Corporate Tax is a tax that a company is liable to pay to the government for operating the business in the country. This is calculated based on the profit earned by the corporate and is a certain percentage of the profit that the company has to pay as taxes.
The corporates measure their profits in two terms EBIT and PBT which stands for Earning Before Interest and Taxes and Profit Before Tax respectively.
After all the expenses, interest payments, and taxation, the profits remaining are the corporate profits which are distributed among its shareholders.
Whether you are a small corporate or a large multinational corporation, you’ll have to plan your taxes such that you get the maximum benefit out of it.
A business generates business, contributes towards GDP, creates jobs, and helps the country in developing faster hence, the government provides corporates additional benefits and tax rebates to encourage them in business.
This provides a business an opportunity to save taxes and develop a system of financial management for the company. In this article, we will discuss Corporate Tax – Overview, Corporate Tax Rates & Rebates, etc.
But before that, we will have to understand what is corporate taxes.
Table of Contents
Understanding Corporate Taxes
Corporate Taxes are those taxes that the company pays to the Government where the corporate is conducting the business or is based. The taxes collected will be used by the government to run the country where Infrastructure creation, roads, bridges, social welfare schemes, etc. are provided.
The entire system enables society to function properly and every citizen gets the benefits of it. the current corporate tax set-up by the Government of India is as follows-
Corporate Tax Rates FY 2022-23
The following are the corporate tax rates applicable in the Financial Year 2022-23-
Corporate Tax Rates for Domestic Companies FY 2022-23
|Range of income||Rate of tax|
|Up to Rs.400 crore gross turnover||25%|
|Gross turnover that exceeds Rs.400 crore||30%|
Surcharge rates in addition to the rates above
|Particulars||Domestic Companies Tax rate|
|If the total income range is between Rs.1 crore and Rs.10 crore||7% as per the rate of tax above|
|If the total income range exceeds Rs.10 crore||12% as per the rate of tax above|
Corporate Tax Rates for Foreign Companies AY 2022-23
|Nature of income||Rate of tax|
|Royalty or fees received for any technical services from the government or an Indian concern under agreements made before April 1, 1976, which is approved by the central government||50%|
|Any other kind of income||40%|
Surcharge Rates in Addition to the Rates Above:
|Particulars||Foreign Companies Tax rate|
|If the total income range is between Rs.1 crore and Rs.10 crore||2% as per the rate of tax above|
|If the total income range exceeds Rs.10 crore||5% as per the rate of tax above|
Corporate Tax Filing Deadlines in India
For a financial year, the corporates are provided an adequate time frame to pay the taxes for which they are liable. 31 October of the succeeding tax year or 30 November of the succeeding tax year if the corporation has international transactions with associate affiliates/specified domestic transactions is the last date for filling the corporate taxes.
Estimated tax is due in quarterly installments payable before the 15th day of each quarter of the tax year (i.e., 15 June [15%], 15 September [45%], 15 December [75%], 15 March [100%]).
Tax Planning for Corporates
Tax planning is a practice followed by the Company’s CA to save on liability of the taxation. The basic concept behind this is that the company has to pay taxes on the profits hence if you invest your company’s profit in the expansion of the business then the profits become less and your taxes go down.
The investment can be strategic asset buying or human capital investment, you can invest the profit of the business and save a lot of taxes. It is completely legal and falls under the Income Tax Act wherein various exemptions and deductions are provided.
Tax Deduction for Corporates
Here are some of the lists of tax saving instruments that you can use to levy off the liability on the taxes-
Traveling and Accommodation
Traveling and accommodation bills can help you save some money on taxes, you’ll have to ensure that the bills are kept safe. You can also save GST on them by mentioning GSTIN at the tie of booking.
Marketing is a great way to not only expand your business but also help you in reducing the tax burden. It is the best strategic investment that you can make which will increase your revenue stream and at the same time helps you in saving taxes.
Medical Insurance for Employees
Medical Insurance is important to ensure that the employee of the company a social welfare cushion and protect themselves and family in case of any mishap.
To encourage businesses to provide medical insurance to their employees, the corporates receive tax rebates on the medical insurance.
Medical Insurance for Employees will be considered as “Profit in lieu of salary” under section 17 of the Income Tax Act. The premium paid by the employers becomes the part of benefits provided alongside in-hand salary hence, will be considered as a business expense.
Whenever a corporate donate to any organization, then that fund can be adjusted alongside your Taxes. You can reduce the donated amount directly from your taxes and the remaining profit will be taxed. You’ll get tax benefits
The repayment of the debts is considered a business expense and you can adjust the EMI payments against the tax liability. It is a great way to expand your business and get your hands on the capital required for expansion and at the same time pay less on taxes.
Some of the assets that a company owns can depreciate over time hence, providing them depreciation benefits that can be deducted from your profits. It is provided to the manufacturing businesses where under Section 35AD installing new equipment and machinery installed over a year can claim up to 20% additional to the yearly despeciation.
Special Economic Zones & Startups
Startups and businesses in Special Economic Zones are offered various benefits that are also income taxation free. This is done to promote the business and help them in establishing their business venture.
Taxation can be a burden for your business hence, getting taxation benefits helps. For Startups, the tax benefits are throughout India, but for Special Economic Zones, the tax benefit is limited to the companies registered in the SEZs.
SEZs are basically specially allocated geographical areas where businesses from across the world are welcomed and offered various benefits to start their business operations.
No, Corporate taxes are taxes levied upon corporate businesses, and Income Taxes are the taxes which are levied upon individuals.
Yes, as a company registered in India, you’ll be taxed for the profits earned from the United State of America. If Indian and other country is engaged in Double Taxation Avoidance Agreement (DTAA) then the profits in other country will be calculated based on this agreement.
Sikkim is an Indian State which is tax-free.