Corporate Taxes in India

Income Tax Act, 1961 has specified different types of taxpayers for taxation purposes. This includes individuals, HUFs, Partnership firms or companies etc. Every type of taxpayer is taxed at a different rate based on their status. Similarly, various types of deductions are available to such taxpayers depending upon their status. For example, deductions available to individuals such as deduction under 80C for LIC or deduction under Section 80D for Mediclaim etc. are not available to corporates etc.

Income tax paid by domestic as well as foreign companies in India is called as corporate tax.

Corporate Tax in India:
There are two types of companies which are taxed under the Income Tax Act 1961 :

• Domestic Company-

Domestic company is a public limited or a private limited company which is an Indian company i.e. registered under the Indian companies Act, 2013 and also includes the company registered in the foreign countries having control and management wholly situated in India. Tax is levied on the income earned in India as well as outside India.

• Foreign Company-

This company is not registered under Indian Companies Act and has control and management outside India. Tax on foreign company is levied on income earned in India only.

Tax is levied on Company’s income such as Profits and gains from business profession, capital gains, income from house property or income from other sources etc. It cannot be taxed under income from salaries due to its inherent nature.

Rates of Taxes for Domestic Companies:
It has been proposed to reduce the corporate tax rate for foreign companies from 40% to 35% in the Budget 2024.

AY 2020-21 onwards following rates of corporate taxes have been determined for domestic companies:

Particulars	Tax Rate (Excluding Surcharges)
Total Turnover or Gross Receipts during the previous year 2020-21 does not exceed ₹ 400 crores	25%
If opted for Section 115BA	25%
If opted for Section 115BAA	22%
If opted for Section 115BAB	15%
Any other case	30%

Surcharge, Marginal Relief and Health & Education Cess:
Surcharge is an additional charge levied for persons earning income above the specified limits, it is charged on the amount of income tax calculated as per applicable rates:

• 7% if Taxable income above ₹ 1 crore– Up to ₹ 10 crore
• 12% if Taxable income above ₹ 10 crore
• 10% if Company opting for taxability u/s 115BAA or Section 115BAB

Marginal Relief is a relief from surcharge, provided in cases where the surcharge payable exceeds the additional income that makes the person liable for surcharge. The amount payable as surcharge shall not exceed the amount of income earned exceeding ₹ 1 crore and ₹ 10 crore respectively.

Health and Education cess @ 4% shall also be paid on the amount of income tax plus surcharge (if any).

Rates of Taxes for Foreign Companies:
AY 2025-26 onwards following rates of taxes are applicable on foreign companies based on their turnover:

1. Royalty from Government or an Indian concern in pursuance of an agreement made with the Indian concern after 31st March 1961, but before 1st April 1976, or fees for rendering technical services in pursuance of an agreement made after 29th February 1964 but before 1st April 1976 and where such agreement has, in either case, been approved by the Central Government 

Rate of Tax – 50%

2. Any other income

Rate of Tax – 40%

Surcharge, Marginal Relief and Health & Education cess:
Surcharge is an additional charge levied for persons earning income above the specified limits, it is charged on the amount of income tax calculated as per applicable rates:

• 2% if Taxable income above ₹ 1 crore - Up to ₹ 10 crore
• 5% if Taxable income above ₹10 crore

Provisions of marginal relief and Health and education cess are same as applicable to a domestic company.

MAT:
All the companies, including foreign companies are required to pay minimum alternate tax at the rate of 15% on book profits if the tax calculated as per above rates are less than 15% of book profits. This will be applicable if the company does not opt for Section 115BAA or Section 115BAB.

Income Tax Return:
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 companies act, 2013 are required to file their return using Form ITR 7.

All the companies have to file their return of income before 31^st October every year. Certain deductions of Chapter VI are also applicable to companies.

Previously, companies distributing dividends were subject to DDT at a rate of 15%, but this tax was abolished in 2020. Now, dividends are taxable in the hands of shareholders at their applicable income tax rates.

Conclusion:
Corporate taxes differ based on the nature of the company. Indian companies and foreign companies enjoy differential tax rates; however both of these are required to do the similar compliance. Income earned in India is to be reported by a foreign company whereas a domestic company reports its universal income. Provisions like surcharge, MAT, Marginal relief etc. are applicable to companies based on their level of income.