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Introduction

The taxation system in our country can be categorized into two major categories namely the direct taxes and the indirect taxes. Indirect taxes are the taxes paid on purchase of goods and services. Whereas direct tax is the tax that is levied on one’s income earned during the previous fiscal year. Direct tax is further divided into two categories i.e. income tax or personal tax and corporate tax.

Corporate tax is one of the major chunks of revenue that is derived by the government in the form of direct taxes. In this guide, you can find all that you need to know about corporate taxation in India.

Corporate Tax – Overview

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

Domestic Company

 

Assessment Year 2020-21

Assessment Year 2021-22

Where its total turnover or gross receipt during the previous year 2017-18 does not exceed Rs. 4,00,00,000

25%

NA

Where its total turnover or gross receipt during the previous year 2018-19 does not exceed Rs. 4,00,00,000

NA

25%

Any other domestic company

30%

30%

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

Surcharge

PARTICULARS

TAX RATE

Income below Rs. 1,00,00,000

Nil

Income between Rs. 1,00,00,000 and Rs. 10,00,00,000

7% on the amount of income tax

Income exceeds Rs. 10,00,00,000

12% on the amount of income tax

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.

PARTICULARS

TAX RATE(base rate)

Effective tax rate

Applicable to domestic company
subject to condition they will not avail any incentive or exemptions.

22% 

25.17%(including 10% surcharge & 4% CESS) 

Manufacturing companies set up after October 1, 2019 condition they will not avail any incentive or exemptions 

15% 

17.16% (including 10% surcharge & 4% CESS)

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.

Nature of Income

Tax Rate

Royalty received from Government or an Indian concern in pursuance of an agreement made with the Indian concern after March 31, 1961, but before April 1, 1976, or fees for rendering technical services in pursuance of an agreement made after February 29, 1964 but before April 1, 1976 and where such agreement has, in either case, been approved by the Central Government

50%

Any other income

40%

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

PARTICULARS

TAX RATE

Income below Rs. 1,00,00,000

Nil

Income between Rs. 1,00,00,000 and Rs. 10,00,00,000

2% on the amount of income tax

Income exceeds Rs. 10,00,00,000

5% on the amount of income tax

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

ITR

Description

ITR – 6

Applicable to all the companies (other than companies claiming exemption u/s 11)

ITR – 7

Applicable to all the persons including companies who are required to file return u/s 139(4A) / 139(4B) / 139(4C) or 139(4D)

FAQs - Corporate Tax – Overview, Tax rates, Liability

1. What is the MAT rate for AY 2020-21?

The MAT rate for AY 2020-21 is 15%. Previously this rate was 18.5%.

2. Is MAT applicable to companies that opt to be taxed at the rate of 22%?

No. MAT is not applicable to companies that choose to be taxed at special rates.

3. What is the due date for filing the income tax return for companies?

The due date for filing income tax returns for companies is 30th September of every year.

4. What is the meaning of foreign companies?

Foreign companies are the companies that are not registered in India. The control and management of these companies are done from overseas.

5. Is Health and education Cess mandatory?

Yes. Health and Education Cess is a mandatory charge on the tax liability.

Corporate Taxation In India - Customer Reviews

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