax rate will come in between 25.17% and 35%.
Ans: Yes, for companies whose turnover is above Rs. 250 crore, the corporate tax rate is 30%. However, small businesses generally have an income less than or equal to Rs. 250 crore. The tax rate applicable in their case is 25% of the net income.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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