Tax Rates applicable for Companies

A company is a legal entity recognized by law, which means it has a distinct legal personality separate from its owners or members. This separation allows the company to own assets, incur liabilities, enter into contracts, sue, and be sued. This vary separation imposes taxability on the companies and such tax rates will differ from those imposed on individuals or other type of persons as per Income tax act.

In this article, we will understand how incomes earned by a company are taxed.

Meaning of a company under Income Tax Act:

Section 2(17) defines a company as,

• any Indian company incorporated under the Companies Act 2013
• any body corporate that is incorporated under the laws of any foreign company
• any institution, body, or association which is to be assessed or was assessed as a company for any assessment year under the previous Income Tax Act or under the current Act
• any association, institution, or body, whether incorporated or not and whether Indian or non-Indian, which is declared by a general or special order of the Central Board of Direct Tax (CBDT) is to be a company for such assessment years as may be specified in the order of CBDT

Types of companies:
To determining tax rates for a company, first its status needs to be determined. There are two types of companies, mainly domestic companies, and foreign companies.

• Domestic Company: A company registered under the Indian Companies Act. It also includes the company registered in the foreign countries having control and management wholly situated in India.
• Foreign Company: Foreign company is one which is not registered under the companies act of India and has control & management located outside India.

What are the sources of Incomes for a company:
Excluding Income under the head of salaries, companies can earn income under all other remaining heads.

Tax Rates Applicable to Companies:
Tax rates applicable to companies depends on the types of such companies. We will analyse the tax rates applicability of following companies:

• Section 115 BAA: Reduced corporate tax to domestic companies

Basic Tax Rate: 22%

Surcharge: 10% (irrespective of the turnover)

Cess: 4%

This makes effective tax rate at 26.168%

• Section 115 BA: a concessional tax regime for new domestic manufacturing companies

Basic Tax Rate: 25%

Surcharge: based on the turnover 7% or 10%

Cess: 4%

This makes effective tax rate at 22.62% or 28.6% depending on the turnover

• Section 115 BAB: a reduced tax rate of 15% to newly established domestic manufacturing companies

Basic Tax Rate: 15%

Surcharge: 10% (irrespective of the turnover)

Cess: 4%

This makes effective tax rate at 17.16%

Minimum Alternate Tax (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 Filing for the companies:
Companies including foreign companies must 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 must file the income tax return for that period on or before 31 October. The tax return forms to be filed by a company are ITR 6 or ITR 7 if it is a religious or charitable trust, political party, research association, news agency, or similar organizations specified in the Act.

For companies engaged in international transactions and those are required to submit a transfer pricing report, the deadline is November 30th.

Conclusion:
Tax rates are different for different types of companies. A levy of surcharge and cess makes effective tax rate higher than the basic tax. Companies are also required to comply with the provisions of MAT and their return filing due dates also depends upon whether international transactions are entered into by them or not.

About Author:
CA Chinmay Shirish Agate
Chinmay Agate is a Practicing Chartered Accountant having 4+ years of experience and expertise in the field of Direct Taxation and Auditing compliances. In the past, he worked in various CA firms and comes with wide industry experience from services, retail to manufacturing to trading where he has handled various complex assignments. He has keen interest in Forex and Derivative knowledge as well as fundamental analysis.