Corporate Tax in India: The Ultimate Guide

Corporate tax accounts for a major share of the Government of India’s revenue. Every business operating in the country pays corporate taxes. If you are a business owner or startup founder looking to learn more about corporate tax in India, here’s a quick read to help you out. 

What is corporate tax?

Corporate tax, as the name suggests is levied on the companies incorporated in India or outside the country under the laws of that particular country. It is imposed on the income or the profits earned by a corporation by the government. 

It is meant for businesses including both domestic and multinational companies. The revenue the government generates from corporate tax is significant as it plays a crucial role in the nation’s development.

Update on corporate tax rate: Budget 2024

In the Union Budget 2024, Finance Minister Nirmala Sitharaman announced the reduction in corporate tax of both foreign companies from 40% to 35%. 

Tax incentives for specific industries

There are specific industries such as green manufacturing companies, investments, and new infrastructure related to it can benefit from a concessional corporate tax rate of 15%. However, these industries should have commenced their production before March 31, 2024 to be eligible for this incentive.

Deductions applicable on corporate tax in India 

Corporates can reduce or optimise their taxes by using strategies along with efficient management of deductions, exemptions, and rebates. 

The below mentioned deductions are applicable on corporate tax in India: 

Capital Gains

Capital gains can be taxed at a flat rate of 12.5% or 20%. It depends on the nature of the gains. However, it can be exempted under sections such as 54D, 54G, 54GA, 54EC. 

Donations to Charity

Under Section 80G, any contribution made to eligible charitable organisations can be tax exempted by 50% to 100%. 

Enrolment of New Employees

Corporates can claim tax deduction when they hire new employees. 

Depreciation Deduction

Under Section 32, companies can claim a 15% tax deduction for depreciation of their old assets. Additionally, companies can also claim a 20% tax deduction on new assets used in the manufacturing or production sector.

Corporate tax rate for a domestic company

The table below displays the applicable corporate tax rate for a domestic company in AY 2021-2022:

Corporate tax rate for a foreign company

The table below displays the applicable corporate tax rate for a foreign company in AY 2021-2022:

The Government of India introduced new rates of corporate taxes, which are applicable only to specific companies. 

The table below shows the tax rates that are applicable only for certain corporates:

*Note: MAT = Minimum Alternate Tax. Scroll down for more details.

Surcharge rates on corporate tax

In addition to tax rates, here are the surcharge rates for corporate taxpayers:

Health and education cess

Additionally, a Health and Education Cess that is 4% of the total tax liability + surcharge as mentioned above will be added to the tax payable before such cess.

Minimum Alternate Tax (MAT)

In case the total tax liability of a company for a given assessment period on the total income is under 15% of the book profits after adding surcharge and HEC, then such a company would have to pay Minimum Alternate Tax, a type of token tax monies.

This applies if the company in question has not opted for Section 115BAA or 115BAB.

MAT is charged at 9% plus surcharge and cess per the rates above if the company in question is a unit of an international financial services centre, and earns its revenue only in the form of convertible foreign exchange. 

MAT can be carried forward and adjusted against the regular tax liability for up to 10 consecutive years.

Application and Exemption of Minimum Alternate Tax (MAT)

Minimum Alternate Tax applies to all kinds of companies, including foreign companies which have income sources in India. 

MAT, however, does have some exceptions. For instance, under Section 115B, any company set up for the business of life insurance will be exempt from MAT.

Further, companies that generate revenue out of a business in shipping will be exempt from paying MAT, as per the provisions under Section 115V-O.

Provisions for corporate tax rebates

Some of the important provisions for corporate tax rebates are as follows

• The IT department allows deductions if a corporate set up new infrastructure or power sources
• Rebates are available for dividends as per applicable terms and conditions
• A deduction is allowed on interest income in certain instances

The IT Department allows certain deductions for exports and new undertakings of a business

Tips for Corporate Tax Planning

Effective tax planning for corporates is necessary to optimise the current tax management system that will gradually enhance the financial efficiency of the company. Listed below are a few tips to help you plan the taxes smoothly: 

Explore Tax Deductions Options

Identify the deductions and tax exemptions that are available for your business. By optimising these options, you can reduce the taxable income of your company.

Understand Tax Laws and Regulations

Understand the Income Tax Act 1961, and Companies Act 2013 and get acquainted with the current law and regulations that are specifically applicable to your business. 

How to pay corporate tax online?

Trying to figure out how to pay corporate taxes online? Here’s something to give you a boost.

Businesses can make corporate tax payments online through the e-payment facility of the official portal of the I-T Department. 

• If you’re paying taxes for your business, you would need the ITNS 280 challan to pay the corporate tax online through the e-payment mode. 
• You’d further need to provide essential information in the challan, such as the correct PAN, address, email ID, phone number, and financial and assessment year number. 
• Additionally, you’d need to select code 0020 (for corporate tax payment) and then make the payment via net banking.

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Frequently Asked Questions