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Corporate Tax laws and slabs

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Corporate Taxes

In India, taxes on income, wealth, Capital Gains are some of the most significant taxes paid by the taxpayers. Corporate houses too, be it domestic companies or foreign companies, are required to pay taxes on their income to run their business. Indian taxes are divided into two types: One is Direct Taxes and the other is Indirect Taxes. Direct tax is again subdivided into two types: One is Income Tax and the other is Corporate tax. There are different types of taxpayers registered with the income tax department and they are required to pay taxes at different tax rates. For example, An individual and a company being a taxpayer are taxed at different rates. Therefore, Income tax is paid by the taxpayers other than companies registered under company law and they are taxed based on slab rates applicable as per their income. Corporate tax is paid by the companies registered under the company law on the net profit it makes from businesses.

Corporate taxes in India

A corporate is an entity that has a separate and independent legal entity from its shareholders. For the calculation of taxes under the Income-tax Act, the companies can be divided into two types: Domestic company and Foreign company. A domestic company is one that is registered under the Companies Act of India and includes the company registered in the foreign countries having control and management wholly situated in India. A domestic company includes private as well as public companies. A domestic company is taxed on its universal income, i.e. income earned by the company all over the world. A foreign company is one that is not registered under the companies act of India and has control & management located outside India. A foreign company is only taxed on the income earned within India.

Tax Rates Applicable

The following rates apply to the domestic companies for AY 2020-21 based on their turnover:

Sections Tax rate Surcharge
Section 115BA (See Note 1 Below) 25% 7%/12%*
Section 115BAA (See Note 2 Below) 22% 10%
Section 115BAB (See Note 3 Below) 15% 10%
Any other case 30% 7%/12%*

*The rate of surcharge is 7% in case the total income is above one crore rupees and up to Rs 10 crore. The surcharge is 12% in case the total income is above Rs 10 crore. However, if a company opts for taxation under section 115BAA or section 115BAB, the surcharge is 10% irrespective of the total Income

Note 1: Tax on income of certain existing manufacturing domestic companies (Section 115 BA)

The income tax payable in respect of total income of a person, being a domestic company (other than those mentioned in section 115BAA and section 115 BAB below), shall at the option of such person, be computed at the rate of 25% if following conditions are satisfied:

  1. a) The company has been set-up and registered on or after 1st March 2016
  2. b) The company is not engaged in any business other than the business of manufacture or production of any article or thing and research or distribution of such article or thing manufactured or produced. The following businesses shall not be treated as the business of manufacture or production of any article or thing:
  3.       Development of computer software in any form or any media.
  4.     Conversion of marble blocks or similar items into slabs.
  5.       Bottling of gas into the cylinder.
  6.     Printing of books or production of cinematograph films.
  7.       Any other business notified on this behalf.
  8. c)     The company has not claimed a benefit for establishing its unit in an SEZ, benefit of accelerated depreciation, or benefit of additional depreciation, investment allowances, expenditure on scientific research, and any deduction in respect of certain income other than a deduction in respect of employment of new employees.
  9. d)     The company has not claimed set-off of loss and unabsorbed depreciation carried forward from any earlier years, including set-off of any unabsorbed depreciation and losses relating to loss/depreciation on amalgamation, provided such loss is attributable to the deductions referred to in (c) above.

Note 2: Tax on income of certain domestic companies (Section 115 BAA)

 Rest everything remains the same as discussed in note 1 above, there are only two changes:

  1. a)       The company must be set-up and registered on or after 1st April 2019 and the income tax payable in respect of total income of a person, being a domestic company, shall at the option of such person, be computed at the rate of 22% other conditions remaining intact as mentioned in note 1.
  2. b)     The company can be a company other than the company engaged in the business of manufacture and production.

Note 3: Tax on income of new manufacturing domestic companies (Section 115 BAB)

In this section, the income tax payable in respect of total income of a person, being a domestic company (other than those mentioned in section 115BA and section 115 BAA above), shall at the option of such person, be computed at the rate of 15% if following conditions are satisfied:

  1. a)     The company has been set-up and registered on or after the 1st October 2019, and has commenced manufacturing or production of any article or thing on or before 31st March 2023.
  2. b)     The business is not formed by splitting up or the reconstruction of a business already in existence.
  3. c)       The business does not use any machinery or plant previously used for any purpose and also does not use any building previously used as a hotel or a convention centre, in respect of which deduction has been claimed in any other section.
  4. d)     The company is not engaged in any business other than the business of manufacture or production of any article or thing and research or distribution of such article or thing manufactured or produced. The following businesses shall not be treated as the business of manufacture or production of any article or thing:
  5.       Development of computer software in any form or any media.
  6.     Conversion of marble blocks or similar items into slabs.
  7.       Bottling of gas into the cylinder.
  8.     Printing of books or production of cinematograph films.
  9.       Any other business notified on this behalf.
  10. e)     The company has not claimed a benefit for establishing its unit in an SEZ, benefit of accelerated depreciation, or benefit of additional depreciation, investment allowances, expenditure on scientific research, and any deduction in respect of certain income other than a deduction in respect of employment of new employees.
  11. f)       The company has not claimed set-off of loss and unabsorbed depreciation carried forward from any earlier years, including set-off of any unabsorbed depreciation and losses relating to loss/depreciation on amalgamation, provided such loss is attributable to the deductions referred to in (vi) above.
  12. g)     In case difficulty arises in the non-fulfilment of certain conditions in this section, the CBDT may issue guidelines for removing the difficulty.
  13. h)     The option of seeking the benefit of a reduced CIT rate of 15% is furnished in the prescribed manner before the due date of furnishing of income.
  14. i)       Domestic transfer pricing provision shall apply to these companies.
  15. j)       Companies exercising this option have been excluded from the applicability of provisions of MAT and MAT credit.

