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Corporate Tax Rate in India

dateKnowledge Centre Team dateDecember 07, 2021 views314 Views
Corporate Tax in India

Indian taxes are classified into 2 types: Direct Taxes and Indirect Taxes. Direct taxes are those that are levied on the different types of income of business entities during a financial year.

Direct Taxes are further classified into individual income tax and Corporate Tax. The income tax paid by the domestic and foreign companies on their income is known as Corporate Tax

Applicability of Corporate Tax

The corporate tax applies to both Domestic Company as well as Foreign Company. Companies will be either taxed as a domestic company or a foreign company based on the following:

1) Domestic Company\registered under the Companies Act 2013.

2) Companies that are registered in other countries, but their control and management is entirely situated in India. This includes both private and public companies.

3) All companies not registered under the Companies Act 2013 and with their control & management entirely situated outside India will be considered foreign companies.

Corporate Tax Rates for AY 2020-21

The current corporate tax rates for AY 2020-21 for both Domestic Company as well as Foreign Company are given below:

Domestic Company

Particulars Tax rate Surcharge
Companies with turnover up to Rs 400 crore in FY 2017-18 (115BA) 25% 7% / 12%*
Those companies that should not avail any exemptions/deductions under any provisions of income tax (115BAA) 22% 10%
The corporate tax rate for new manufacturing companies (115BAB) 15% 10%
For all other companies 30% 7% / 12%*

Surcharge on Corporate Tax for Domestic Companies

There is a surcharge on corporate tax if a company is subject to corporate tax u/s 115BA.

i. The surcharge is at the rate of 7% if the total income is between Rs 1 crore to Rs 10 crore.

ii. The surcharge is at the rate of 12% if the total income is above Rs 10 crore.

Foreign Companies

Nature of Income Tax Rate
Royalty or fees received for a technical service provided to government or any Indian concern under an agreement made before April 1, 1976, and approved by the central government 50%
Any other income 40%

ITR Forms for Company

Companies need to file the following income tax returns:

1) ITR 6

All companies except those that claim deduction u/s 11 need to file their income tax returns in Form ITR 6.

2) ITR 7

All companies registered u/s 8 of companies act, 2013 shall file their income tax returns in Form ITR 7.

Also Read - Penalty for late itr filing

Tax Saving Investments for Companies

Indeed, there are several taxes and surcharges that the companies have to pay on their profits to the government. However, there are certain investments through which companies can reduce their tax incidence:

i. Group Term Life Insurance

The group insurance policy provides financial assistance to the beneficiaries of the company’s employees, in the event of their death. Group term life insurance plans offer tax benefits to both employers and employees.

a) The Death benefits paid to the employees are tax-exempt u/s 10(10D) of the Income Tax Act.
b) Employers can claim a Tax Rebate in case the total annual premium paid by them for the group insurance plan exceeds Rs. 2 crores per scheme.
c) Other Tax Benefits as per the Income Tax Act as amended from time to time may also be available to the employers.

ii. Group Gratuity Plans

Here are the tax benefits of Group Gratuity Insurance for the employers:

a) The company can claim initial and annual contributions made through an approved Gratuity trust as business expenditure u/s 36 (1) (v) of the Income Tax Act, 1961. However, this is subject to an upper limit of 8.33% of the annual salary of each employee.

b) The investment income is exempt from corporate tax u/s 10(25)(iv) of the Income Tax Act.

iii. Group Health Insurance

Employers offering group health benefits to their employees can avail the following:

a) If a company is paying the entire premium of Health Insurance on behalf of its employees, the company can claim the entire premium amount as a business expense and avail of the tax benefit.
b) As per the Income Tax Act, any amount paid by an employer for his/her employees’ benefit shall be treated as ‘Profit in lieu of salary’. In such a situation, the health insurance premium shall be considered as ‘Profit in lieu of salary’.
c) Hence, the health insurance premium amount paid shall be treated as general business expenses, on which no tax is to be paid.

iv. Group Personal Accidental Insurance

As per the provisions of the Income Tax Act, the employers can avail the tax benefit out of the premiums they have paid towards the group personal accident insurance of their employees.

These are the tax benefits of the tax-saving investments that a company can make to reduce its incidence of corporate tax.

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FAQs Related to Tax Saving

First of all, your gross total income is taken into account and all applicable deductions/exemptions are deducted out of it, the resultant amount is the net income, upon which the Income Tax is calculated, on the basis of income tax slabs that are announced each year in the Union Budget.

How much tax you can save depends on your financial portfolio and profile. The most common avenue for tax-saving is Section 80C, which allows you deductions up to Rs 1.5 lakh in your taxable income. The implication is that you can save up to Rs 46,800*in taxes in a year, depending upon the income tax slab you belong to. Similarly, other avenues like interest on loans, health insurance etc also provide deductions capped at a certain amount.

*Tax saving of Rs.46,800/- is calculated at the highest tax slab of 31.2% (including 4% Cess) for an individual assessee on life insurance premium of Rs.1.5 lakh, who is having taxable income upto Rs.50 lakhs.

You can choose from many investments that are tax-exempt: not an exhaustive list, but includes Equity Linked Saving Scheme (ELSS), Public Provident Fund (PPF), life insurance plans, Unit Linked Insurance Plans (ULIPs), Sukanya Samriddhi Yojana, Senior citizens Savings scheme, National Pension Scheme (NPS), tax-saving bank FDs.

First of all, make investment of Rs 1.5 lakh in investments instruments covered under Sections 80C to reduce your taxable income. Claim deductions for the interests paid on home loan and/or education loan if any. Get a health insurance policy and claim for other medical expenditure like preventive medical healthcare check-up, expenditure on rehabilitation of handicapped dependent relative, among others. Mainly, the idea should be finding out which tax saving avenues fit well with your larger financial goals and invest in them!

The maximum limit of investment that will reap the benefits of deduction from taxable income under Section 80C is Rs 1.5 lakh.

There is no limit to the number of tax-exempt investments one can have in a financial portfolio. However, it is important to note that there is a limit to how useful any instrument can be for the purpose. This is because the amount of deduction that can be claimed for specific instruments is capped at a maximum value. At the same time, keep your financial portfolio balanced so that it also provides safety, returns and liquidity.

First of all, make use of the Rs 1.5 lakh deduction allowed under Section 80C. This can be done by making investments in life insurance premium, Equity Linked Saving Scheme (ELSS), Public Provident Fund (PPF), Unit Linked Insurance Plans (ULIPs), Sukanya Samriddhi Yojana, Senior citizens Savings scheme, National Pension Scheme (NPS), among others.

Second, make use of the deductions available in respect of health insurance and other medical expenses. Under Section 80D of the Income Tax Act, 1961, a deduction of up to Rs 25,000 is allowed in a year in terms of the premium paid towards a health insurance policy of Self and your family i.e., Spouse and children. This can include preventive healthcare check-ups too upto Rs 5000/-. Under section 80D you can also claim additional deduction upto Rs. 25000/- (Rs. 50000 in case of senior Citizen) for health insurance of your parents.

Apart from Section 80C, various deductions and exemptions has been provided under the provision of Income Tax Act, 1961 like deduction under section 80D can be claimed for the payment of health insurance, deduction upto Rs 50,000 on home loan interest under Section 80EE. Any donations you make to charitable institutions are also allowed as deduction under Section 80G, subject to condition prescribed therein.

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