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Indian taxation system is divided into two types: One is Direct Taxes and other is Indirect Taxes. Talking about direct taxes, it is levied on the income that different types of business entities earn in a financial year. There are different types of taxpayers registered with Income tax department and they pay taxes at different rates. For eg, An individual and a company being a taxpayer are not taxed at the same rate. Therefore, Direct Taxes are again subdivided as:

Income Tax: This tax is paid by the taxpayers other than companies registered under company law in India on the income earned by them. They are taxed on the basis of slabs at different rates.

Corporate Tax: This tax is paid by the companies registered under company law in India on the net profit that it makes from businesses. It is taxed at a

specific rate as prescribed by the income tax act subject to the changes in the rates every year by the IT department.

Corporate Tax in India

Domestic as well as foreign companies are liable to pay corporate tax under the Income-tax Act. While a domestic company is taxed on its universal income, a foreign company is only taxed on the income earned within India i.e. is being accrued or received in India.

For the purpose of calculation of taxes under Income tax act, the types of companies can be defined as under :

Domestic Company: Domestic company is one which is registered under the Companies Act of India and also includes the company registered in the foreign countries having control and management wholly situated in India. A domestic company includes private as well as public companies.

Foreign Company: Foreign company is one which is not registered under the companies act of India and has control & management located outside India.

What is meant as Income of a company?

Before understanding about the rate of taxes and how will the tax be calculated on income of the companies, we should learn about the types of income which a company earns. Here it is :

  1. Profits earned from the business
  2. Capital Gains
  3. Income from renting property
  4. Income from other sources like dividend, interest etc.

Tax rates applicable

Taxes on Income

The following rates are applicable to the domestic companies for AY 2019-20 based on their turnover

:
Particulars Tax Rate
Gross Turnover upto Rs. 250 Crore in FY 2016-17 25%
Gross Turnover exceeding  Rs. 250 Crore 30%
The following rates are applicable to foreign companies for AY 2019-20 based on their turnover :
Nature of Income Tax Rate
Royalty received or fees for technical services from government or any indian concern under an agreement made before April 1, 1976 and  approved by central government 50%
Any other income 40%

In addition to above rates :

Surcharge rate :
Particulars Tax Rate
If total income exceeds Rs. 1 crore but not Rs. 10 Crore 7% of tax calculated on domestic company/ 2 % of tax calculated on foreign company as per above rates
If total income exceeds Rs. 10 crore 12% of tax calculated on domestic company/ 5 % of tax calculated on foreign company as per above rates

Health & education Cess :

Further 4 % of income tax calculated and applicable surcharge will be added to the amount of total tax liability before this cess.

Minimum Alternate Tax (MAT)

Alternatively, all the companies (including foreign companies) are required to pay minimum alternate tax at the rate of 18.5 % on book profits if the tax calculated as per above rates are less than 18.5% of book profits.

Dividend Distribution Tax (DDT)

Companies are required to pay tax on the dividend distributed to the shareholders in a particular year. This dividend is exempted in the hands of shareholders upto an amount of Rs. 10 lakh but the companies have to pay tax @ 20.56 %.

Everything about filing income tax return

Due date for filing Income tax return

Companies including foreign companies have to file their income tax return on or before September 30 every year. Even if the company came into existence during the same financial year, then too, it has to file the income tax return for that period on or before September 30.

Tax return forms to be filed by the company

ITR 6 : All the companies except companies claiming deduction under section 11 need to file their return using Form ITR 6.

ITR 7 : All the companies registered under section 8 of companies act, 2013 are required to file their return using Form ITR 7.

Tax Audit

Income tax act requires a class of companies to get their accounts audited and submit a audit report to the IT department along with the Income tax return. This audit is known as Tax Audit. This tax audit report is also required to be mandatorily submitted by eligible companies by September 30.

Corporate Tax is an ocean full of provisions which all the companies need to comply with. Keep reading to know what are those provisions, rules that the companies need to follow.

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  1. A brief overview of all the tax benefits available to companies.
  2. Section 54 of income tax act
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  4. Income Tax law provides that any payment is made in cash sum exceeding INR 20,000 in a single day won’t be permitted as a deductible expense.
  5. Depreciation under Income Tax Act is the decline in the real value of a tangible asset because of consumption, wear and tear or obsolescence.
  6. Additional depreciation under Income Tax Act, 20% of actual cost shall be allowed for any new machinery or plant acquired and installed, used for < 180 days
  7. Expenses incurred prior to the commencement of business or during extending an existing business or setting up a new unit etc. are eligible to be amortised under section 35D of the Income Tax Act, 1961.
  8. Few expenses are deductible only on actual payment being made. These expenses come under Section 43B of the Income Tax act. Find more details of deductions under section 43B in brief here.
  9. Section 36 of the Income Tax Act illustrates various expenses that are allowed as a deduction from the income earned from business and profession. Find here the Summary of deductions u/s 36 and a detailed explanation of all deductions u/s 36.
  10. Any payments made on which an amount is required to be deducted and deposited to the government and the same is not deducted or remains unpaid, such payments attract disallowance. To know more about Expenses disallowed under PGBP read here.
  11. Deferred Tax Liability (DTL) or Deferred Tax Asset (DTA) item forms an important part of your Financial Statements. We got you a write on all about DTL/DTA, How it's calculated and certain specific Implications...