Corporate Income Tax- Definition

24 May 2021|

3 min read |

by ICICI Securities Team

Corporates are levied with a Corporation or Corporate Tax that is a direct tax on their net income or profit the corporate enterprise generates from their businesses. As per the Income Tax Act of 1961, there is an explicit tax rate imposed on corporates, as they are better known as.

Want to know more about Corporate Income Tax? Read on to know its definition and the various corporate tax rates.

Corporate Income Tax- The Definition:

Corporate Tax is the tax payable by any registered company under the Companies Act of 2013 on the profit netted in a particular financial year. The profit accrued of these corporates is taxable at various specific tax slabs that are subject to change as per the inclination of the Government of India. Corporate Tax forms the structure of the direct tax levied by the Government.

Corporate Entities – What are they?

A corporation is an artificial entity that is legally deemed to have certain rights and duties. By law, it is an independent legal identity distinct from that of its stakeholders. The income grossed from the business by the corporate entity is assessed and computed differently for tax purposes.

Type of Corporates:

The corporate income tax is levied on two classifications of corporate entities.

Domestic: a corporate that is established under the Indian Company Law is termed a domestic company. Additionally, a foreign entity whose management and control are exclusively situated in India.
Foreign: A corporate whose origin of establishment is not in India and some or the whole part of the management and control is situated externally and not within India is termed as a foreign corporation.

Corporate Income Tax Rates:

Here we have highlighted the corporate tax slabs as per company type and have delved further into the domestic corporate tax rate and foreign corporate income tax rate.

Type of Company	Corporate Income Tax Rate	Benefits
A corporate entity that does not want to claim any exemption or incentives.	22% plus applicable cess and surcharge. Approximate effective rate is 25.17%.	There is no requirement of minimum alternative tax to be paid by these corporates.
A corporate entity that intends to claim exemption or incentives.	30%.	The minimum alternative tax is reduced to 15% from the earlier corporate income tax rate of 18.50%.
Any newly established manufacturing corporate.	15%. A reduced tax rate from the earlier rate of 25%.	Incorporation of these new manufacturing entities should be on or before October 2019 and production must commence before March 2023.

Corporate Income Tax Rate – Domestic:

The income tax is levied on the turnover for the financial year. The corporate income tax rates are:

Gross Turnover

- Up to Rs. 250 crore: tax applicability is 25%.

- More than Rs. 250 crore: the tax applicability is 30%.

However, there are additional indicators to keep in mind:

During the financial year, if the annual revenue of the company surpasses Rs. 1 crore. Then a surcharge of 7% is levied on such corporate additional to the income tax rate applicable.
If the annual revenue exceeds Rs. 10 crores, then the surcharge applicable over and above the tax rate is 12%.
A Health and Education Cess of 4% is applicable in addition to the corporate income tax levied on domestic corporates.
If the domestic corporation has an overseas branch, then the earnings in India and overseas are clubbed together. The corporate income tax is levied on the total company earnings.

Thus, it is to be considered that corporate tax laws in India consider the overseas earnings as well of any classified domestic corporate entity.

Corporate Income Tax Rate – Foreign:

The Corporate Tax is levied on the turnover for the financial year. The corporate income tax rates are:

Any fee or royalty charged for any technical service received by a foreign entity from an Indian concern or the Government of India as per any agreement made before April 1, 1976, that is approved by the Central Government: the corporate income tax rate applicable is 50%.
Any other income: the corporate tax rate is 40%.
Additional Charges:
Any income between Rs. 1 crore to Rs. 10 crore carries an additional surcharge of 2%.
If the income exceeds Rs. 10 crores, then the applicable surcharge is 5%.
An imperative pointer to keep in mind is the taxation system in the case of foreign corporate entities depends wholly on the tax agreement between the country of origin of such a foreign entity and India.

With a detailed description of the definition and corporate income tax rates for the segmented entities as corporates. It is easier to understand the specifics the next time you need to deal with any corporate entity for income tax purposes.

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