The Income Tax Act,1961 levies a corporate tax on domestic as well as foreign companies.The Government of India, through this Act,mandates domestic companies to pay corporate taxes based on their universal income. On the other hand, foreign companies are only taxed on their income accrued or received in India.
Section 2(17) of the Income Tax Act, 1961 defines a company.Its scope is much broader in the Income-tax Act than in the Companies Act. Under the Act, the expression ‘Company’ means:
A corporate tax is a tax on a corporation’s profits. Taxes are paid on a company’s taxable income,which is revenue less general and administrative (G&A), selling and marketing, R&D,depreciation, and other operating expenditures. A corporate entity’s net income or profit from its operations,whether domestic or international, is subject to the direct tax which is the corporation tax or corporate tax.
Corporate taxation can be defined as a process by which the government collects taxes from business entities operating in a country, whether foreign or domestic. The government levies taxes on companies, which companies have to pay out of their income. Section 2(13) of the Income Tax Act, 1961, defines business as “any trade, commerce or manufacture or any adventure of concern in the nature of trade, commerce or manufacture.”
As a source of revenue, the Indian government levies corporation taxes on businesses. The basis for calculating this tax is a company’s net income. These are the various sources of income a business receives.
Companies, both domestic and foreign should pay annual corporate tax and the same is based on the above income earned in a given financial year.
| Domestic companies | Currently, domestic businesses pay a 30% tax rate. Additionally, if net income is between Rs. 1 crore and Rs. 10 crores, the Income Tax Act imposes a 7% surcharge. A 12% surcharge is applied to a company’s net income exceeding Rs. 10 crores. Domestic firms now can pay tax at a rate of 25.168% thanks to Section 115BAA. |
| Foreign Countries | The foreign corporations are required to pay corporate income tax. The Royalties and other fees are subject to a 50% corporation tax rate in India, while the remaining revenue is subject to a 40% tax rate. A 2% surcharge is applied to foreign companies with net incomes between Rs. 1 crore and Rs. 10 crores. |
The Taxation Laws (Amendment) Bill, 2019 replaced an ordinance that reduced the tax rate for domestic companies from 30% and 25% (for those with an annual turnover of over ₹400 crores) to 22%. Highlights of the Ordinance and the Bill are:
Corporate Tax Rate Applicable for AY 2023-2024
Corporate Tax Rate Applicable for AY 2024-2025
Conclusion
Corporate taxation is not only a complex but dynamic concept that varies with jurisdictions. Globalisation and digitalisation have posed challenges in front of them, though continual evolution in government policies has helped tackle the situation efficiently. The implementation of GST and promoting digital transactions are imposed by the Government of India to reduce the incidence of tax evasion.
The government has gradually cut the business tax rates to make India more competitive on a global scale. The reduced corporate tax rate of 25% was extended to all businesses with an annual turnover of up to Rs 400 crore by the Union Budget 2019–20. It was anticipated that this would apply to 99.3% of businesses.
For newly created domestic manufacturing units, a favourable tax regime of 22% for existing businesses and 15% for corporations was also introduced, providing they do not take advantage of any specific deductions or incentives. The last day to use this is March 31, 2024.
A strong and accessible taxation environment is profitable for any country’s revenue. India`s evolved tax regime has helped India become the fastest-developing country and 5th in terms of GDP. India`s attractive tax regime attracted investors and foreign companies, which boosted India’s economy.
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