Corporate tax in India is among many other taxes which are imposed on companies, and it is a major income source for the Indian government. We know there are taxes on income, wealth, and capital gains in India. Similarly, there are taxes on corporate houses, be they domestic or foreign, and these taxes have to be paid for running a business.
The corporate world and the income tax go hand in hand. There is a plethora of things that come along with income tax. This article will give you a detailed synopsis with respect to corporate tax and all the facts worth acknowledging. We have mentioned everything from scratch, so whether you are a novice or an expert, this guide will significantly help you.
Basics of Corporate Tax
The corporate tax, also referred to as company tax, is levied on a company’s net income. According to the Companies Act, 1956, private and public companies registered in India must pay this tax.
More precisely, this is a tax levied on profits earned by companies and people in business during a certain period. There are various tax charges for different levels of profits coming from different business houses. Mostly, tax is levied on a company’s revenues after certain deductions like depreciation, and administrative expenses.
Furthermore, the company tax, commonly known as corporate tax, can be considered a form of income tax in India for income earned by businesses. Although a few countries levy corporate tax to ensure that the tax process for enterprises is smooth. Moreover, governments across the globe have various rules that apply to taxing income.
What is Corporate Tax in India?
Understanding the taxation system in India is simple and divided into two types: Direct Tax and Indirect Tax and the corporate tax falls under the direct tax category. So, the companies registered under company law in India are liable to pay this tax based on the net profit they make from businesses. Directed by the Income Tax Act, the taxes are kept at specific rates, which are further subject to the changes in the rates for each year by the IT department.
Features of India’s Corporate tax
Corporate tax in India is levied on domestic and foreign companies. All earning individuals need to pay a tax on their income. The businesses need to spend a particular portion of their income as tax. This tax has a name for the public as corporate tax, corporation tax, or company tax.
What is Corporate?
Any juristic person with a separate and independent legal entity from its shareholders is termed corporate. Furthermore, the income earned by a company is computed and assessed separately from the dividends it offers to its shareholders. These dividends are not figured out in the company’s tax calculation but are considered part of the shareholders’ income.
For tax calculation, companies in India have two specific classifications. Let us explore them below.
Any company that is Indian is a domestic company. While if the company is foreign and the control and management have their base in India, it is also a domestic company. Moreover, by Indian company we mean a company registered under the Companies Act 1956.
Any foreign company that is not of Indian origin has its own significance for tax. Basically, it has some part of control and management of affairs located outside India.
Corporate Tax for the Domestic Companies
India’s corporate tax keeps changing as per the updated guidelines issued by the higher authorities. Therefore, quoting a specific rate would not be adequate. Since we promised to provide simple and precise knowledge of corporate tax in India, we came up with a solution. You can quickly check any company’s latest corporate tax rates at the official government website.
Corporate Tax Rates for Foreign Companies
A company or enterprise with operations and origin in any other country except India is a foreign company. Although, the taxation rules for foreign enterprises are not as simple and similar as they are for domestic taxes for a business. Similarly, the corporate tax in India on foreign companies highly depends on the taxation agreements between India and other foreign countries. Let’s take this example, the corporate tax levied on an Australian company in India will completely depend upon the taxation agreement between the two countries, i.e., India and Australia.
The Applicable Tax Rebates
Apart from various taxes levied on company income, there are several provisions of tax rebates. Check a list of all these rebates below.
- In some instances, domestic companies can deduct dividends received from other domestic companies.
- Special provisions are applicable to venture funds and venture capital enterprises.
- Moreover, there are deductions, in some cases, for the exports and new undertakings which differ for every company.
- The infrastructure and power sources are subject to certain premises.
- The business losses have the provision for carrying over for eight years maximum.
- In some cases, capital gains and dividends also have deduction provisions and are liable for interest.
The Corporate Tax Planning
Corporate tax planning is strategizing one’s financial business affairs to maximise profit and minimise payable tax. This considers the allowed benefits of deductions, rebates, and exemptions. Tax management is a risky and tricky business. Hence, most corporates with huge money at stake involve financial experts to take care of their taxation process. In India, various financial players also consult and implement the corporate tax. Due diligence and absolute awareness of all tax laws and corresponding rules and regulations must ensure healthy tax planning.
Corporate tax planning is different from tax evasion or non-payment. Tax planning is planning one’s finances in such a way that the payable tax amount becomes less. Also, there is an effort to increase the gains. One of the essential features of tax planning is that it is in line with the legal and financial rules that the government of India sets.
Taxes are primarily imposed after following the government’s budget and related factors. We hope that this article helped you generate an idea about the corporate tax in India and the associated aspects. Paying income tax on time is one of the primary duties of an Indian citizen. And knowing every bit of it is crucial. Besides this, the details to check the updated corporate tax will help you be up to date as well as informed.