What is Corporate Tax?
A corporate tax is a levy which the government imposes on the income of a company. The money collected from corporate taxes is used as the source of revenue for a country. Operating earnings of a company are determined by deducting costs from the cost of the product sold (COGS) and income depreciation.
First, tax rates are applied to establish a legal duty the corporation owes to the government. Regulations relating to corporate taxes vary widely across the world, but they must be voted on and approved by the government of a country for enactment.
Indian taxes are divided into two types: One is Direct Taxes and other is Indirect Taxes. Talking about direct taxes, it is levied on the income that different types of business entities earn in a financial year. There are different types of taxpayers registered with the Income tax department and they pay taxes at different rates. For eg, An individual and a company being a taxpayer are not taxed at the same rate.
Therefore, Direct Taxes are again subdivided as:
- Personal Income Tax: The income-tax paid by the individual taxpayers is the personal income tax. Individuals get taxed on the basis of tax slabs at different rates.
- Corporate Tax: The income-tax paid by domestic companies, and foreign companies on their income in India is corporate income-tax (CIT). The CIT is at a specific rate as prescribed by the income tax act subject to the changes in the rates in the union budget every year.
Understanding Corporate Tax in India
A corporation is an individual with a distinct and autonomous legal body compared with its shareholders. According to the Income Tax Act, domestic and international corporations are liable to pay income tax.
While a domestic corporation is taxed on its universal income, a foreign corporation is imposed only on the income earned within India, i.e. accrued or obtained within India.
For tax calculation under the Income Tax Act, the types of companies may be described as:
1. Domestic Company: Domestic Company is one that is listed under India's Companies Act and also involves the foreign-owned firm that has control and management wholly based in India. A domestic business includes both private and public companies.
2. Foreign Company: Foreign Company is one that is not listed under the Indian Company Act and has control and management outside of India.
Corporate tax is based on a company's taxable profit or net income. A company's operating profit/net profits is the overall sum left with the company after the requisite deduction of different expenditures has been made. A company incurs a host of expenses for selling products.
What is meant as Income of a company?
Before understanding the rate of taxes and how the tax will be calculated on income of the companies, we should learn about the types of income which a company earns. Here it is :
- Profits earned from the business
- Capital Gains
- Income from renting property
- Income from other sources like dividend, interest etc.
Tax rates applicable
Taxes on Income
The following rates are applicable to the domestic companies for AY 2020-21 based on their turnover:
| Sections | Tax rate | Surcharge |
| Section 115BA (Companies having turnover up to Rs 400 crore in FY 2017-18) | 25% | 7%/12%* |
| Section 115BAA | 22% | 10% |
| Section 115BAB | 15% | 10% |
| Any other case | 30% | 7%/12%* |
*Plus surcharge in case a company gets taxed under section 115BA. The rate of surcharge is 7% in case the total income is above one crore rupees and up to Rs 10 crore. The surcharge is 12% in case total income is above Rs 10 crore. However, if a company opts for taxation under section 115BAA or section 115BAB, the surcharge is 10% irrespective of the total income.
The following rates are applicable to foreign companies for AY 2020-21 based on their turnover :
| Nature of Income | Tax Rate |
| Royalty received or fees for technical services from government or any Indian concern under an agreement made before April 1, 1976 and approved by central government | 50% |
| Any other income | 40%
|
In addition to above rates:
Surcharge rate :
| Particulars | Tax Rate |
| If total income exceeds Rs. 1 crore but not Rs. 10 Crore | 7% of tax calculated on domestic company/ 2 % of tax calculated on foreign company as per above rates |
| If total income exceeds Rs. 10 crore | 12% of tax calculated on domestic company/ 5 % of tax calculated on foreign company as per above rates |
Health & education Cess: Further 4% of income tax calculated and applicable surcharge will be added to the amount of total tax liability before this cess.
Minimum Alternate Tax (MAT): Alternatively, all the companies (including foreign companies) are required to pay minimum alternate tax at the rate of 15% on book profits if the tax calculated as per above rates are less than 15% of book profits. This will be applicable if the company does not opt for Section 115BAA or Section 115BAB.
Everything about filing income tax return
Due date for filing Income tax return
Companies including foreign companies have to file their income tax return on or before 30 October every year. Even if the company came into existence during the same financial year, then too, it has to file the income tax return for that period on or before 31 October. For FY 2019-2020 (AY 2020-21), the due date has been extended to 30 November 2020, due to the pandemic.
Tax return forms to be filed by the company
ITR 6 : All the companies except companies claiming deduction under section 11 need to file their return using Form ITR 6.
ITR 7 : All the companies registered under section 8 of companies act, 2013 are required to file their return using Form ITR 7.
Tax Audit
Income tax act requires a class of companies to get their accounts audited and submit an audit report to the IT department along with the Income tax return. This audit is known as Tax Audit. This tax audit report is also required to be mandatorily submitted by eligible companies by 30 September. However, for FY 2019-20 (AY 2020-21), the due date for submitting the tax audit report is 31 October 2020. Corporate Tax is an ocean full of provisions which all the companies need to comply with. Keep reading to know what are those provisions, rules that the companies need to follow.
For more info visit TAXAJ Posted by Ramesh Kumar Gupta