The benefit of the above-mentioned provision of reduced tax rate shall not be available in the year of non-compliance. It is also important to note that the benefit shall not be available for all the subsequent years and other provisions of the Income-tax Act shall apply as if the option has not been exercised from the year of non-compliance. However, such companies will still have the option to be governed under provisions of a reduced tax rate of 22% (plus a surcharge of 10% and applicable health and education cess).

Tax rates on Foreign Companies based on turnover

Nature of Income Tax Rate
Royalty received or fees for technical services from government or any Indian concern under an agreement made before April 1, 1976, and approved by the central government 50%
Any other income 40%

Surcharge rates applicable to Domestic and Foreign Company

Particulars Surcharge Tax Rate
If total income exceeds Rs. 1 crore but not Rs. 10 Crore 7% of tax calculated on domestic company/ 2 % of tax calculated on the foreign company as per the above rates
If total income exceeds Rs. 10 crore 12% of tax calculated on domestic company/ 5 % of tax calculated on the foreign company as per the above rates

 Health & Education Cess :

The 4% of the aggregate of income-tax calculated and applicable surcharge on income tax (if applicable) will be added to the amount of total tax liability before this cess.

Minimum Alternate Tax (MAT)

Companies are liable to pay MAT on their adjusted book profits where the tax liability under the normal provisions of the Income-tax for the tax year is not more than 15% of such adjusted book profits. It must be noted that income from the life insurance business shall not be included in the adjusted book profits mentioned above. MAT credit is the amount paid over and above the normal tax liability, which can be carried forward and can be utilized for 15 years. It provides for deduction of loss or unabsorbed depreciation, whichever is less.

An SEZ developer and a unit in an SEZ are also liable to pay MAT.

MAT is not applicable in the following cases:

  1. MAT provisions do not apply to foreign companies that do not have a permanent establishment in India. Also, MAT provisions shall not apply to foreign companies where their total income is solely derived from the shipping business, the business of aircraft, exploration of mineral oils, the business of aircraft, civil construction in turnkey projects, and income thereon is offered to tax as per specific provisions provided under the Income-tax Act.
  2. Capital gains from transfer of interest, royalties, and securities accruing or arising to a foreign company (which has a permanent establishment in India) have been excluded from chargeability of MAT if the tax payable on such income is less than 15%. Further, expenditure, if any, debited to the profit and loss account corresponding to such income shall be added back to the book profit for computation of MAT.
  3. Sick companies (i.e. companies whose losses have been wiped out of their net worth and that are doubtful of being revived and nursed back to profitability) are not subject to MAT.
  4. Companies exercising the option of a lower tax rate of 22%/15% (as discussed above) have been excluded from the applicability of provisions of MAT and MAT credit.

Note: Surcharge of 10% is payable only where total taxable income exceeds Rs 1 crore.

Tonnage tax scheme

The tonnage tax scheme is a presumptive tax provision that can be chosen by a non-resident company that has a place of effective management in India, owns at least one qualifying ship, and whose main objective is to carry on the business of operating ‘qualifying ships’. Once the scheme is exercised, there is a lock-in period of ten years.

The tonnage tax scheme is levied based on the tonnage of vessels owned, operated, or chartered by it instead of net income generated by commercial operations. The notional income is taxable at the normal corporate rate applicable for the year even if there is a loss in a year.

Under this scheme, separate business and separate accounts are to be maintained. Manner of computation is as follows:

The net tonnage of a qualifying ship Amount of daily tonnage income
Up to 1,000 INR 70 for each 100 tons
Exceeding 1,000 but not more than 10,000 INR 700 plus INR 53 of each 100 tons exceeding 1,000 tons
Exceeding 1,000 but not more than 10,000 INR 5,470 plus INR 42 of each 100 tons exceeding 10,000 tons
Exceeding 25,000 INR 11,770 plus INR 29 of each 100 tons exceeding 25,000 tons

Shipping business of non-residents

Deemed income shall be assessed at 7.5% of the amount paid or payable (whether in or out of India) for the carriage of passengers, livestock, mail, or goods shipped from any port in India, and the amount received or deemed to be received in India on account of carriage of passengers, livestock, mail, or goods shipped to any port outside India shall be treated as profits and gains of business.

Treaty rates will apply to non-resident shipping companies if they are lower than the rates under the tonnage tax scheme.

The due date for filing an Income tax return

Companies including foreign companies have to file their income tax return on or before 30 October every year. Even if the company came into existence during the same financial year, then too, it has to file the income tax return for that period on or before 31 October. For FY 2019-2020 (AY 2020-21), the due date has been extended to 30 November 2020, due to the pandemic.

Tax return forms to be filed by the company

ITR 6: All the companies except companies claiming deduction under section 11 need to file their return using Form ITR 6.

ITR 7: All the companies registered under section 8 of the companies act, 2013 are required to file their return using Form ITR 7.

Tax Audit

Income tax act requires a class of companies to get their accounts audited and submit an audit report to the IT department along with the Income-tax return. This audit is known as Tax Audit. This tax audit report is also required to be mandatorily submitted by eligible companies by 30 September. However, for FY 2019-20 (AY 2020-21), the due date for submitting the tax audit report is 31 October 2020.

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