The nuances of corporate tax rates in India and a guide to corporate taxation. Find out how a company’s income is determined and how it is taxed.
The corporate tax is imposed on the income earned by companies, whether domestic or foreign. In India, corporate taxes are charged under the Income Tax Act, 1961. The worldwide income of companies registered in the country is taxed under this law. Under corporate taxation, only income received or accrued in India is taxed for foreign companies.
How does a domestic company work? An Indian company or a foreign company with control and management that is entirely located in India is a domestic company. As per the Companies Act 1956, an entity originating in India must be registered.
Which foreign company is it? Businesses with control and management located outside India that have not originated in India.
In determining the tax liability of a company, its residential status is taken into account. Residents of India include Indian companies and companies whose control and management are based in India. An organization’s income is taxable under corporate tax law regardless of where it is earned.
Double taxation may result as a result. As a result of the different tax laws of different countries, the company taxed the same income twice. As a result of Sections 90 and 91 of the I.T. Act, there is relief from double taxation.
Income components of a company: Under corporate taxation, the total income of a company includes: There are different types of corporate tax for different needs.
- Business and Professional Profits;
- Capital Gains;
- Earnings from House Property;
- Earnings from other sources like interests, lotteries, etc.
Calculated income is adjusted as per section 79, losses are carried forward, and total gross income is calculated. Chapter VI-A deductions are applied to gross income to determine net income. Net income is taxed at its computed value.
Note: Salary Income is excluded from company’s income.
DDT: Dividend Distribution Tax is a tax applied to distributed income of domestic companies. Income Tax Act section 115-O governs tax law related to it. Income tax and DDT are levied together. There is a 15% DDT rate in place at the moment. DDT is also subject to a 12% surcharge, EC, and SHEC of 3%.
According to the Budget Update 2016, if any shareholder receives a dividend over Rs. 10 lakh, DDT will be charged at 10%.
There are many ways for companies to escape tax payments, which is why MAT was implemented. Minimum alternate tax is a token tax paid by companies. In accordance with Section 115JA of the Income Tax Act, companies are required to pay MAT. Companies whose total income is less than 18.5% of their book profits (plus surcharge and SHEC) are liable for MAT. Subject to some conditions, MAT can be carried forward and adjusted against regular tax. It can be carried forward for subsequent ten years period. MAT is levied on all the companies, including foreign companies having income sources in India. A few companies are exempt from its purview, viz. companies having life insurance business (Sec 115B) and companies having shipping income (Sec 115V-O).
Read more,