Corporate Tax
By V Surya Narayana Raju, Assistant Professor of Law, HNLU,
Vishakapatanam.
Corporate Tax
• Corporate tax is a form of tax levied on profits earned by businessmen
in a particular period of time.
• Various rates of corporate taxes are levied for different levels of
profits earned by business houses. Corporate tax is generally levied on
the revenues of a company after deductions such as depreciation,
COGS (Cost of goods sold) and SG&A (Selling general and
administrative expenses) have been taken into account.
• Corporate tax or company tax can be assumed as an Income Tax for
income earned by businesses. Many countries levy corporate tax in
order to smooth out the tax process for enterprises. Different
countries have different rules that apply to taxing of income.
Corporate tax in India
• Corporate tax in India is levied on both domestic as well as foreign
companies. Like all individuals earning income are supposed to pay a
tax on their income, business houses too are supposed to pay as tax a
certain portion of their income earned. This tax is known as corporate
tax, corporation tax or company tax.
• Any juristic person having a separate and independent legal entity
from its shareholders is termed as a corporate. The income earned by
a company is computed and assessed separately from the dividends
that it offers to its shareholders. These dividends do not figure out in
the tax calculation of the company but are assessed as part of the
income of shareholder.
Two types of Corporates
• Domestic Corporate:Any company that is Indian is called as domestic
company or if the company is foreign but the control and
management is wholly situated in India then also it is termed as a
domestic company. An Indian company means a company registered
under the Companies Act 1956
• Foreign Corporate:Any foreign company is one that is not of Indian
origin and has some part of control and management of affairs
located outside India
Dividend distribution Tax
• Corporate tax is tax paid by companies on revenues earned minus
certain expenses. Similarly, dividend distribution tax is tax paid by
corporates on the dividend that they pay to their shareholders.
Corporate dividend tax is a percentage of the dividend paid. Currently,
the dividend distribution tax in India is 15%.
Income of a company
• In order to compute corporate tax on the income of a company it is
necessary to first learn what all factors make up the total income of
any company.
• Profits from business
• Income from property
• Capital gains
• Income from other sources such as foreign dividends, interests etc.
Corporate Tax Rate for Domestic
Companies in India:
• A domestic company in India refers to any enterprise that has its base
location in India and is of Indian origin. Given below is the tax rate
applicable to domestic businesses in the country.
• A flat rate of 25% corporate tax is levied on the income earned by a
domestic corporate.
• A surcharge of 5% is levied in case the turnover of a company is more
than Rs.1 Crore for a specific financial year.
• 3% educational cess is levied.
• Corporate tax is also levied on the global earnings of the domestic
company. This takes into account income earned by the company abroad.
Corporate Tax Rate for Foreign
Companies in India:
• A foreign company means an enterprise that has operations and
origin in any other country except India. The taxation rules are not as
simple for foreign enterprises as for domestic businesses.
• Corporate tax on foreign companies depends a lot on the taxation
agreements made between India and other foreign countries. For
example, corporate tax on an Australian company in India will depend
upon the taxation agreement between the governments of India and
Australia.
Tax rebates in corporate tax
• In certain cases, domestic companies can deduct dividend received from
other domestic companies
• Special provisions are applicable to venture fund and venture capital
enterprises
• Deductions, in some cases are allowed for exports and new undertakings
• New infrastructure and power sources set-up is subject to certain
deductions
• Business losses have the provision of being carried over for a maximum of
8 years
• Interest, capital gains and dividends can also be deducted in some cases
