Corporate tax is one of the significant taxes levied on companies by the Indian government. Unlike the progressive income tax system applied to individuals, corporate tax is generally levied at a specific rate based on the nature of the company, its income, and applicable provisions under the Income Tax Act. This guide offers a detailed understanding of corporate tax rates and compliance requirements in India for the financial years FY 2024-25 and FY 2025-26.
Corporate tax is a form of direct tax imposed on the profits of companies operating in India. The key objective of corporate taxation is to tax profits generated by a company from various sources, including business activities, capital gains, income from property rental, and other sources.
Corporate tax is levied on the following income heads:
• Profit or Gain from Business or Profession (PGBP): Income earned through business operations, such as sales revenue minus expenses.
• Capital Gains / Capital Losses: Income or loss arising from the sale of capital assets like land, buildings, or stocks.
• Income from House Property: Income derived from renting property.
• Income from Other Sources: Includes income from interest, dividends, royalties, etc.
In cases where a company experiences losses in any year, such losses can be carried forward and set-off against future income as per the provisions of the Income Tax Act.
There are three types of losses that need to be considered while filing a corporate tax return:
• Normal Losses from Business Operations: These are losses incurred due to business activities such as manufacturing, trading, etc.
• Capital Losses: Losses incurred from the sale of capital assets such as property or investments.
• Unabsorbed Depreciation: When depreciation claimed by a company is higher than its income, it results in an unabsorbed depreciation loss.
Losses under these categories can be set off against future taxable profits, subject to conditions under the Income Tax Act. The carry forward of losses is crucial for companies as it allows for the reduction of taxable income in subsequent years, thus lowering tax liability.
The computation of corporate tax is relatively complex, requiring a deep understanding of the Income Tax Act and its rules. The tax calculation differs depending on the type of company (e.g., domestic or foreign) and other criteria.
The Minimum Alternate Tax (MAT) is levied under Section 115JB of the Income Tax Act. MAT ensures that companies, even if they are making large profits and paying minimal taxes, pay at least a minimum tax. The tax is calculated based on book profits rather than taxable profits.
• Tax Rate for MAT (FY 2024-25 & FY 2025-26): The MAT rate for both domestic and foreign companies is 15% on book profit.
• MAT Credit: If a company has paid MAT in previous years, it can claim MAT credit and use it to offset tax liability in future years.
The tax rate applicable to domestic companies is based on their turnover, and certain sections allow for reduced rates under specified conditions. Below is a table summarizing the tax rates for domestic companies:
| S.No | Category | Applicable Tax Rate | Key Conditions and Details |
|---|---|---|---|
| 1 | Companies with Turnover ≤ ₹400 Crores | 25% | - Applicable if turnover or gross receipts in Financial Year (FY) 2022–23 were ≤ ₹400 crore. - Regular companies not opting for special concessional tax rates under sections 115BA, 115BAA, or 115BAB. - Additional surcharge and health & education cess apply separately. |
| 2 | Manufacturing Companies opting for Section 115BA | 25% | - Company must be a domestic manufacturing company. - Should have been set up and registered on or after March 1, 2016. - Company cannot claim certain exemptions/deductions like accelerated depreciation, SEZ benefits, additional R&D deductions, etc. - Option once exercised is irrevocable. |
| 3 | Companies opting for Section 115BAA | 22% | - Available to all domestic companies, irrespective of turnover. - No time limit for incorporation. - Must forego various exemptions/deductions, such as: a. Additional depreciation (Sec 32(1)(iia)) b. SEZ profit deduction (Sec 10AA) c. Investment-linked deductions (Sec 35AD, etc.) - MAT (Minimum Alternate Tax) is NOT applicable for companies opting under Section 115BAA. - Option is irrevocable once exercised. |
| 4 | New Manufacturing Companies opting for Section 115BAB | 15% | - Must be a new domestic manufacturing company. - Incorporated on or after October 1, 2019, and should have commenced manufacturing on or before March 31, 2024 (extended to March 31, 2025, via amendments). - Should not be formed by splitting up or reconstruction of an existing business. - Must not use second-hand plant/machinery exceeding 20% of total assets. - Must not engage in non-manufacturing businesses like service sector activities. - No MAT applicable. - Must forgo certain exemptions/deductions (similar to Sec 115BAA). - Option once exercised is final. |
| 5 | Other Domestic Companies | 30% | - For companies not qualifying under any of the above conditions. - Generally applies to large companies with turnover exceeding ₹400 crore and not opting for concessional tax regimes. - MAT provisions applicable. - Normal deductions and exemptions can be claimed unless restricted. |
Surcharge:
• If the net income exceeds INR 1 crore but is below INR 10 crore, a surcharge of 7% is applicable.
• If the net income exceeds INR 10 crore, the surcharge is 12%.
