Corporate Tax for Financial Year 2018-19 & Assessment Year 2019-20

Corporate tax is a form of tax charged on the profits made by businessmen in a certain period of time. The rate of corporate tax varies from business to business and depends on the profits earned.

The process of taxation dates back to an ancient time. Various kinds of taxes are levied by governments of various countries. In India, taxes on income, wealth, Capital Gains are some of the most significant taxes paid by customers. Corporate houses too, be it domestic or foreign, are required to pay taxes in order to run their business. One of the may taxes that corporates are required to pay to the Indian government is corporate tax or company tax.

What is Corporate Tax?

Corporate tax is a form of tax levied on profits earned by businessmen in a particular period of time. Various rates of corporate taxes are levied for different levels of profits earned by business houses. Corporate tax is generally levied on the revenues of a company after deductions such as depreciation, COGS (Cost of goods sold) and SG&A (Selling general and administrative expenses) have been taken into account.

Corporate tax or company tax can be assumed as an Income Tax for income earned by businesses. Many countries levy corporate tax in order to smooth out the tax process for enterprises. Different countries have different rules that apply to taxing of income.

Corporate Tax in India:

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 tax a certain portion of their income earned. This tax is known as corporate tax, corporation tax or company tax.

Definition of a Corporate:

Any juristic person having a separate and independent legal entity from its shareholders is termed as a corporate. The income earned by a company is computed and assessed separately from the dividends that it offers to its shareholders. These dividends do not figure out in the tax calculation of the company but are assessed as part of the income of shareholder.

For the purpose of tax calculation, companies in India have been broadly divided into the following two categories.

  1. Domestic Corporate:

    Any company that is Indian is called as 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

  2. 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

Corporate Tax Rate in India:

The tax rates for Corporate Tax in India are different for domestic companies and foreign companies. The different tax rates are given in the table below:

Domestic Companies

Range of Income Rate of Tax which is applicable Surcharge EC and SHEC (percentage on the sum of tax and surcharge)
Income up to Rs.1 crore 30% Nil 3%
Income exceeding Rs.1 crore but not exceeding Rs.10 crore 30% 7% 3%
Income exceeding Rs.10 crore 30% 12% 3%

Note: The surcharge will be levied on taxable income, subject to a limited relief. In case of domestic companies, it is subject to the fact that the income exceeds Rs.1 crore.

Foreign Companies

Range of Income Rate of Tax which is applicable Surcharge EC and SHEC (percentage on the sum of tax and surcharge)
Income up to Rs.1 crore 40% Nil 3%
Income exceeding Rs.1 crore but not exceeding Rs.10 crore 40% 2% 3%
Income exceeding Rs.10 crore 40% 5% 3%

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%.

Minimum Alternate Tax (MAT):

The Minimum Alternate Tax or MAT was introduced with the basic aim of making companies pay a certain amount of token money as tax. Companies usually find out multiple methods of evading tax payments. In order to stop this practice, the Minimum Alternate Tax came in to the scenario. MAT is imposed as per the regulations of Section 115JA of the Income Tax Act.

Liability of Minimum Alternate Tax (MAT):

If the total applicable payable tax of a company on the total income is less than 18.5% of the profit which is recorded in their books (in addition to surcharge and SHEC), the company will be liable to pay a token tax money in the form of MAT or Minimum Alternate Tax.

However, MAT can also be carried forward and adjustments can be made against regular tax. The MAT can be carried forward for 10 subsequent years.

Application and Exemption of Minimum Alternate Tax (MAT):

The Minimum Alternate Tax or MAT is applicable on all the companies. Foreign companies which have income sources in India are also liable to pay MAT.

However, there are certain exemptions as per the regulations of the MAT. Companies that have a setup for life insurance business will be exempted from the purview of MAT under Section 115B. Companies having income generated through shipping will be exempted from the purview of MAT under Section 115V-O.

Corporate Tax Rate:

Depending upon the type of company, domestic or foreign and depending upon the income earned in one financial year, corporate or company tax rates vary for different companies. Currently for the financial year 2015-16, corporate tax in India has been reduced by a certain percentage. In the subsequent sections, corporate tax rates for the current fiscal have been detailed out more clearly.

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 corporate.
  • 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

Corporate Tax Planning:

Corporate tax planning can be understood as strategizing one’s financial business affairs in such a way so as to maximize profit and minimize payable tax by taking into account the allowed benefits of deductions, rebates and exemptions. Tax management is a risky as well as tricky business and most corporates that have a huge money at stake involve financial experts to take care of their taxation process. In India also there are various financial players that provide consultation and implementation of corporate tax. Due diligence and absolute awareness about all tax laws and corresponding rules and regulations, is a must to ensure healthy tax planning.

Corporate tax planning is different from tax evasion or non-payment. Tax planning refers to the act of planning one’s finances in such a way that the payable tax amount is reduced while the gains are maximized. One of the most essential features of tax planning in that it is absolutely in-line with the legal and financial rules set by the government of India.

Highlights of Union Budget 2018 for Corporate Tax

The government had declared to decrease corporate tax rate to 25% in the Union Budget of 2017. This was applicable only to organisations who had turnovers less than Rs.50 crore during FY 2015-16. Under the Union Budget 2018, Finance Minister Mr. Arun Jaitley announced that this particular decreased rate of 25% will be applicable even to companies that have had turnovers of up to Rs.250 crore during FY 2016-17. The government made this change to help all companies that fall under the micro, small, and medium enterprises. This is particularly because approximately 99% of these organisations’ employees file tax returns.

According to the Budget 2018, 7,000 organisations out of 7 lakh organisations that file returns will be retained in the 30% tax rate slab. These 7,000 companies will be companies who have turnovers higher than Rs.250 crore.

