Corporate Tax is a tax that is levied upon corporate businesses to operate and function in India. The tax is charged on the profits made by the corporates which are charged on the profits adjusted after expenditure.
The corporate tax is charged as per the Income Tax Act, of 1961 on both domestic and foreign companies. The Income Tax Act clearly defines how the corporate tax will be charged and what are the conditions to which exemptions will be provided, etc.
In this article, we will discuss Corporate Tax Rates, Rebates, how to save taxes, etc. but first, let’s find out what is a corporate tax.
What is Corporate Tax in India?
Every business which engages in the sale and purchase of Goods and Services and earns profits is required to pay Corporate Tax.
Paying taxes is important for the country’s economy as it puts money into the hands of the Government and with this money government can pursue various developmental work.
The calculation of the tax is based on the net income of the company. There are different types of income that a company earns-
Profits Earned by the Business
Whenever a business operates it has some expenses which are known as an operating cost which includes raw material, electricity, employee, rent, marketing, etc.
When all these costs are taken care of the amount which remains is the profits that the business earned. For calculating the tax, this profit (I.e., the remaining amount) will be considered as a base and a tax slab will be applied for the calculation of the taxes.
Income of Rental
Rental Income is the income earned by the business by renting out its asset. It can be immovable property like a factory, land, etc., or movable property like trucks, machinery, etc.
At the end of the financial year, the taxation calculation will consider the profit from rental plus the other income types for the calculation of the taxes.
Capital Gains
You’ll have to pay taxes on any capital gains- short-term or long-term. A capital gain is realized whenever a business sells its asset like land, property, shares, etc.
It is considered short-term if the asset purchase and sale is done within a year and long-term if the purchase and sale of the asset is more than a year. The applicable percentage of taxation on this also varies depending on whether it is short-term or long-term.
Income from Other Sources
Income from other Sources is the income that the businesses earn but cannot be categorized as the above income heads. It includes interest earned, income from dividends, etc.
Legal Definition of Corporate
Now, that we know about corporate taxation and how it is implied, it is important to understand the legal definition of corporate.
An organization formed with state governmental approval to act as an artificial person to carry on business (or other activities), which can sue or be sued, and (unless it is non-profit) can issue shares of stock to raise funds with which to start a business or increase its capital, these are known as Corporates or company.
Corporate Tax Rates FY 2022-23
The following are the corporate tax rates applicable in the Financial Year 2022-23-
Corporate Tax Rates for Domestic Companies FY 2022-23
| Range of income | Rate of tax |
| Up to Rs.400 crore gross turnover | 25% |
| Gross turnover that exceeds Rs.400 crore | 30% |
Surcharge rates in addition to the rates above
| Particulars | Domestic Companies Tax rate |
| If the total income range is between Rs.1 crore and Rs.10 crore | 7% as per the rate of tax above |
| If the total income range exceeds Rs.10 crore | 12% as per the rate of tax above |
Corporate Tax Rates for Foreign Companies AY 2022-23
| Nature of income | Rate of tax |
| Royalty or fees received for any technical services from the government or an Indian concern under agreements made before April 1, 1976, which is approved by the central government | 50% |
| Any other kind of income | 40% |
Surcharge Rates in Addition to the Rates Above:
| Particulars | Foreign Companies Tax rate |
| If the total income range is between Rs.1 crore and Rs.10 crore | 2% as per the rate of tax above |
| If the total income range exceeds Rs.10 crore | 5% as per the rate of tax above |
Additional Cess/ Tax to be Levied
There are a few other additional cess and taxes which the corporate has to pay.
Health and Educational Cess
Government has various development plants related to Health and Educational cess which get direct funds from the cess charged to the corporates.
It is usually 4% of the income tax that is calculated and the applicable surcharge will be added before the health and education cess
Dividend Distribution Tax
Dividend Distribution Tax is the tax applicable on the dividend that is distributed to the shareholders, this tax is exempted beyond which the company has to pay 20.56%.
Minimum Alternate Tax
The minimum alternative tax is a provision in the direct tax law that allows the limitation of the tax exemption to ensure that the company pays at least the minimum amount of corporate taxes. It applies to both domestic as well as foreign businesses.
Tax Rebates Applicable on Corporate Tax
To promote business ventures and GSD participation of new businesses, the Government of India has provided various benefits in form of Tax Rebates Applicable to Corporate Tax. The following are the tax rebates applicable to Corporate Tax-
Special Economic Zone
Special Economic Zones are specifically designated areas by the Government to promote economic activity. The SEZ country declares a specific geographical area as SEZ and the main reason behind it is that this zone has different trade and business laws as compared to the rest of the country.
The policies of the SEZ are specifically made to attract investors from across the globe and offer them various benefits that encompass investing, taxation, trading, quotas, customs, and labor regulations as per international standards.
Companies may also offer a Tax Holiday of 5-10 years wherein the companies would establish themselves in that zone and till the date of the ending of the tax holiday would enjoy lower or no taxation at all.
Startups
Tax Holidays are not only limited to the Special Economic Zones, any Startups registered with Startup India can apply for the Tax Holiday. Startup India would evaluate the business, business model, and other prospects and provide the Startups with a tax holiday of 3 years.
Depreciation Claim on Old Asset
Assets like machinery, building, and construction can be depreciated over time hence, depreciation can be claimed up to 40% (General) of the value of that asset. This percentage of depreciation will then be provided to the business as per the 5-year property or 7-year property categorization.
GST- Input Tax Credit
An Input Tax Credit on your GST bill can be claimed by your business if you have a GST number. This will help you in saving double taxation on the purchase and sale of Raw materials or your finished product respectively. You can also buy some high-value items like purchasing car on GST, iPhones, etc. on GST and save a big amount.
Employment of New Employee deduction Under 80JJAAS
According to Section 80JJAA of the Income Tax Act, 1961, when a company generates employment for an Individual, then the business can deduct tax liability from INCOME FROM BUSINESS of an assesses for the employment of new employees by the assesses.
Corporate Tax Planning
Tax Planning is the strategizing the implementation of taxation on their business to maximize the profit and reduce the tax burden on the business. It can be achieved by carefully evaluating the areas where the tax liability can be deducted, rebated, and exempted. It is different from tax evasion techniques and is a completely legal method of saving tax.
FAQ
The due date to fill out the Income tax is April 1, 2023, or the period of the FY 2022-23. The government also increases the last date a few times before finalizing the date of the Income tax filing.
Yes, Corporate tax is a direct tax levied upon the profits earned by the business.
The corporate tax is charged on the corporates and profits earned by them whereas personal income tax is a tax which is charged on individuals only for the income he has earned by trading money with skills, jobs, etc
Yes, Even if you earn income from the United States but you are an entity registered in India then, you’ll have to pay the Indian Government the taxes demanded by them.
