Corporate Taxation In India

Corporate tax as mentioned above is one of the major sources of tax revenue that is received by the government for the assessment done in the previous financial year. As the name implies, corporate tax is the tax that is levied on companies and corporations in India. These companies are further classified into two categories namely, domestic companies or foreign companies as per the provisions of the Income Tax Act, 1961.

Domestic companies are the companies that have been registered in India under the Companies Act, 2013. Domestic Companies also include companies that may be registered overseas but have control and management wholly situated in India. Both private and public companies are covered under the ambit of domestic companies.

Foreign company on the other hand is a company that is not registered in India. Also, the control and management of the company is done from an overseas headquarters.

The entire income that is earned by the domestic companies in the previous year is taxed in India, whereas in case of foreign companies, only the income which has been received or accrued in India during the previous year is taxed as per Income tax Act, 1961.

The taxable income of the company can be classified into any of the following sources of income as per the Act.

• Profits and gains earned from a business or profession
• Capital gains
• Income from house property
• Income from other sources like dividend, interest etc.

Corporate Tax rates

The Income Tax Act has specified separate taxation rates for domestic as well as foreign companies. These tax rates are subject to changes from time to time that are announced as part of the budget by the finance Ministry under the amendments to the Act. The corporate tax rates have been revised for financial year 2019-20 (Assessment Year 2020-21). The revised rates for corporate taxes are mentioned below.

A. For Domestic Companies

Income-tax rates applicable in case of domestic companies for assessment year 2020-21 and 2021-22 are as follows

The above tax rates are exclusive of surcharge and Health and Education Cess. The details of the same are given below.

Surcharge

Health and Education Cess

Health and Education Cess is payable @4% on the cumulative amount of income tax and surcharge.

In case the company opts for special tax rates for assessment year 2020-21 and assessment year 2021-22, following rates will be applicable. Implementation of these rates will effectively imply that the company will not avail any other incentives or exemptions that are available to them as per the Income Tax Act, 1961.

Furthermore, MAT will not be levied on companies that choose to be taxed at special rates mentioned above. However, Surcharge and Health and Education Cess will be levied as per applicable on the tax amount excluding the above rates.

B. Foreign Companies

The tax rates applicable to the foreign companies for Assessment Year 2020-21 and Assessment Year 2021-22 are mentioned below.

The details of surcharge and health and education cess to be charged over the tax liability as per the above rates are mentioned below.

Surcharge

Health and Education Cess

Health and Education Cess is payable @4% on the cumulative amount of income tax and surcharge.

Minimum Alternate Tax (MAT)

Another important aspect in corporate taxation is Minimum Alternate Tax or more commonly known as MAT. As per the MAT provisions, the company is required to pay higher of the following taxes:

• Tax computed as per the normal provisions of the Income Tax Act; and
• 15% of the book profit (from AY 2020-21).

This provision ensures that the minimum tax payable by the foreign companies or the domestic companies cannot be less than 15% of their book profits. In case when the company pays tax as per the provisions of MAT, they are eligible to avail MAT credit as per the provisions of section 115JAA of the IT Act, 1961.

MAT credit is calculated to be the difference between the tax paid as per MAT and the tax that would have been payable as per normal provisions of the Income Tax Act.

Following points are to be remembered in case of MAT credit.

• MAT credit can be carried forward by the assessee for a period of 15 Assessment Years immediately following the Assessment Year in which such MAT credit is available.
• Such MAT credit can be set off against tax payable only in the year in which the tax becomes payable on the total income in accordance with the normal income tax provisions.

The amount of set off available is calculated to be the difference between tax paid on total income as per normal provisions and tax payable as per MAT.

Filing Income Tax Returns for Corporations

As per the provisions of the Act, the Companies including foreign companies have to file their income tax return on or before 30th September of every year. This also applies to the companies that have come into existence in the same financial year

ITR Forms to be filled by the Companies

FAQs - Corporate Tax – Overview, Tax rates, Liability