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Corporate Tax In India

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Corporate Tax in India

  • A corporation is a company that is separate from its shareholders legally. Both domestic and foreign businesses are required to pay corporate tax in India under the Income-tax Act. In order to calculate the corporate tax in India the companies are further categorised as domestic and foreign companies. The domestic companies are registered under the Indian Companies Act. It involves any company that has its entire business and management in India.
  • On the other hand foreign companies are firms that are not registered under the Indian companies Act and have their base and management outside of India. Foreign firms are liable for corporate taxes in India only when the income is earned within the continent. On the other hand, domestic companies are taxed on their overall income.
  • The income of a corporation in India is subject to corporate tax post deductions like depreciation, administrative expenses, cost of goods sold and salary expenses. In India, corporations both domestic and foreign must pay a corporation tax based on the corporate income tax rate and their yearly turnover.

Benefits of Corporate Tax in India

 

In addition to understanding what a Corporate tax in India and Corporate tax rate in India, it is crucial to be aware of its many advantages:

  • Corporate tax in India is a crucial component of every tax system, particularly in developing nations with few other sources of income. Due to the relatively high corporate taxes, substantial sums of money are raised for public projects
  • Perhaps most significantly, personal income taxes are primarily protected by corporate tax in India. Rich people increasingly shift their profits from the personal tax bracket to corporate tax in India as the income tax rates for companies are less when compared to the personal tax rates
  • Companies all across the world are supported by unused, uninvested capital deposits totaling trillions of dollars. They are like a string; cutting their taxes won’t increase expenditure or output. Some claim that corporate tax in India are a crucial democratic check on excessive corporate power.

Corporate Income Tax for Various Business Categories

A summary of the Indian Business Tax Rate is provided below:

Company Tax Percentage for U.S. Businesses

Both governmental and private businesses that are listed under the Companies Act of 1956 must pay this tax. Currently, local businesses pay a 30% tax rate.

Additionally, if total revenue is between ₹1 crore and ₹10 crore, the Income Tax Act imposes a 7% surcharge. A 12% surcharge is applied to net revenue that surpasses ₹10 crore for a business.

Domestic companies now have the choice to pay tax at a rate of 25.168% thanks to Section 115 BAA. The following table breaks down this company tax rate:

Base Rate of Tax (%)Surcharge Applied (%)Cess Applied(%)Effective Tax Rate (%)
2210425.168
Company Tax Percentage for International Businesses

Foreign corporations are required to pay corporate income tax on the revenue they generate within a certain time period. Royalties and other fees are subject to a 50% business tax rate in India, while the remaining revenue is subject to a 40% tax rate.

A 2% surcharge is applied to international companies with total incomes between ₹1 crore and ₹10 crore. In the event that its total revenue surpasses ₹10 crore, a 5% surcharge will be added.

 

Corporate Tax Rate in India for AY 2024 -2025

Corporate Income tax with a turnover or gross receipts up to ₹400 crores, at 25%. Corporate Tax rate in India for companies with a turnover or gross receipts exceeding ₹400 crores and corporate Income Tax Rate of 30%

Surcharge: 7% of taxable income for net income over ₹1 crore but under ₹10 crore , and 12% of taxable income for net income over ₹10 crore.

4% of income tax plus a surcharge is the health and education levy.

Note: Minimum Alternate Tax (MAT) will be assessed at 15% on Book Profit in A.Y. 2023-24.

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Frequently Asked Questions (FAQs)

The MAT is provided by Section 115JB of the Income Tax Act and it has been an integral part of the legislation for years. MAT aims to tax businesses on book profit, or on taxable income, whichever is higher. Previously, MAT had fallen to 18.5% in book income and now has been further reduced to 15%.

As a result of these changes, the applicability of MAT is removed for businesses opting to practise 115BAA or 115BAB. As such, if a firm opts for one of these categories, it will have a single tax rate for each future year.

By definition, tax evasion entails violating the law, while tax avoidance is not necessarily going around the intent of the rules. In reality, avoidance is much more like evasion. Instead of being entangled in the nuances of avoidance and evasion, it is typically easier to use certain words, such as tax abuse, tax dodging, or tax cheating. This step past the legal niceties and concentrate on what matters: whether the policies are economically and politically harmful.
Corporations with annual revenues up to ₹400 crore who do not request any incentives or exemptions must pay 22% tax in addition to any applicable cess and surcharge under the new tax slab announced by the Finance Ministry. The effective corporate tax rate now stands at 25.17%.

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