Understanding Corporate Taxation in depth

When it comes to the word tax the corporate owners as well as individual gets confused on different types of taxes and assumes that it is too difficult for them to understand it.

Today let us get in to depth of it in simple words and in brief. In order to understand Corporate Tax, let us first understand,


What is Corporate Tax?

Definition : Corporate Tax is a type of direct tax that is charged on the net income or profit of a registered corporate entity or companyby the Government of India.

Corporate Tax is calculated on the total revenue of the company after deducting direct and indirect expenses of the company. There are different rates at which the tax is charged on the basis of the nature, type, earnings and the origin of the company.

Let us get into more detail and understand the rates charged on different companies or corporates.


Types of Companies on the basis of which rates are charged: There are two types of companies on which the rates are decided,

  • Domestic Company: Domestic Company is any company which has its origin in India or if the company is foreign company but the control and management is situated in India and which is also registered under Indian Company Act 1956 is termed as domestic company.
  • Foreign Company: Any company which does not has its origin in India and the control and management is situated out of India but has some of its agencies and branches in India and does have its registration under Indian Companies Act is called as foreign companies.

There are different rates at which the Incomes Tax department charges to domestic and foreign companies. Let’s discuss the rates and terms and conditions of the same

1. Rates Charged to Domestic Company:

A. Income Tax Rates for the Domestic Companies are as follows:

Particulars Tax Rate
Where its total turnover or gross receipt during the previous year does not exceed Rs. 400 crores 25%
Where its opted for Section 115BA 25%
Where its opted for Section 115BAA 22%
Where its opted for Section 115BAB 15%
Any other domestic company 30%
Section 115JB (MAT) 15%

Now, let us have a brief understanding of What all these sections are:

  • Section 115BA

According to section 115BA, the income tax payable in respect of total income of a person, being a domestic company for any assessment year beginning on or after 1st April 2017 shall have the option to pay the tax at the rate of twenty five percent (25%), if the following conditions given below are satisfied:


    1. The company must have been established or have been registered on or after the 1st March, 2016.

    2. The company should only be engaged in the business of manufacture or production of any article or thing and or distribution of such article or thing manufactured or produced by respective company and

    3. The total income of the company should be computed, without claiming any deduction under the provisions of section 10AA or section 32AC or section 32AD or section 33AB or section 33ABA or section 35AC or section 35AD or section 35CCC or section 35CCD or other than the provisions of section 80JJAA.

  • Section 115BAA

According to section 115BAA, the income tax payable in respect of the total income of a person, being a domestic company for any assessment year beginning on or after 1st April 2020 have the option to pay the tax at the rate of twenty two percent (22%), if the following conditions as given below are satisfied


    1. The total income of the company shall be computed, Without claiming any deduction under the provisions of section 32 or section 32AD or section 33ABA or section 35 or section 35 AD or section 35CCC or section 35CCD or other than the provisions of section 80JJAA.

  • Section 115BAB

According to section 115BAB, the income tax payable in respect of the total income of a person, being a domestic company for any assessment year beginning on or after 1st April 2020 have the option to pay tax at the rate of fifteen percent (15%), if the following conditions are satisfied:


    1. The company has been registered and set up on or after 1st October, 2019 and has commenced manufacturing or production of an article or thing on or before 31st March, 2023.

    2. The company should not be formed by splitting up or reconstruction of any business that is already in existence. This condition is not applied in case if a business reconstruction or reestablishment comes under section 33B.

    3. The company should not have used plant or machinery second time (second hand) for any purpose. However a company can use plant and machinery that is used out of India and is being used for the first time in India. Also the company can use old plant and machinery but the value of it should not have exceeded 20% of the total value of it used by the company.

    4. The company should not use any building that is previously used as a hotel or Convention Centre.

    5. The company should not be in any business other than the business of manufacture or production of any article or thing or distribution of such article or thing manufactured or produced by it.

    6. The total income of the company should be computed, Without claiming any deductions under the provisions of section 32 or section 32AD or section 33AB or section 33ABA or section 35 or section 35AD or section 35CCC or section 35CCD or other than the provisions of section 80JJAA.

  • Section115JB (MAT):

MAT stands for Minimum Alternative Tax at times it may happen that a tax payer, being a company, may have generated huge amount of income during the year, but by taking the advantage of various provisions of Income-tax Laws like exemptions, deductions, depreciations etc., it may have reduced its tax liability or may not have paid tax at all. Due to increase in the number of zero tax paying companies, MAT was introduced by the Finance Act, 1990, to bring into the tax net zero tax company which might have earned good income but do not pay taxes due to various tax concessions provided under the income tax law.

Since the introduction of MAT, several changes have been made in the provisions of MAT and today it is raised on companies as per the provisions of section 115JB.

  • Now let us have all these sections in more details at the same time in tabular format:
Particulars Section 115BA Section 115BAA Section 115BAB Total turnover during the previous year does not exceed Rs. 400 crores Any other domestic company
Applicable from A.Y. 2017-18 A.Y. 2020-21 A.Y. 2020-21 - -
Type of Company The domestic company engaged in manufacturing/ production All Domestic companies The domestic company engaged in manufacturing/ production Any Domestic company Any Domestic company
From to be exercised for Application Form 10IB Form 10IC Form 10ID NA NA
Start Date Set up & registered on or after 01.03.2016 No specific requirement Set up & registered on or after 01.10.2019 and commence manufacturing on or before 31.03.2023 - -
Allowability of specified deduction or loss No No No Yes Yes
Basic Tax Rate 25% 22% 15% 25% 30%
Surcharge or Extra Charge on:Turnover between 1 Cr. to 10 Cr. Turnover of more than 10 Cr. Cess
7% 10% 10% 7% 7%
12% 10% 10% 12% 12%
4% 4% 4% 4% 4%
Applicability of MAT Yes (15%) NA NA Yes (15%) Yes (15%)
From to be exercised for Application of MAT Form 29B NA NA Form 29B Form 29B
Specified domestic transaction provisions NA NA Applicable Applicable Applicable
Restriction for entities formed by restructuring /use of plant & machinery/use of building earlier use as hotel or convention centre NO NO Yes - -

2. Rates Charged to Foreign Company:

A. Income Tax Rates Charged to Foreign Companies are as follows

Nature of Income Tax Rate
Royalty received from the government or an Indian concern in pursuance of an agreement made with the Indian concern after March 31, 1961, but before April 1, 1976, or fees for rendering technical services in pursuance of an agreement made after February 29, 1964 but before April 1, 1976 and where such agreement has, in either case, been approval by the Central Government 50%
Any other Income 40%

However, on the above rates there are certain additional cess/surcharge which are raised by the Government on the company like domestic companies, the additional charges are as follows:

Particulars Rate
Allowability of specified deduction or loss Yes
Surcharge
Turnover between 1 Cr. to 10 Cr. 2%
Turnover of more than 10 Cr. 5%
Cess 4%
Applicability of MAT Yes (15%)
From to be exercised for Application of MAT Form 29B

Government has in the last one year come up with reduced corporate taxes for startup with certain conditions. This has encouraged entrepreneurs to do business as a company in a more organized manner.



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