As per the Income Tax Act, 1956, domestic and foreign companies are liable to pay corporate tax. Read this post to know some of the most vital aspects of corporate taxation in India.
There are two different types of taxes in India- Direct tax and indirect tax. With regard to direct taxes, individual taxpayers pay personal income tax. Similarly, domestic and foreign companies are liable to pay corporate income tax or CIT.
CIT is applicable at a specific rate as per the IT Act and is subject to adjustments in annual budgets. Take a look at some of the most vital components of CIT in India-
What are Domestic and Foreign Companies?
To understand CIT, it is essential first to understand what are domestic and foreign companies. Domestic companies have originated in India or are foreign businesses with management and control entirely located in India.
Similarly, businesses that are not originated in India or do not have their management and control entirely located in India are foreign companies.
What is Considered Company Income?
As the taxes apply to the income generated by a business, it is equally important to know what qualifies as company income. According to the IT Act, these are the different types of earnings that are considered company income-
- Capital gains
- Business generated profits
- Income from rent
- Income from sources such as dividends, interest, etc.
What are the Corporate Tax Rates Applicable in India?
The CIT rate varies based on whether the company is domestic or foreign. While there are aspects, like MAT (Minimum Alternate Tax), DDT (Dividend Distribution Tax), and more, here is a basic overview of the CIT tax rates, surcharge, and cess for domestic and foreign companies-
- Domestic Companies-
| Income Range | Tax Range | Surcharge | Education Cess (EC) & Secondary and Higher Secondary Education Cess (SHEC) |
| Up to Rs. 1 crore | 30% | Nil | 3% |
| Rs. 1 crore to Rs. 10 crore | 30% | 7% | 3% |
| Rs. 1 crore to Rs. 10 crore | 30% | 12% | 3% |
-
Foreign Companies
| Income Range | Tax Range | Surcharge | Education Cess (EC) & Secondary and Higher Secondary Education Cess (SHEC) |
| Up to Rs. 1 crore | 40% | Nil | 3% |
| Rs. 1 crore to Rs. 10 crore | 40% | 2% | 3% |
| Rs. 1 crore to Rs. 10 crore | 40% | 5% | 3% |
What is the Due Date for Filing Corporate Tax Returns?
Just like individual taxpayers, companies are also required to file tax returns every financial year. The due date for the same is October 30th every year, unless the tax department announces any extension. Except for companies claiming tax deductions under Section 11, every company needs to use ITR-6 to file their tax returns.
But if a company is registered under Section 8 of the Companies Act, 2013, it should use Form ITR-7. Eligible companies are also required to conduct tax audits and submit the audit report, along with the tax returns, to the tax department every financial year before September 30th. Most companies in India rely on a reputed tax consultant to fulfil their tax and regulatory requirements.
Understanding Corporate Taxation in India
Complying with all the corporate tax laws and regulations is one of the most vital aspects of running a successful business in India. Non-compliance could have severe consequences in the form of penalties and even jail terms.
As a result, most companies work with reputed tax consultants to effectively comply with all the tax regulations and conduct their business in the most transparent manner.