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Corporate Tax in India

Last Update Date : September 10, 2018

corporate tax in india

Businesses in India pay a number of taxes like Corporate Tax, GST and other Indirect Taxes. Earlier, we have spoken a lot about Income Tax and GST in India. In this guide by H&R Block India, we’ll talk about Corporate Tax which is also known as Corporate Income Tax or Corporation Tax or Company Tax.

What is Corporate Tax?

In simple words, Corporate Tax is nothing but the Income Tax imposed on the corporate business house. It is a tax imposed on the net income of a company whether it is foreign or Indian. The Corporate Tax has various rates based on the amount of profit earned by the businesses.

Who is a Corporate?

A corporate is defined as a person having separate and independent legal entity from its shareholders. Corporates can be divided into two categories for tax purposes:

Domestic corporate

Any company that has Indian origin is considered a domestic company. Any company which had foreign origin but it is controlled and managed in India, then also it is considered a domestic corporate. A domestic company must be registered under the Companies Act 1956.

Foreign corporate

Any company which has a foreign origin and is fully or partly controlled outside India then it is considered a foreign company.

Income of a Company

Corporate Tax is calculated on the income of a company. A company’s income depends on the following factors:

Corporate Income Tax Rates

The CIT rates vary for domestic and foreign companies. Let’s understand the rates in detail.

CIT Rate for Domestic Companies

Domestic companies are charged CIT at the rate of 25%, if the turnover and gross receipts for the previous year 2015-16 does not exceed Rs.50 crores and in all other cases, the CIT is at the rate of 30%, plus a surcharge, education cess, secondary and higher education cess from FY 17-18. The rate of surcharge for domestic or resident companies is 7% of the amount of CIT, if the income exceeds Rs 10 million or 12% if the income exceeds Rs 100 million. The rate of education cess is 2% and secondary and higher education cess is 1%.

CIT Rate for Foreign Companies

Foreign companies are charged CIT at the rate of 40% plus a surcharge, education cess, secondary and higher education cess from FY 17-18. The rate of surcharge for foreign or non-resident companies is 2% of the amount of CIT, if the income exceeds Rs 10 million or 5% if the income exceeds Rs 100 million. The rate of education cess is 2% and secondary and higher education cess is 1%.

Summary of CIT Rates (A.Y. 2018-19)

Types of Companies Income up to Rs 10 million Income up to Rs 100 million Income above Rs 100 million
Surcharge rate (%) Effective tax rate (%) Surcharge rate (%) Effective tax rate (%) Surcharge rate (%) Effective tax rate (%)
Domestic with annual turnover less than INR 500 million in FY 2015-16 Nil 25.75 7 27.55 12 28.84
New domestic manufacturing* Nil 25.75 7 27.55 12 28.84
Other domestic Nil 30.90 7 33.06 12 34.61
Foreign Nil 41.20 2 42.02 5 43.26

Note: *Companies with prescribed conditions under Section 115BA
Education Cess of 3% has been considered for determining the tax rates above

Dividend Distribution Tax

This tax is payable on the dividend paid by the corporates to their shareholders. The current rate of Dividend Distribution Tax is 15%. Surcharge @ 10% and Education Cess & Secondary and Higher Education Cess @ 3% is also applicable on DDT. The relevant Income Tax laws are covered under Section 115-O of the Income Tax Act. The dividend distribution tax shall be levied by grossing up the dividend payable for purpose of computing the dividend distribution tax liability.

Minimum Alternate Tax

Minimum Alternate Tax or MAT is a small amount of tax which was introduced with the aim to curb tax evasion by companies. Section 115JB of the Income Tax Act imposes MAT on the companies whose income tax payable as computed under the income act is less than 18.5% of their book profits (plus Surcharge and Secondary and Higher Education Cess). Such companies are required to pay MAT @ 18.5% of the book profits. That is the companies have to pay normal tax as calculated under The Income Tax Act or MAT @ 18.5% of book profits (calculated as per the section 115JB) whichever is higher. As per section 115JAA MAT credit shall be allowed to the companies paying MAT u/s 115JB, the credit shall be the difference between the tax paid for any assessment year as calculated u/s 115JB and the amount of tax payable by the assessee on his total income computed in accordance with other provisions of the income tax act. MAT credit as calculated above can be carried forward and set off for subsequent fifteen years and adjusted against regular tax. MAT is payable by all the companies including foreign companies having income in India. Companies carrying out life insurance business (Section 115B) and companies having income from shipping activity (Section 115V-O) are exempt from paying MAT.

Tonnage Tax Scheme

A non-resident or foreign company involved in shipping activities can opt for tonnage tax scheme which is a presumptive income scheme. A foreign company can choose to pay tax under this scheme and avoid paying regular CIT if it has a place of effective management in India and operates at least one qualifying ship.

Tax Deductions Applicable on Corporate Tax

There are a number of tax deductions available to businesses paying Corporate Tax. Here is a list of tax deductions available to business houses:

  • Industrial activities [Section 80-IA, 80-IAB]
  • Hotels, shops, multiplex theatres, cold storage plants, housing project, scientific research and development [Section 80-IB]
  • Businesses operating in special states [Section 80-IC]
  • Hotels and convention centres in specified areas [Section 80-ID]
  • Establishments in North-East India [Section 80-IE]
  • Businesses of processing/treating and collecting bio-degradable wastes to produce biological products like bio-fertilisers, bio-pesticides, biogas, etc. [Section 80JJA]
  • Factories [Section 80JJAA]
  • Scheduled banks having offshore banking units in SEZs, entities of International Financial Services Centres and banks which have been established outside India [Section 80LA]
  • Cooperative societies [Section 80P]

[Read: Deductions under Section 80]

How can H&R Block help you?

Saving taxes and filing income tax return accurately becomes very easy when you have professional help. This is where we come into the picture. We have a team of in-house tax experts who can file your tax return accurately while giving you maximum tax benefits.

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