Corporate tax in India is levied on both domestic as well as foreign companies. Like all individuals earning income are supposed to pay a tax on their income, business houses too are supposed to pay as a tax a certain portion of their income earned. This tax is known as corporate tax, corporation tax or company tax.
For the purpose of tax calculation, companies in India have been broadly divided into the following two categories.
- Domestic Corporate: Any company that is Indian is called as a domestic company or if the company is foreign but the control and management is wholly situated in India then also it is termed as a domestic company. An Indian company means a company registered under the Companies Act 1956
- Foreign Corporate: Any foreign company is one that is not of Indian origin and has some part of control and management of affairs located outside India
Dividend Distribution Tax:
Corporate tax is tax paid by companies on revenues earned minus certain expenses. Similarly, dividend distribution tax is tax paid by corporates on the dividend that they pay to their shareholders. Corporate dividend tax is a percentage of the dividend paid. Currently, the dividend distribution tax in India is 15%.
What is meant by Income of a Company?
In order to compute corporate tax on the income of a company, it is necessary to first learn what all factors make up the total income of any company.
- Profits from business
- Income from property
- Capital gains
- Income from other sources such as foreign dividends, interests etc.
Corporate Tax Rate for Domestic Companies in India:
A domestic company in India refers to any enterprise that has its base location in India and is of Indian origin. Given below is the tax rate applicable to domestic businesses in the country.
- A flat rate of 25% corporate tax is levied on the income earned by a domestic corporation.
- A surcharge of 12% is levied in case the turnover of a company is more than Rs.1 Crore for a specific financial year.
- 3% educational cess is levied.
- Corporate tax is also levied on the global earnings of the domestic company. This takes into account income earned by the company abroad.
Corporate Tax Rate for Foreign Companies in India:
A foreign company means an enterprise that has operations and origin in any other country except India. The taxation rules are not as simple for foreign enterprises as for domestic businesses. Corporate tax on foreign companies depends a lot on the taxation agreements made between India and other foreign countries. For example, corporate tax on an Australian company in India will depend upon the taxation agreement between the governments of India and Australia.
Tax Rebates Applicable on Corporate Tax:
Apart from various types of taxes levied on company income, there are several provisions of tax rebates available to companies. A list of all these rebates is detailed below.
- In certain cases, domestic companies can deduct dividend received from other domestic companies
- Special provisions are applicable to venture fund and venture capital enterprises
- Deductions, in some cases, are allowed for exports and new undertakings
- New infrastructure and power sources set-up is subject to certain deductions
- Business losses have the provision of being carried over for a maximum of 8 years
- Interest, capital gains, and dividends can also be deducted in some cases