Corporate Tax relates to the taxation of companies in India. For the purpose of taxation laws, a Company means:
- An Indian company, or a corporate body incorporated inside or outside India
- Any institution, association or body whether incorporated or not, and whether domestic or non-resident, which is declared as a company by the Central Board of Direct Taxes (CBDT)
Income of a company
Before we head on to talking about what the rates of taxation for companies are, let’s take a look at what makes up the ‘income’ of a company. Generally, the income of a company falls under any of the following 4 heads of income:
- Profits or gains from the business
- Income from property, whether it is housing, commercial, self occupied or let-out. If the property is used in the company’s business operations, it does not fall under this head.
- Capital gains
- Income from other sources including winnings from lotteries, races and interest on securities.
The resultant figure is set off against any carried forward profits / loss which is then subject to deductions that are available under relevant headings. This net income is liable to income tax.
Domestic Company and Corporate Tax
A domestic company is a company formed and registered under the Companies Act 1956 or any other company which is liable to income tax. It can be either a private or public company. Here are some of the highlights of corporate taxation for domestic companies in India.
- Domestic companies are subject to a flat rate of 30% as corporate tax on their earnings.
- If the company has a turnover of Rs. 1 crore or more, 5% surcharge is levied on the tax paid by the company.
- 3% education cess is also payable.
- Tax is levied on the global earnings of a domestic company, i.e. income from all sources is taxable.
Foreign companies and Corporate Tax
For the purpose of corporate taxation, a company whose control and management lies wholly outside India is a foreign company. It must also be noted that such companies should not have made arrangements to pay dividends within India. The taxation of foreign companies is not as straight-forward as that of a domestic company.
Highlights of how foreign companies are taxed:
| Tax rates for | Non-treaty foreign companies | Foreign companies under the US treat |
| Dividends | 20% | 15% |
| Interest | 20% | 15% |
| Royalties | 30% | 20% |
| Interest Gains | 20% | 15% |
| Technical Service | 30% | 20% |
| Other Income | 55% | 55% |
Taxation of foreign companies also depends on the taxation agreements between India and the country of the company. The withholding tax requirements, the DTAA and other agreements should be kept in mind.
Did you know that just a few months before the recent Union Budget, there was a lot of talk of the corporate tax rate being reduced from the flat 30% to 25% for domestic companies? Well that did not happen, however you should know that 30% is at par with most other countries in the world.