Corporate Tax - Check Rates, Planning and Budget FY 2020-21 Last Updated : 14 Jul 2020

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 Rates AY 2019-20

Corporate Tax Rates for Domestic Companies AY 2019-20

Range of income Rate of tax
Up to Rs.250 crore gross turnover 25%
Gross turnover that exceeds Rs.250 crore 30%

Surcharge rates in addition to the rates above

Particulars Domestic Companies Tax rate
If total income range is between Rs.1 crore and Rs.10 crore 7% as per rate of tax above
If total income range exceeds Rs.10 crore 12% as per rate of tax above

Corporate Tax Rates for Foreign Companies AY 2019-20

Nature of income Rate of tax

Royalty or fees received for any technical services from the government or

an Indian concern under agreements made before April 1, 1976, which is approved by the central government

Any other kind of income 40%

Surcharge rates in addition to the rates above

Particulars Foreign Companies Tax rate
If total income range is between Rs.1 crore and Rs.10 crore 2% as per rate of tax above
If total income range exceeds Rs.10 crore 5% as per rate of tax above

Health and education cess

To the amount that is the total tax liability, 4% of the income tax that is calculated and the surcharge that is applicable will be added before the health and education cess.

Minimum Alternate Tax (MAT)

The minimum alternate tax rate is 18.5% for both domestic and foreign companies. This is based on the book profits if the tax that is calculated at the rates given above are less than 18.5% of the book profits.

Dividend Distribution Tax

Tax that has to be paid by companies on the dividend that is distributed to the shareholders every year. In the shareholders’ hands, this dividend is exempted up to Rs.10 lakh. However, tax paid by companies is 20.56%.  

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.

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.

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 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

  • Extension in the deadline for availing 15% corporate tax to be considered

    On Monday, 15 June, the Finance Minister, Nirmala Sitharaman stated that the government will be considering an extension in the deadline for availing the lower 15% corporate tax rate on new investments. This was majorly done in the light of the COVID-19 pandemic.

    In September 2019, the government had cut down the corporate tax rate by up to 10% to attract private investments and help the economy grow. The base corporate tax for existing companies was reduced from 30% to 22% and for the new manufacturing firms incorporated after 1 October 2019, and started operations before 31 March 2023, the rate was cut down to 15% from 25%.

    The Finance Minister also assured the industry that government support will be given with the intent of Indian businesses and helping the economy recover. The COVID-19 Emergency Credit Facility will be covering all companies and not just MSMEs.

    16 June 2020

  • Budget 2020: FM announces abolition of dividend distribution tax (DDT)

    Union Finance Minister Nirmala Sitharaman in her budget speech announced the abolition of dividend distribution tax (DDT). The revenue foregone due to the removal has been estimated at Rs.25,000 crore.

    The minister added that dividends will now be taxed at the hands of the recipients. The move to abolish DDT is expected to increase attractiveness for investment.

    Currently, the government taxes at the rate of 20.35% on dividends distributed by companies.

    01 Feb 2020

  • Bill for replacement of ordinance on corporate tax reduction gets approval from Cabinet

    A bill for replacing the ordinance on promulgating reduction of corporate tax has been approved by the Union Cabinet to uplift the economy. The corporate tax has been slashed to 22% for domestic firms following the decision if no concession or incentive is availed. The bill may be introduced during the ongoing Winter session in the parliament. The reduction in the corporate tax will cost the government Rs.1.45 lakh crore annually. After the decision, firms which have opted for 22% income tax slab will not be required to pay the minimum alternative tax (MAT). Also, new domestic manufacturing firms that have been incorporated after 1 October 2019 will enjoy a reduced tax rate of 15%. In the recent budget, the government had announced that capital gains from the sale of equities in a firm liable for securities transaction tax (STT) will not be levied enhanced surcharge. Apart from this, listed firms that have announced share buybacks before 5 July 2019 need not pay super-rich tax, as announced by the government.

    22 November 2019

  • Companies Opting For Lower Tax Rate Won’t Get MAT Credit

    Companies who plan on switching to the new lowered corporate tax rate of 22% will not be able to use minimum alternate tax (MAT) accumulated credit. The Central Board of Direct Taxes (CBDT) announced that MAT credit would not be available to companies that opt for the lower corporate tax rate of 22%. However a company can completely utilise its MAT credit and then opt for the lower tax rate. Additionally, brought forward loss due to additional depreciation would also not be available to companies opting for the lower tax rate. After the Finance Minister slashed the corporate tax rate to 22% without exemptions or incentives on 20 September, MAT was also cut to 15% from 18%. Based on this announcement, tax analysts stated most companies with large MAT credit would continue under the old rate regime. These companies are likely to switch to the lower rate regime at a later date, after exhausting their MAT credit.

    4 October 2019

  • Corporate Tax Cuts Announced by government

    Corporate tax rates were cut from 30% to 22% on 20 September. Nearly Rs.1.45 lakh crore of tax revenue has been forfeited by the government due to this cut. It will make Indian corporate tax rates similar to that of other countries and make companies more competitive. Companies will now pay tax of 22% (effective tax 25.17%) if they do not avail any exemptions. Manufacturing startups will have to pay only 15% if they have registered after 1 October 2019, as long as they commence operations by 31 March 2023. Minimum Alternate Tax (MAT) is exempt for companies in both these categories. The tax cut would help more than 1000 companies save more than Rs.37,000 crore annually in taxes. The announcement led to a surge in prices of stocks with the single biggest gain in a single day in over a decade happening in the BSE Sensex at over 5%. The money saved could be used by companies in various ways, such as pumping it back into the business, giving higher dividends to shareholders, or pass on the benefits in the form of discounts to customers. This will become clear in the days to come.

    30 September 2019

  • Cut in corporate taxes dependent on GST revenue states Finance Minister

    The Finance Minister stated that if there was an improvement in the collections of the Goods and Services Tax (GST), the government would consider a reduction in the corporate tax rate to 25% for all firms if the NDA government was voted in for another term. He also stated that the benefit of the GST cuts that were recently implemented should be passed onto customers through lowering of prices. There is now a corporate tax rate cut of 25% for companies with a Rs.250 crore turnover, which is mostly MSMEs. More than 100 items, including houses under construction and white goods, have had a cut in GST rates. There are now approximately 30 items in the highest GST slab while at the time of the launch of GST, there were 250 items with 28% GST. The government aims to increase the tax base, lower tax rates, and increase revenue collections.

    7 March 2019

  • 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

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