Corporate tax is a critical component of India’s direct taxation system and is a major source of revenue for the nation. If you are a business owner or are planning to start a company in the future, understanding the meaning of corporate tax and the applicable tax rates is crucial to ensure proper compliance. In this article, we will explore the concept in detail, the rates for the financial year 2024 – 2025 and key deductions available for businesses.
Corporate Tax Meaning
Corporate tax is a direct tax that is levied on the profits (net income) of a company registered either in India or abroad. It is levied on a company’s earnings after deducting all allowable expenses, including salaries, rent, employee welfare benefits, cost of goods sold and depreciation.
The Income Tax Act of 1961 classifies companies into two types based on their location of incorporation:
- Domestic Company
A domestic company is a public or private entity registered within the geographical borders of India under the Companies Act of 2013. The term also includes companies registered outside India but with ownership and control in India.
- Foreign Company
A foreign company is an entity that is registered outside the geographical borders of India and has ownership and control outside India.
The levy of corporate tax shall vary depending on the nature of the company involved. For example, in the case of domestic companies, tax is levied on the total net income, irrespective of whether it was generated within or outside India. On the other hand, in the case of foreign companies, only the net income accrued or received in India is taxed.
What Is Considered as Income for a Company?
Now that you know the meaning of corporate tax, let us look at what is considered income for a company for the purposes of calculating tax.
- Net revenue from business operations
- Short-term and long-term gains from the sale of capital assets
- Income from renting movable and immovable property such as land, buildings and equipment
- Income arising from investing activities like dividend income and interest income
- Income from other sources, such as foreign exchange gains or royalties
Corporate Tax Rates for the Financial Year 2024-2025
The corporate tax rates in India vary depending on the type of company, its total turnover and total taxable income. Here is a quick overview of the current corporate tax rate system for the financial year 2024 – 2025.
| Particulars | Base Corporate Tax Rate | Surcharge |
| Companies with gross receipts or turnover of less than ₹400 crore in a financial year | 25% | 7% (for companies with total income between ₹1 and ₹10 crore)
12% (for companies with total income above ₹10 crore) |
| Manufacturing or production companies registered on or later than March 1, 2016, and not claiming any of the exemptions, deductions, depreciation or setting off losses
(Section 115BA of the Income Tax Act, 1961) |
25% | 7% (for companies with total income between ₹1 and ₹10 crore)
12% (for companies with total income above ₹10 crore) |
| Companies not claiming any of the specified incentives, exemptions or deductions
(Section 115BAA of the Income Tax Act, 1961) |
22% | 10% |
| Manufacturing or production companies registered on or later than October 1, 2019, and not claiming any of the specified exemptions, deductions, depreciation or setting off losses | 15% | 10% |
| All domestic companies other than the ones specified above | 30% | 12% |
| All foreign companies | 35% | 2% (for companies with total income between ₹1 and ₹10 crore)
5% (for companies with total income above ₹10 crore) |
Note: In addition to the base corporate tax rate and the surcharge, companies are required to pay a health and education cess of 4%. The 4% cess shall be calculated on the final tax amount after applying the surcharge (if any).
Key Corporate Tax Deductions Available For Businesses
The Income Tax Act of 1961 provides companies the ability to reduce their corporate tax liability by claiming various deductions and exemptions. Let us look at some of the most crucial and often used deductions available for companies.
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Depreciation
Section 32 of the Income Tax Act of 1961 allows companies to claim depreciation on fixed assets used as part of their daily business operations as a deduction from their total taxable income.
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Section 80JJAA Deduction
Section 80JJAA of the Income Tax Act enables companies that hire new employees during the assessment year 2024-2025 to avail a deduction of 30% of additional employee costs. This deduction can be used for three consecutive years from the year in which the new employees were hired. This essentially means that this deduction shall be available for AY 2024 – 2025, AY 2025 – 2026 and AY 2026 – 2027.
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Donations
Companies making contributions to approved charitable organisations can avail anywhere from 50% to 100% of the amount donated under section 80G of the Income Tax Act, 1961.
Conclusion
Corporate tax is an essential obligation for businesses that can directly impact their financial health. From the perspective of the government, however, the tax is one of the largest sources of revenue.
Companies desirous of reducing the financial burden of tax must ensure that they make use of the available deductions and exemptions. This way, they can manage their business tax liabilities more efficiently. Furthermore, companies must also strive to update themselves on the latest regulations to ensure that the corporate tax filing process is smooth and seamless.
FAQs
Is GST part of corporate tax?
No. Corporate tax is a direct tax levied on the income generated by a company. Goods and Services Tax (GST), meanwhile, is an indirect tax levied on the supply of goods and services.
Can a company carry forward losses to reduce tax liabilities?
Yes. If a company has a loss during a financial year, it can choose to carry it forward to the subsequent financial year. The carried-forward loss can be set off against profits made during the subsequent financial year to reduce the overall tax liability for that particular year.
What is the due date for companies to file income tax returns?
The due date for companies to file income tax returns is October 31 of every year. However, the Income Tax Department may choose to extend the corporate tax filing due date by a few days from time to time.
Which ITR form is applicable for companies?
Companies not claiming exemptions under section 11 of the Income Tax Act of 1961 must use Form ITR-6 to file their income tax returns. Meanwhile, companies required to file returns under sections 139(4F), 139(4E), 139(4D), 139(4C), 139(4B) or 139(4A) of the Income Tax Act of 1961 must use Form ITR-7.
Is tax audit mandatory for all companies?
No. Tax audit is only mandatory for companies with total sales, turnover or gross receipts of more than ₹1 crore. However, if at least 95% of all business transactions are done through formal banking channels (instead of cash), the turnover limit for tax audit is enhanced to ₹10 crore.
