Corporate Tax in India

Corporate Tax

Corporate Tax is a tax levied on the net income of a firm for a particular period. The Corporate Taxes vary from one country to another country. Corporate taxes are levied on the revenues of a company after deducting specific items like depreciation; selling, general and administrative expenses and cost of goods sold (COGS). Both the public and private companies registered in India under the Companies Act of 1956, have to pay the Corporate Tax in India.

Definition of Corporate in India

A Corporation is a legal entity; it is separate and distinct from its owners. It enjoys most of the rights and responsibilities just like an individual possesses, which means a corporation has the right to enter into contracts, raises loans, borrows money, sue other companies and can be sued, it can hire employees, own assets and pay taxes. It is often referred to as a legal person.

Any income earned by the company is assessed separately from the dividend that it offers to its shareholders. For tax calculation purpose, companies in India are broadly classified into two categories. They are

Domestic Corporate

A company that is formed in India is called as a domestic corporation.
Or
A company is foreign, but the control and management are situated in India.
Or
A company which is registered under the Companies Act of 1956 is called as a Domestic Corporate.

Foreign Corporate

Any company that is not of Indian origin and has some parts of control and management is located outside India, then it is considered as a foreign corporation.

Tax Rates For Domestic Companies

For Domestic Companies, the taxable rate is fixed at 30% during the assessment year 2017-2018 and 2018-2019 as per the official release from Income Tax Department.

For the assessment year 2017-2018, the tax rate will be 29% where the turnover or gross receipt of the company does not exceed INR 5 crore in the previous year 2014-2015.

For Assessment year 2018-2019, the tax rate will be 25% where a turnover or gross receipt of the company does not exceed INR 50 crore in the previous year 2015-2016.

In addition to the standard tax rate, companies are also levied other kinds of taxes like surcharge, education cess, secondary and higher education cess before arriving at the final tax amount.

1. Surcharge for Domestic Companies - The amount of income-tax will be increased by a surcharge at the rate of 7% of such tax, where the total income exceeds INR 1 crore but not exceeding INR 10 crore rupees and at the rate of 12% of such tax, where the total income exceeds INR 10 crores.

However, the surcharge shall be subject to marginal relief, which shall be as under:

(i) Where income exceeds INR 1 crore but not exceeding INR10 crore, the total amount payable as income-tax and surcharge shall not exceed total amount payable as income-tax on total income of INR 1 crore by more than the amount of income that exceeds one crore rupees.

(ii) Where income exceeds INR 10 crore, the total amount payable as income-tax and surcharge shall not exceed total amount payable as income-tax on total income of INR 10 crore by more than the amount of income that exceeds ten crore rupees.

2. Education Cess - The amount of income tax and the surcharge, will be further increased by the addition of education cess calculated at the rate of 2% of such income-tax and surcharge amount.

3. Secondary and Higher Education Cess - The amount of income-tax and the applicable surcharge, will be further increased by the addition of secondary and higher education cess calculated at the rate of 1% of such income-tax and surcharge amount.

Tax Rates For Foreign Companies

For Foreign Companies any royalty or fees received within a predefined time are subject to tax at a rate of 50% and any other income is taxed at a rate of 40%.

In addition to the standard tax rate, companies are also levied other kinds of taxes like surcharge, education cess, secondary and higher education cess before arriving at the final tax amount.

1. Surcharge for Foreign Companies - The amount of income-tax will be increased by a surcharge at the rate of 2% of such tax, where the total income exceeds INR 1 crore but not exceeding INR 10 crore rupees and at the rate of 5% of such tax, where the total income exceeds INR 10 crores.

However, the surcharge shall be subject to marginal relief, which shall be as under:

(i) Where income exceeds INR 1 crore but not exceeding INR10 crore, the total amount payable as income-tax and surcharge shall not exceed total amount payable as income-tax on total income of INR 1 crore by more than the amount of income that exceeds one crore rupees.

(ii) Where income exceeds INR 10 crore, the total amount payable as income-tax and surcharge shall not exceed total amount payable as income-tax on total income of INR 10 crore by more than the amount of income that exceeds ten crore rupees.

2. Education Cess - The amount of income tax and the surcharge, will be further increased by the addition of education cess calculated at the rate of 2% of such income-tax and surcharge amount.

3. Secondary and Higher Education Cess - The amount of income-tax and the applicable surcharge, will be further increased by the addition of secondary and higher education cess calculated at the rate of 1% of such income-tax and surcharge amount.