It is anticipated that the revenue that has been sacrificed due to this particular move of extending the 25% decrease rate is Rs.7,000 crore for the financial year 2018-19. This significant move by the Finance Minister is a great economic reform that will enhance the overall tax system of the country. This will also help in enhancing the competitive edge of the nation.

This reduced corporate income tax rate for the majority of companies will enable them to offer more and more employment opportunities.

News about Corporate Tax

  • Exemption of Angel Investment Tax for Startups

    Angel Investments are usually the earliest equity investments made in startup companies, and such investors are called angel investors. The capital that angel investors provide may be a one-time investment to drive business or a continuous financial support during difficult times of the company.

    The Union Budget of 2012 introduced the provision of the Angel Investment Tax, which is a form of Corporate tax. As per the rules, funds raised by an unlisted company through issuance of equities are covered under this tax. However, it is applicable only if the amount raised exceeds the fair market value.

    In a move to promote start-ups, the Indian government has dismissed the imposition of Angel Investment Tax on investors who fund startups. However, only investments in startups that fulfil all conditions specified by the DPIP are eligible for exemption from the tax. This is expected to promote investment in India and provide relief to angel investors and eligible startups.

    30 August 2016

  • Government to Reduce Cut of Corporate Tax to 25% to Increase Transparency

    The government has proposed to reduce the cut in corporate tax by 5% from the existing 30% and level it off to 25% over a span of 3 years to improve the transparency in collections. India Ratings and research said that this proposal to reduce the cut in corporate tax is to bring a focus on returns based on economics and will help government reduce the incentives they pay forcing low tax paying corporations to increase their taxes by a considerable amount

    Some of the largest corporates were found to be paying tax lower than 10%. With the reduction of the cut to 25% over a phased manner, the incentives paid by the government will reduce and the tax outflows will increase

    The withdrawal of incentives will affect key sectors such as Oil and Gas, Auto, Telecom, Mining, IT & ITES, pharma and healthcare

    5 April 2016

  • Corporate Tax has increased from FY14 to FY15

    The effective rate of Corporate Tax in the country, has increased from FY14 to FY 15 by 1.4%. The effective rate has gone up from 23.22% in 2013-14 to 24.67% in 2014-15. Small companies which have a turnover that is up to Rs. 1 crore but not than Rs. 500 crore, have the highest effective rate. Larger counterparts enjoyed a rate as low as 22.88%, companies with a turnover of Rs. 10 crore enjoy a rate of 33.84%, while those with a turnover up to Rs. 10 crore it comes to 32.44%. With the Budget 2016-17, there was a unveiling of a new plan whereby a new manufacturing entity can enjoy corporate tax rate of 25%. The estimated revenue loss of Rs 68,710 crore was estimated by the government in lieu of of tax exemptions.

    14 March 2016

  • Impact of Budget 2016 and the Impact on Corporate

    With the Budget 2016 being announced the impact for new corporate will be pretty advantageous when it comes to tax. Any new manufacturing companies, which will come into existence after 1st March 2016, will be provided a corporate tax reduction of 27.55% if their income exceeds Rs. 1 crore but not Rs. 10 crore. If the income exceeds Rs. 10 crore, then the 28.84%, this will provide the Make in India initiative the much needed boost in this sector. All startups set up before April 1, 2019 will be proposed to be provided with 100% deductions of profits for the first 3 years.

    2 March 2016

  • Corporate Tax Exemptions will be Phased Out, and No Weighted Deductions from FY 2017-18.

    A detailed plan has been laid out that will phase out corporate tax exemptions and bring down the corporate tax rate from 30% (now) to 25%.

    Profit linked, investment linked, and area based deductions will be phased out for corporate and non-corporate taxpayers.

    27 November 2015

  • Finance Minister announces Plan to Cut Taxes and Black Money Problems

    The Finance Minister, Arun Jaitley, has announced that personal and corporate taxes may be reduced over the next 4 years. In terms of personal taxes that individuals pay, he said that a more rational rate will be decided upon and for taxes paid by corporates, the rate might be brought down to a flat 25%. This new rate is to become effective from the financial year 2016-17. In addition to bringing down corporate taxes he also said that once they come down, certain exemptions might also be removed.

    Even the Goods and Services Tax might be reviewed and altered as needed along with provisions for bankruptcy. In reply to the problem of black money, he said that the first step would be have rational taxes. He also said that a PAN card might be made compulsory for transactions that exceed a certain amount and fall under particular categories.

    9 October 2015

  • India will phase out corporation tax exemptions

    The Finance Minister said that he will phased out corporation tax exemptions in a phased manner to aim and align the levels of taxation with other countries on a global level. The list of exemptions of which will phased out are expected over the next few days. The current corporation tax stands at 30% effective rate of taxation is 23% due to the exemptions. The amount of revenue lost on account of these exemptions is a whopping Rs. 68, 000 crores.He also mentioned that weaker banks need to consolidate with stronger ones.

    24 September 2015

  • No Renewal for Corporate Tax Exemptions with Sunset Clause

    Sunset clause is a statement added to the end of a measure which causes the act to sunset or become ineffective after a certain date. CBDT or the Central Board of Direct Taxation has decided not to renew the corporate tax exemptions after expiry of the sunset clause. The move is specifically aimed to phase put exemptions and to move to a lower corporate tax rate.

    Ministry of Finance has already come out with a directive to phase out exemptions in the next few days in order to bring down the corporate tax rate from the current 30% to 25% over the next four years. CBDT might also put a sunset date for open-ended tax exemption schemes in order to give some time to corporates to adjust their taxes.

    CBDT is also looking forward to cleaning up and revamping the Income Tax Act which still contains clauses and exemptions that are no longer applicable to corporates.

    15 September 2015

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