Corporation Tax

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The corporation tax is also known as corporate tax. It is a direct tax that is levied on the total profit or income that corporate endeavors make through their businesses. This tax has a specific rate which is imposed according to the Income Tax Act, 1961.

Corporate Entities that are Responsible for Paying Corporation Tax in India

  • Corporations that get revenue from India and perform business on these earned incomes.
  • Incorporated corporations in India.
  • Corporate that has earned the status of Indian residents for the payment of taxes.
  • Foreign companies that have established permanently themselves in India.

Corporate Entities: Types and Definitions

A corporation or corporate entity is considered as an artificial person that is legally considered of having certain duties and rights so that by law it has some independent legal identity which is separate from its shareholders. In India, the corporate are divided into the below two different categories:

  • Foreign Corporations: As the name of this type suggests, a foreign corporation is a company that is not in India and is located overseas.
  • Domestic Corporations: An organization that is established in India and is registered in India’s Companies Act, 2013 is known as Domestic Corporation. A foreign organization can be known as domestic corporation, if the Indian arm’s control and management is completely based out in India.

The distinction between domestic and foreign company is required as domestic companies have to give the corporate tax over their universal income in India on the other hand foreign companies have to provide charged tax on the income that is generated via their operations in India only.

Net Income Calculation for Corporate

The calculation of corporate tax in Indian is based on the net income or net revenue of an organization. Net revenue or net income of any company is the total amount that remains with the company after the deduction of making different required deductions. There are many expenses that a company gets for selling its goods, which are as follows:

  • Total cost of the sold goods
  • Depreciation
  • Expenditures of selling
  • The expenses that incur for administration

Any company’s income includes net profit that it earns from its business, capital gains, rental income, and income from various other sources like dividend income or interest income. In this way:

Net Revenue = Gross Revenue - (Depreciation + Expenses)

Rate of Corporate Tax in India

The corporate tax in India is not constant and varies with the types of companies in India, i.e. foreign corporations and domestic corporations as these corporations pay different taxes in India. In addition to this, according to the type of corporate companies and different revenues gained by every company, the rate of corporation tax differs with the slab rate system. The corporation tax for current assessment year 2019 – 20 is as follows:

Company Type

Surcharge on the Net Income that is Less than Rs.1 Crore

Rate of Corporate Tax

Surcharge over the Net Income that is Greater than Rs.1 Crore and Less than Rs.10 Crore

Surcharge on Net Income that is More than Rs.10 Crore

Domestic Corporation with Yearly Turnover of up to Rs.250 Crore

NIL

25%

7%

12%

Domestic Corporation with Turnover More than Rs.250 Crore

NIL

30%

7%

12%

Foreign Companies

NIL

40%

2%

5%

Rates of Corporation Tax in India for Domestic Corporations

A company that is of Indian origin comes under the category of Domestic Corporation/ Corporate. A domestic corporation’s management is located completely in India and the corporate tax rate for the assessment year 2019 – 2020 is given below:

Gross Turnover

Rate of Tax

Up to Rs.250 Crore

25%

More than Rs.250 Crore

30%

  • Any domestic company with turnover of 250Crore Rupees pays the corporate tax of 25%.
  • A education and health cess at the rate of 4% is as well charged for a domestic corporation.
  • For a specific financial year, if the total earned revenue by any company is more than Rs.1 Crore, then corporate tax surcharge of 5% is also levied on these corporate.
  • If some specific domestic corporate has its branches in overseas locations, then the same amount of corporate tax is as well charged on the total worldwide earnings. The corporate tax for domestic companies in India is as well considers the revenue that a domestic company earns in abroad.

Corporate Tax on Foreign Companies in AY 2019 – 20

A corporate of non-Indian origin is termed as a foreign corporation. The management and control of such companies does not take place in India instead outside of India. Further, these corporate are not registered in the Companies Act 2013. The rules related to the process of taxation for a foreign corporation is different from a domestic corporation and is dependent on the agreement of taxation made between foreign countries and India. For example, the rate of corporate tax for a foreign company based in United States of India will depend on the agreement of taxation that India has with the US.

Income’s Nature

Rate of Tax

Fees or received royalty for the technical services got by a foreign corporation from any Indian concern or government in an agreement that is being made before 01st of April 1976 and approved by the Central Government.

50%

Some other income through Indian Operations

40%

Rebates on Corporate Tax

With many tax on domestic and foreign companies, there are some rebates on corporate tax or deductions offered to these companies. The key rebates to consider are:

  • The capital gains of corporate are considered in deduction.
  • The income from interest is not taxed in some cases.
  • The dividends can as well be subject to tax deduction with some applicable conditions and terms.
  • If a company sets up new infrastructure of new sources of power, then they can opt for some deductions.
  • A corporate has authority to carry its losses that incurred in its business for maximum of eight years.
  • In the case of new undertakings and exports of a company, a specific amount of deduction is allowed.
  • There are different sum of provisions for tax deductions are granted, if a company wants to venture capital fund or enterprises.
  • If a domestic company gets some dividend’s amount from some other domestic company, then it has the provision of deducting these dividends as tax rebates.

Some Basics of the Planning of Corporate Tax

Each taxpayer including the business companies need some type of tax planning that may enable them to maximize the profit by reducing the burden of tax payment. Corporate tax planning includes the development of strategy for achieving the goal. This enables the companies to hire professionals who completely know the rules and regulations of the laws for the tax payments. Proper planning of tax is needed as each business involves substantial financial risk.

One should understand that corporate tax planning and tax evasion are completely different. On one hand where tax evasion is not paying the tax and hence it is considered as a punishable offence, the other hand, corporate tax planning is needed by every business to improve its net profit.

Dividend Distribution Tax

The dividend is referred to as profit’s distribution to the shareholders of a corporation. In this way, dividend distribution tax is charged over the profits that are distributed through this process. However, the corporate tax in India is the tax that is calculated over the net profit of a corporation after deducting the expenses incurred. So, the dividend distribution tax is a kind of tax that is paid over the dividends that are offered to the shareholders of a company. Therefore, higher dividends means more tax burden for corporate. It may also be termed as the percentage over the dividends given to the shareholders by a specific corporate.

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