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An Overview: Corporate Taxation In India

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Snippet: Know about corporate tax in India and how the profits earned by companies are calculated to compute corporate taxes. Find out corporate tax rates and details on rebates and deductions.

In India, taxes on revenue, money, and capital gains are rich sources of taxes for the Indian government. Whether domestic or foreign, corporate houses should pay taxes to run their business in India. A major tax that corporates pay to the Indian Government is corporate tax.

The corporate taxation rate in the country remained the same at 25.17% in 2022 from last year. However, according to Statista, the corporate tax rate in India may reach 30% by 2025.

What is Corporate Tax?

Corporate tax is a type of direct tax charged on the revenue earned by a business house during a specific yearly tenure. Corporate taxes are charged on a company’s income after deductions like depreciation, cost of goods sold, selling, and general and administrative expenditure have been considered. These deductions may be subject to certain conditions and if they don’t satisfy the same, the deduction may not be allowed or deferred. This leads to deferred tax calculations and difference in tax profits when compared to book profits.

The corporate tax can also be called income tax for revenue generated by businesses. Several countries charge corporate taxes for a better tax process. There are different rules for applying corporate tax in different countries.

Corporate tax in India

Corporate tax in India is charged basis the domicile of the corporates Just like individuals earn income and pay tax on it, business houses should also pay tax as part of the income generated.

For effective tax calculation, companies in India are divided into two categories:

Domestic Corporates: Any company which is formed as per Indian law is known as domestic corporate. Additionally, even if a company is formed under foreign laws but is managed wholly in India, it is also said to be domestic for the purpose of Indian Income-tax laws. A domestic corporate should ideally be registered under the Companies Act 2013.

Foreign Corporates: A company is called a foreign company if it does not belong to Indian origin or has its management or control cited outside India.

Corporate Tax Rates for Financial Year 2022-23

The effective corporate tax rate for any corporate house would have the following components:

  • Corporate tax
  • Surcharge (charged for corporates earning higher incomes) and
  • Education Cess (applied on corporate tax and surcharge above)

Corporate tax rates

For Domestic corporates

  • For a gross turnover of up to INR 400 crores in FY 2020-21, the corporate tax rate is 25%.
  • For a gross turnover above INR 400 crores in FY 20, the corporate tax rate is 30%.

The domestic corporate houses are also provided with an option to opt for a beneficial tax rate of 15% (if engaged in manufacturing) and 22% (subject to foregoing of certain benefits). These rates require satisfaction of an enumerated list of conditions as given under Indian Income-tax laws.

For Foreign corporates

  • Interest is charged at 5% or 20%
  • Royalty or Fee for technical services is charged at a 10% tax rate.
  • Any other kind of income is charged at a rate of 40%

Above rates are subject to rates given in Tax-treaty with the country in which the foreign corporate is domiciled.

Surcharge rates

For Domestic corporates

  • If the income range is from INR 10 Mn to 100 Mn, surcharge is 7% on corporate tax rate.
  • If the income range surpasses INR 100 Mn, surcharge rate is 12% on corporate tax rate.

For Foreign corporates

  • If the income range is from INR 10 Mn to 100 Mn, the tax rate is 2% for foreign companies.
  • If the income range surpasses INR 100 Mn, foreign companies’ tax rate is 5%.
Income of a company/corporate

To calculate corporate tax on the revenue of your business, it is important to know about the major factors which contribute to the income of a company/corporate.

  • Earning from business operations
  • Profits/Rent from properties let out
  • Capital gains on transfer of assets
  • Other sources which may include interest income and dividends
Corporate Tax Planning

Corporate tax planning means strategizing your business’s financial affairs to enhance profit and lower payable tax by managing the advantages of deductions, exemptions, and rebates.

Corporate tax solutions are a risky and tricky process that involves a big amount at stake. Thus, you need a professional corporate tax service provider to handle your taxation process.

In India, you have the best financial players offering corporate tax consulting and implementing services. Persistence and complete awareness of current tax regulations and relevant rules and laws are necessary to ensure efficient corporate tax planning.

Corporate tax planning involves the act of planning your finances in such a manner that the payable amount gets reduced, and the gains get enhanced. An amazing feature of tax planning is that it is completely in sync with the regulations and financial rules set by the Indian Government.

Accessible Deductions

Reducing payable taxes is done through deductions, rebates, and exemptions, along with efficient management and auditing of the company’s expenses. These deductions include:

  • Capital gains that are taxed at a rate of 15% or 20% or exempted u/s 54D, 54GA, 54G, and 54EC.
  • Deductions related to new employees under section 80JJAA.
  • Deductions related to depreciation, additional depreciation as per section 32 that allow for a flat 15% off for the old asset depreciation and 20% on the purchase of assets for your company.
  • Deductions that are eligible for rebates in specific scenarios.
  • Donations to charitable companies which are 50 to 100% tax exempted under Section 80G as per the terms and conditions.
Measures for suitable corporate tax planning

Along with the above deductions, check out some measures to save corporate tax. These corporate tax solutions depend completely on how the company plans its tax-saving strategies.

  • Proper management of expenditure: Often, businesses in India operate with unorganized labor, which hampers efficient record keeping. Hence, it is essential to maintain appropriate reports of wages, overhead expenses, etc., to claim deductions in labor and production expenditure.
  • Valuation of equity: Though stock prices are calculated at cost, sometimes stocks with shorter shelf lives are valued at their Net Realizable Value, preventing them from getting overvalued and restricting your capital gains taxable income.
  • Deductions: Use deductions to regulate taxable income and their efficient management to save corporate tax.
Key services of Corporate Tax Consulting Services

When you think of business, tax automatically comes into the picture. Hence, to avoid issues and uncertain losses to tax, it is essential to take corporate tax consulting services from time to time. Efficient planning mitigates the risk. With effective corporate tax consulting services, you can focus on helping business owners make informed tax decisions and execute methods to handle tax affairs to support your business operations and deal with non-compliance.

Steadfast Business Consulting is your one-stop solution to corporate taxation. The company helps deal with issues like effective tax planning, compliances and post-tax filings the resulting assessments and litigation management. The major corporate tax services offered by SBC are:

  • Compliance: Compliance services involve day to day tax filings, calculations before and after registration of the company in India, compliance support linked to preparation and filing of corporate tax returns, withholding tax returns etc.
  • Consultancy services: The company offers corporate tax consulting services. The professionals at SBC are aware of the consistent changes in the economic environment and offer effective tax advice.
  • Health checkup: The professional does detail health checks of the business operations to acquire tax incentive advantages, reduce prospective exposure and enhance the tax compliances.
  • Litigation Services: Preparation of responses to the notices, arguments, and appeals before the income tax office and appellate bodies of the Tax system, to acquire NOC and manage advance ruling proceedings; SBC manages everything.

SBC aims to strike the right balance and help you save corporate taxes using deductions and rebates. The firm aims to understand the situation of your company and help you in the long run by enhancing your company’s gains and tax effectiveness. At SBC, the professionals realize the complexities of corporate tax and their nitty-gritty’s. That’s where their expert team of professionals enters. With expertise in corporate taxation laws, they will help you get the best results for your corporation tax.

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