Corporate Tax, Types and Tax Rate in India

Corporate tax is a direct tax levied on corporations and other business entities' net income or profit. In India, domestic and foreign companies are subject to corporate tax under the Income Tax Act. For the fiscal year 2023-24, several key provisions and changes have been introduced, impacting how companies calculate and pay their taxes. Understanding these regulations is essential for compliance and efficient financial planning. This overview will provide insights into the current corporate tax landscape, including tax rates, deductions, and compliance requirements for businesses operating in India.

What Is a Corporate Tax Rate?

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Corporate Tax in India

• Domestic Company : A domestic company is registered under the Companies Act of India. This also includes companies registered in foreign countries but with control and management in India. Domestic companies have both private and public companies. Act of India. This also includes companies registered in foreign countries but with control and management in India. Domestic companies encompass both private and public companies.
• Foreign Company : A foreign company is not registered under the Companies Act of India and has control and management outside India.

New Tax Rate Imposed in Budget 2024-25

• Personal Income Tax: This is the income tax paid by individual taxpayers, who are taxed based on different tax slabs and rates. The tax rate varies according to individuals' income levels, ensuring a progressive tax system where higher-income earners pay more.
• Corporate Tax: This is the income tax paid by domestic and foreign companies on their income earned within India. Corporate Income Tax (CIT) rates are specified in the Income Tax Act and may be adjusted annually in the Union Budget. For domestic companies, the tax rate is determined by various factors, including turnover and applicable exemptions. In contrast, for foreign companies, the rate applies to the income accrued or received in India.

Corporate Tax Deductions

• Depreciation : Corporations can deduct the cost of tangible assets, such as machinery, equipment, and buildings, over their useful lives through depreciation. This deduction reflects the wear and tear on these assets over time.
• Business Expenses : Ordinary and necessary expenses incurred while running a business, such as salaries, rent, utilities, and office supplies, are deductible. These must be directly related to the company's operations.
• Research and Development (R&D) : Expenses incurred in developing new products, processes, or technologies can often be deducted. This deduction aims to encourage innovation and technological advancement.
• Charitable Contributions : Donations made to qualified charitable organisations can be deducted, subject to certain limitations. This not only helps in tax savings but also promotes corporate social responsibility.
• Employee Benefits : Costs related to employee benefits, such as health insurance, retirement plans, and education assistance, are deductible. These benefits help attract and retain talent while providing tax relief.
• Bad Debts : Businesses can deduct bad debts that have been written off as uncollectible. This applies to debts from credit sales or loans made during regular business operations.
• Loss Carryforward : Companies that incur a net operating loss (NOL) in one year can take that loss to offset taxable income in future years, reducing future tax liabilities.

Things to Know About Filing Tax Return

Tax Return Forms for Companies

Tax Audit Requirements

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