Corporate tax in India is a form of direct tax imposed on the profits earned by both domestic and foreign companies. Domestic companies are taxed on their worldwide income, while foreign companies are taxed only on the income generated within India. Corporate tax rates vary based on the profits earned, and it is calculated on a company's revenues after deducting expenses like depreciation, cost of goods sold, and selling general and administrative expenses. Corporate tax is a significant source of revenue for the government and is paid by businesses on their income within the country.
Types of Corporate Entities
Corporate tax is imposed on both domestic and foreign companies. Similar to individuals paying taxes on their income, businesses are required to pay a portion of their earnings as corporate tax. This tax, also referred to as corporation tax or company tax, is obligatory for corporate entities.
A corporate entity or corporation is a legal construct recognized as a separate entity from its shareholders. This legal distinction means that the corporation has its own rights and responsibilities, independent of those of its shareholders. This concept of an independent legal identity ensures that corporations are liable to pay taxes and adhere to legal obligations, distinct from the individuals who own or manage the company.
Corporations are categorized into two types:
- Domestic Corporations: These are companies established and registered under India's Companies Act, 2013. A domestic corporation can also include a foreign company if its management and control are entirely based in India, even if the company originates from abroad.
- Foreign Corporations: These are companies situated overseas and not in India. If any part of a foreign company's management and control exists outside India, it is still considered a foreign corporation. Essentially, if the core decision-making authority is outside India, the company is classified as a foreign corporation in the Indian context.
Corporate Tax Rate
The corporate tax rate varies based on the type of company. Domestic corporations, which are companies registered under India's Companies Act, 2013, are taxed at one rate. Foreign corporations, on the other hand, are taxed at a different rate.
Corporate Tax for Domestic Companies
| Income Range | Rate | Surcharges |
| Upto Rs. 400 crore | 25% | 7% If total income is 1cr to 10cr |
| More than Rs. 400 crore | 30% | 12% If total income exceeds Rs.10 crore |
Corporate Tax for Foreign Companies
| Income Range | Rate | Surcharges |
| Royalty received or fees for technical services from the Indian government or any Indian concern under agreements made before April 1, 1976, and approved by the central government | 50% | 2% If total income is 1cr to 10cr |
| Any other kind of income | 40% | 5% If total income exceeds Rs.10 crore |
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