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What is Corporate tax and Corporate tax rate?
Corporation Tax or Corporate Tax is a direct tax levied on the net income or profit of a corporate entity from their business, foreign or domestic. The rate at which the tax is imposed as per the provisions of the Income Tax Act, 1961 is known as the Corporate Tax Rate.
The Corporate Tax rate is based on a slab rate system depending on the type of corporate entity and the different revenues earned by each of corporate entities.
Corporate tax rates for domestic companies
For existing companies
Under the new tax slab announced by the Finance Ministry, corporations with annual turnover up to Rs 400 crore and not seeking any incentives or exemptions need to pay 22 per cent tax along with applicable cess and surcharge. This takes the effective corporate tax rate to 25.17%. However, with the introduction of the new guidelines, companies don't have to pay any minimum alternate tax or MAT.
For new firms
The government, in order to attract fresh investment in manufacturing and provide a boost to its flagship ‘Make-in-India’ initiative, another new provision has been inserted in the Income-tax Act with effect from FY 2019-20 which allows any new domestic company incorporated on or after 1st October 2019 making fresh investment in manufacturing, an option to pay income-tax at the rate of 15%. This benefit is available to firms which do not avail any exemption/incentive and commences their production on or before 31st March, 2023. The effective tax rate for these companies shall be 17.01% inclusive of surcharge & cess and such companies shall not be required to pay Minimum Alternate Tax.
However, firms which do not opt for the concessional tax regime and avail the tax exemption/incentive shall continue to pay tax at the pre-amended rate, that is 30%. Further, in order to provide relief to companies which continue to avail exemptions/incentives, the rate of Minimum Alternate Tax has been reduced from existing 18.5% to 15%.
For foreign companies
Corporate tax rates for foreign companies depend on the agreement of India with the country where the company is based. The rate can be divided into two sections:
If the income is shown as any royalty or fee for technical services received by a foreign company from an Indian concern or Indian government as per any agreement made before April 1, 1976 which is approved by the central government, the company has to pay a tax rate of 50%. Another 40% tax will be imposed on the company if it has other sources of income. Adding to it, a surcharge of 2% is levied if the income is between Rs 1 crore to Rs 10 crore. In case it exceeds Rs 10 crore then the applicable surcharge is 5%.