Last Updated on May 24, 2022 by
Governments impose a mandatory financial charge on all eligible citizens and organizations every year to collect revenue to finance Government activities. It is done through mainly two different types of taxation processes
- Direct Tax
- Indirect Tax
While taxpayers pay non-transferable taxes directly to the Government, known as a direct tax, indirect taxes are transferable taxes levied on products or services. Goods and Services Tax (GST) and Income Tax are examples of indirect and direct taxes, respectively.
Let us read more about them in detail.
Table of Contents
Direct taxes
Direct taxes can again be divided into two types –
- Personal Income Tax
- Corporate Tax
Corporate taxes are charged on the total income of business organizations operating in any country. The corporate tax rates differ widely from one country to another, with some nations being immensely popular as tax havens due to their very low rates of taxation on businesses.
What is corporate tax?
Governments levy corporate tax on the net profits made by a business entity operating in the country. These tax rates are calculated on the taxable income of the company, which is the total revenue generated in a financial year minus some operating costs, such as –
- General and Administrative (G&A) expense
- Research and Development (R&D) expense
- Selling and Marketing expense
- Cost of Goods Sold (COGS)
- Depreciation
Who is liable for corporate tax payment?
The Indian Companies Act, 1956 mandates that all private and public companies registered and operating in India are liable to pay corporate taxes according to the rates determined by the Government. All domestic and foreign companies operating on Indian soil have to pay taxes to the Government under the Income Tax Act. However, the Government taxes a foreign company on the revenue generated within the country only, while domestic companies have to pay taxes on their universal incomes.
The types of companies have been defined accordingly to calculate the corporate tax:
- Foreign companies – These business entities are not registered under the Indian Companies Act and are controlled by their headquarters located on foreign soil
- Domestic companies – These corporations are registered under the Indian Companies Act. It also includes those companies that are situated on foreign soil but have their administrative headquarters located in India.
Corporate tax rates in India
The Indian Government levies varying corporate tax rates on business entities depending on their nature. The following tax rates are for the FY 2020-2021 and AY 2021-2022
1. The tax rate for partnership firms including Limited Liability Partnerships (LLPs)
| Tax Rate | Surcharge | Education cess |
| 30% | 12% of income tax where total income exceeds Rs 1 cr | 4% of income tax plus surcharge |
2. The tax rate for local authorities
| Tax Rate | Surcharge | Education cess |
| 30% | 12% of income tax where total income exceeds Rs 1 cr | 4% of income tax plus surcharge |
3. The tax rate for domestic companies
| Particulars | Tax rate |
| If turnover or gross receipt of the company does not exceed Rs. 400 cr in the previous year 2018-19 | 25% |
| If the company opted for Section 115BA | 25% |
| If the company opted for Section 115BAA | 22% |
| If the company opted for Section 115BAB | 15% |
| Any other domestic company | 30% |
The rate of surcharge levied also varies depending on the net income of the companies. However, the education cess imposed remains constant at 4% of income tax plus surcharge.
| Taxable income | surcharge |
| Total income exceeds Rs.1 cr | 7% of income tax |
| Total income exceeds Rs.10 cr | 12% of income tax |
| Domestic company opted for Sections 115BAA and 115BAB | 10% of income tax |
4. The tax rate for co-operative societies
| Taxable Income | Tax Rate |
| Up to Rs. 10,000 | 10% |
| Rs. 10,001 to Rs. 20,000 | 22% |
| Above Rs. 20,000 | 30% |
The rate of surcharge levied is 12% of income tax where total income exceeds Rs. 1 cr and 10% in cases of concessional schemes. The education cess is constant at 4% of income tax plus surcharge.
5. The tax rate for foreign companies
| Tax rate | Surcharge | Education cess |
| 40% | 2% of income tax where total income exceeds Rs. 1 cr5% of income tax where total income exceeds Rs. 10 cr | 4% of income tax plus surcharge |
Due date for filing an income tax return
The Income Tax Act mandates all business entities, including foreign corporations, to file their income tax return on or before 31 October every year. It is applicable even for companies registered under the Indian Companies Act during that same financial year.
Tax return forms to be filed
Companies have to file their income tax returns using tax return forms of the following types–
| Particulars | Tax return forms |
| All companies except those claiming a deduction under section 11 | Form ITR 6 |
| All companies registered under section 8 of the companies act, 2013 | Form ITR 7 |
Exemptions in corporate tax payment
Business entities are exempted from corporate tax payments subject to certain conditions –
- Start-up businesses concerning innovation development with scalable business models and the potential to generate high yields and employment rate
- Corporations handling storage and transportation of food grains
- Entities concerned with refining or commercial production of mineral oils
- Establishments operating hospitals in rural areas
- Companies developing affordable housing projects
- Exports and International Financial Services Centres (IFSCs)
Conclusion
Filing corporate taxes can be a complex issue if you do not read and understand all the rules and regulations. To avoid attracting heavy penalties in place of missing out on filing corporate tax returns, consult professional tax consultants who can aid you through this complicated process.
