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:
|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.
|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.
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.