Corporate Tax in India – A Complete Guide


The early taxation system was rudimentary. We have come a long way now from emperor-imposed taxes. We can divide the Indian tax system into two heads – Direct tax and indirect tax. We can further classify direct tax into income tax and corporate tax.
Corporate tax in India is payable by all companies doing business in India. It is calculated on the annual net company profit.

Who Pays Corporate Taxes in India?

The government levies a corporate tax on corporations and businesses operating in India. The government charges them with a corporate tax based on their presence and autonomy in India.

Is Corporate Tax and Income Tax the Same?

Companies pay a corporate tax, for everyone else income tax is the method of direct taxation. The income tax rate is slab-based, which means the tax rate is dependent on income.

The corporate tax in India, on the other hand, has a specific rate and does not depend on income. The corporate tax rate is subject to changes every year with prescription by the IT department.

Who is Eligible for Corporate Tax in India?

In 2019, both domestic and foreign companies needed to pay corporate tax of India under the Income Tax act.

A company registered under the Companies of India Act as well as companies registered in foreign countries with autonomy and management wholly situated in India is a domestic company. A company with control and management outside India and having no registration with the Companies Act of India is a foreign company. Corporate tax rate of foreign companies in India is different from that of domestic companies.

Sources of Company Income

There are capital gains, profits earned from businesses, earnings from dividends and interests, and from renting of property.

How is the Corporate Tax Rate Calculated?

We can subdivide corporate tax into various categories. These include taxes on income, surcharge rate, health and education cessation, MAT, and DDT. Companies reward investors by paying dividends from their profits. The tax the government imposes on them is DDT.

Minimum Alternative Tax, or MAT, makes sure that companies don’t come out as zero tax companies by using exemptions, incentives, and deductions. Foreign companies need to pay as per the prevalent rate of corporate tax in India, and not on overseas earnings that the company incurs, which is unrelated to the Indian economy. Domestic companies, however, need to pay taxes on their worldwide income.

How Much is the Corporate Tax in India?

The basic corporate income tax in India for companies in the financial year 2019-20 with turnover within 400 crores is 25%, 30% for other domestic companies, and 40% for foreign companies, and 15% for new manufacturing companies.

Additionally, surcharge, health and education cessation gives the effective corporate income tax rate. Foreign companies without a permanent establishment in India, except whose sole income is from the shipping business, aircraft business, exploration of mineral oils, and civil construction in projects do not need to pay MAT. Foreign companies having a permanent establishment in India except those who are making capital gains from transfer of securities, interests, royalties, and fees do not have to pay MAT if the tax payable is less than 15 %.
There is also a tax scheme on shipping vessels based on their tonnage for non-resident companies with effective management place in India. The nominal profit is fixed based on the tonnage, and the tax will be charged on this profit even if you incur losses.

How to File an Income Tax Return

The due date for filing income tax returns is on 30th September every year. Companies claiming tax deduction need to file their return using an ITR 6 form, whereas the others need to file ITR7 form. Companies need to conduct a tax audit and submit it along with income tax return form by 30th September.

The Corporate Tax Rate in India 2019

The government brought new tax laws to make amendments to the Income Tax Act. They are flexible, allowing companies to choose one of two ways. They can either apply for tax deduction against their income or pay on a subsidized tax rate. The corporate tax rate in India for FY 2019-20 allows companies to pay income tax at a rate of 22% if they do not apply for exemptions or incentives. After surcharge and cess allowance, 25.17% will be the effective rate. These companies do not require to pay MAT. Companies that avail exemption will have to pay as per the previous rate along with surcharge and 15% minimal Alternative Tax.

The manufacturing sector needed a boost. To boost the ‘Make in India’ campaign, the government made adjustments in the Indian Corporate Tax rate 2019 to ease the problems in this sector. Hence, the government added a new provision for manufacturing companies that do not avail for exemption, make fresh investments after October 2019, and commence production by 2023 to avail corporate income tax rate of 15%.

There won’t be enhanced surcharge on capital gains from equity markets or sale of any securities including derivatives from Foreign Portfolio Investors.

Buy-back of shares of companies that have made a public announcement before 5th July 2019, will no longer be charged. The Dividend distribution rate has also been slashed by 50% recently.

The reworking of the corporate tax rate in India for AY 2020-21 has put power in the hands of companies to strive forward against a slowing economy.

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