The corporation tax in India 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.
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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 categories:
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.
The calculation of corporate tax in India 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 all the required deductions.There are many expenses that a company gets for selling its goods, which are as follows:
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)
The corporate tax in India is not constant and varies with the types of companies in India, i.e. foreign and domestic corporations as these corporations pay different taxes in India. In addition to this, according to the type of corporate companies and the 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%|
*The above-mentioned rates are subject to change as per the prevailing tax slab. Kindly refer to the official website for further changes
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%|
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%|
* The above-mentioned rates are subject to change as per the prevailing tax slab. Kindly refer to the official website for further changes
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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:
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.
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 mean 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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