What is Corporate Tax?

Corporate tax is an income source of government. Corporate tax is incurred on the company’s income or profit (revenue – expenses). Under CBDT (Central Board of Direct Tax) of India corporate tax is governed and levied as a Direct Tax on corporations’ profit. 

Corporate tax rates can be varied according to the tax of that particular region or country. These taxes became a blessing for corporations when the corporate tax rates were low because this motivates a corporation to engage more in refining their research, and development, and acquiring more investment to engage their production capacity irrespective of the liabilities (expenses) for engaging and creating more competition on the market. 

These included expenses will be deducted later from the revenue are; COGS (cost of goods sold), G&A (general and administration), Selling, Marketing, R&D, Depreciation, etc. Thus, a person or an entrepreneur should know the structure of corporate tax for corporate tax planning to get the full advantage of saving profit for the growth of the company. Therefore Let’s get started.

What is Corporate in India?

According to The Income Tax Act, of 1961 section 2(17);

Defines a corporation as a company incorporated in India under the jurisdiction or outside India (under the jurisdiction of law of the foreign territory or country).

This definition applies to the incorporation of any body of individuals, associations, institutions, etc, which are assessed and formed after the incorporation of the assessment year of 1922.

Whereas, CBDT can define or declare any body or entity of associations or institutions as a corporation and liable for corporate tax. Only if it entertains according to the AY (assessment year) of the corporation’s formation.

Corporations or Companies Types

Under the respective laws of any country, a corporation is defined as an entity of individuals or associations registered under the Company Act that entertains a separate identity irrespective of the shareholders or investors. Which have the privilege to entertain certain legal rights and functions or duties according to its interests independently.

In India are there two types of corporations found those are;

Domestic Corporation 

Registered under the Indian Company Act of 1956 or 2013, any organization that is situated and operates management under the jurisdiction and territory of India is entitled to be defined as a Domestic Corporation. [Whereas any foreign company that controls and manages (as an Indian Arm) and produces goods within the boundary of India to considered a domestic corporation.]

Foreign Corporation 

Any company that operates, manages, and manufactures a considerable portion of its organization outside the territorial boundary of India, will be entitled as a foreign corporation. 

Defining Income of a Corporation or Company

Any company or corporation could have a numerous basis of income. Whereas there are some of the income entitled to be taxed are as follows;

1. P&G (profit and gain) from goods sold, or services provided under the financial year. 
2. Interests and Dividend
3. Capital gains from SoA (Sales of Assets)
4. Indirect Income Sources (Rents, interest, etc.)

Defining Corporate Tax of India

The corporate tax is levied on the portion of profit earned by a corporation whether it is domestic or foreign. It will be entertained by CBDT on all the legal business activities of a corporation within the boundaries of India under corporate tax laws. It is a direct tax and its rates can vary from 15% to 40% according to the Income tax rate slab.

Domestic Corporate Tax Rate Slab For AY 2024-25 in India

Note; 

• Subchages (additional charges) will be applicable 

• 7% on Taxable Income above ₹1cr. Or up to ₹10cr.
• 12% taxable on above ₹10 cr.
• 10%  taxable u/s 115BAA or 115BAB (if opted)

• The marginal relief is applicable on surcharges, in case the income of the person does not exceed the limit that is entertained according to the Income tax rate. 
• The Cess Charges include @4% applicable with surcharges (if any) for Health and Education.
• Other taxes included MAT at 15% of Book Profit (Including Subcharges + Cess) for more detail visit ITR. 

Foreign Corporate Income Tax Rate Slab for AY 2024-25

Note;

• Surcharge may be applicable;
  • 2% IRT on ₹1 cr. or upto ₹10 cr.
  • 5% IRT on above ₹10 cr.

• Marginal Relief may be applicable on Subcharges if the conditions are entertained.
• Health and Education Cess may applied @4% rate with Subcharges.
• Other taxes may include MAT, LMAT, and DAT (for more detail)

Corporate Tax Planning

Every corporation infused corporate tax planning to reduce the outflow of tax from the profit for engagement of more market opportunities. Corporate Tax planning is a method of managing and using the advantage of tax exemptions for better applicability of the revenue for the future course of a company. Corporate Tax Planning can help an organization evaluate and postpone those tax liabilities that are not significant for the coming FY. For instance Capital Gain, Interest income, Dividend, etc. 

Underling the Advantage of Some Exemption for Tax Deduction Liabilities

Here are some of the exemptions that are applicable under the section of the Income-tax rate slab those are as follows;

1. Under the section of 54D, G, GA, and EC. Tax on Capital gain could be avoided that are liable to be taxed on a flat %15 or 20%.
2. Under section 80G donations to charitable organizations may apply for exemption of tax up to 50% to 100%.
3. In certain cases, tax could be avoided on Dividends. 
4. Under Section 32, 15% Depreciation for Deduction on the Cost of Old Assets and an additional 20% tax deduction on purchasing new assets for manufacturing and production may be applicable.
5. Under Section 80JJAA deduction on tax may be applicable if a new employee was employed. 

All companies may also look for government exemptions or incentives to reduce tax liabilities, for instance, subsidiaries, manufacturing incentive schemes, production benefit links or schemes, etc., and carefully assert with the help of their corporate tax consultancy while corporate tax planning. 

FAQ

1. How to File Corporate Tax Returns in India?

Under ITR6; All companies that fall under section 11 for tax relief should file ITR6.

Under ITR7; All Companies registered under the Company Act 2013 should file for ITR7.  

The are two methods of filing corporate tax online or offline (in the office of ITO) but in current times where filing for an ITR is easier digitally thus most of them prefer online through the e-filing portal of ITD. 

These days corporates either hire an external third party for filing ITR for instance hiring a corporate tax consultant. The ITR must be filled out before the due date of 30th October of every AY (after auditing of the books) followed by both domestic and foreign corporations. If the auditing of books is not necessary then companies may file ITR on 31 July of every FY.

2. What are the Benefits of Income Corporate Tax Filling?

The benefits of Income corporate tax filling are as follows;

1. Increment of goodwill and social status.
2. Government intervention will be reduced due good legal status of filing taxes. 
3. Contribute to regulating the market and public development.
4. Helps to avoid defamation charges from government authorities. 

3. What are methods for saving corporate tax? 

Here are the three methods for saving corporate tax are as follows;

1. Management of indirect costs and expenses
2. Valuation of Equity
3. Using the exemption of tax deduction in a carefully strategic manner