Health and Education Cess:
• A cess of 4% on income tax and surcharge is levied.
| Section | Base Rate | Surcharge | Cess | Effective Tax Rate (Approx.) |
|---|---|---|---|---|
| Regular (≤ ₹400 crore turnover) | 25% | 7% / 12% | 4% | ~26.0%–27.8% |
| Section 115BA | 25% | 7% / 12% | 4% | ~26.0%–27.8% |
| Section 115BAA | 22% | 10% | 4% | ~25.17% |
| Section 115BAB | 15% | 10% | 4% | ~17.16% |
| Other Companies | 30% | 7% / 12% | 4% | ~31.5%–34.9% |
Foreign companies are taxed at a flat rate of 40%. However, a higher tax rate of 50% applies in the case of royalty or fees for technical services received from the Indian government or Indian concerns, where the agreement has been approved by the Central Government.
| Category | Tax Rate |
|---|---|
| All foreign companies (General) | 40% |
| Royalty/Fees for technical services from Indian Government or Indian concerns | 50% |
Compliance with corporate tax regulations is crucial to avoid penalties, interest, and legal issues. Here’s a step-by-step guide for filing corporate tax returns in India:
All corporate tax returns must be filed online through the Income Tax Portal. Tax professionals and company accountants must ensure that the correct forms are used for filing, based on the type of company.
The following documents are generally required for corporate tax filing:
• Financial statements, including the profit & loss account and balance sheet.
• Details of any capital gains or capital losses.
• Documentation related to income from house property or other sources.
• Details of tax deductions and exemptions claimed.
• Previous years’ MAT credit, if applicable.
Corporate tax returns must be filed on or before the due date specified by the Income Tax Department. The due date for filing corporate tax returns is typically November 30th of the assessment year.
To ensure smooth corporate tax filing and avoid penalties, consider the following:
• Accurate Calculation of Profits and Losses: Ensure proper documentation and accurate calculation of all income and allowable expenses.
• Maximization of Deductions and Exemptions: Ensure that the company avails all available deductions and exemptions under the Income Tax Act.
• Timely Filing: File tax returns before the due date to avoid penalties for late filing.
• Proper Utilization of MAT Credit: If MAT was paid in previous years, ensure that MAT credit is utilized to reduce future tax liabilities.
Corporate tax compliance is a critical function for businesses in India. Understanding the applicable tax rates, rules for loss carry-forward, MAT, and other provisions can help companies manage their tax liabilities efficiently. With the help of tax professionals and a thorough understanding of the Income Tax Act, companies can ensure proper compliance, reduce their tax burden, and avoid penalties. For professional assistance, reach out to us on email: info@returnfilings.com or on whatsapp: https://wa.me/919910123091.
Corporate tax is a direct tax levied on the net income or profits earned by a company or corporation.
All companies incorporated in India, whether public or private, and foreign companies having a place of business in India are liable to pay corporate tax on their income earned in India.
The corporate tax rate in India varies depending on the type of company and its turnover. There are different slabs and rates for different categories of companies. It’s crucial to check the latest Finance Act and Income Tax Department notifications for the most up-to-date rates as they are subject to change. A lower tax rate is available for certain companies that do not avail of specific exemptions/deductions.
Corporate tax is calculated on the taxable income of the company. Taxable income is determined by deducting allowable expenses and deductions from the gross income. The applicable tax rate is then applied to the taxable income.
Allowable expenses and deductions are specified under the Income Tax Act. They include expenses incurred for business operations, depreciation on assets, certain investments, and other specified deductions.
MAT is a provision to ensure that companies with substantial profits pay a minimum amount of tax, even if they are claiming various deductions and exemptions.
Key compliance requirements include: Maintaining proper books of accounts. Deducting Tax Deducted at Source (TDS) on payments made to others. Filing various income tax returns (e.g., ITR-6). Paying advance tax. Getting the accounts audited (in certain cases).
The due date for filing corporate income tax returns is usually October 31st of the following financial year. However, it’s crucial to check the Income Tax Department’s website for the latest updates as due dates can be extended.
Advance tax is the tax paid in installments during the financial year on income earned. It is paid to ensure a regular flow of revenue to the government.
Non-compliance can lead to penalties, interest, and even legal action.
Effective tax planning involves: Availing of all eligible deductions and exemptions. Optimizing the timing of income and expenses. Making informed investment decisions. Keeping proper records. Consulting with tax professionals.
A tax consultant can provide expert advice on tax laws, help with tax planning strategies, and ensure compliance with regulations.
Corporate tax can be paid online through the income tax e-filing portal.
TDS is the tax deducted by the payer from payments made to a company.
TDS returns are filed online through the income tax e-filing portal.
Direct taxes are levied directly on income, while indirect taxes are levied on goods and services.
Check the Finance Act and income tax notifications on the Income Tax Department’s website.
Common issues include understanding complex tax laws, maintaining accurate records, and meeting deadlines.
Maintain proper records, consult with tax professionals, and review the return carefully before filing.
A professional can assist with tax planning, return preparation, audits, and representing the company before tax authorities.
Mergers and acquisitions have complex tax implications. Consult with a tax expert for specific guidance.
Consult with a professional specializing in Income Tax Services, OR reach out to us on email: info@returnfilings.com or on whatsapp: https://wa.me/919910123091.
Text-
