Corporate Tax is a direct tax imposed on the net income or profits of corporations and businesses. It’s a significant source of revenue for governments worldwide. Let’s dive into the essentials:
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Auriga Accounting has a team of registration experts who can provide complete guidance to register your Corporate Tax
Our team of experts will get in touch with you and collect all necessary documents and details
We fill out and file your application for ITR Filing
Ready Your Corporate Tax
Corporate tax is a direct tax levied by the government on the income or profits generated by corporations. Unlike individual income tax, which applies to personal earnings, corporate tax specifically targets business entities, encompassing both domestic firms and multinational corporations. This tax is an important source of revenue for governments and is designed to ensure that companies contribute a fair share to the economy based on their financial success.
The corporate tax rate is the percentage of a corporation’s profits that must be paid as taxes to the government. In the United States, the federal corporate tax rate is 21%, applied to a company’s taxable income — which is calculated as revenue minus allowable expenses. These expenses typically include:
Global Variations: Corporate tax rates differ significantly between countries. Some nations are known as tax havens due to their exceptionally low corporate tax rates, attracting businesses seeking lower tax burdens.
Effective vs. Statutory Tax Rate:
While the statutory tax rate refers to the official percentage set by law, the effective corporate tax rate — the actual rate a company ends up paying — is often lower. This happens due to:
Paying corporate taxes can offer several benefits to business owners compared to paying additional individual income tax. Here’s a breakdown of the key advantages:
Tax-Deductible Benefits: Corporations can deduct expenses like medical insurance for employees and their families, along with fringe benefits such as retirement plans and tax-deferred trusts — reducing taxable income.
Easier Loss Deductions: Corporations have more flexibility in deducting losses. Unlike sole proprietors, who must prove an intent to earn a profit before claiming deductions, corporations can deduct the full amount of business losses without this extra requirement.
Profit Retention for Future Planning: Corporations can retain earnings — holding back a portion of profits — to reinvest in the business or cover future tax liabilities. This allows for strategic tax planning and smoother financial management over time.
A corporation is a separate legal entity distinct from its shareholders. In India, both domestic and foreign companies are subject to corporate tax under the Income Tax Act — but their tax obligations differ:
1. Taxable Income – Gross revenue minus deductible expenses.
2. Corporate Tax Rate – Fixed percentage charged on profits.
3. Surcharge & Cess – Additional charges on tax for higher income brackets.
4. Minimum Alternate Tax (MAT) – Ensures companies pay a minimum tax, even with deductions reducing taxable income.
5. Tax Deductions & Incentives – Includes deductions for R&D, depreciation, and startup benefits.
Domestic Companies (AY 2020-21 onwards)
The tax rates for domestic companies vary based on turnover and the section under which the company opts for taxation:
Section | Tax Rate | Surcharge |
Section 115BA (Companies with turnover up to ₹400 crore in FY 2017-18) | 25% | 7% (if income exceeds ₹1 crore) / 12% (if income exceeds ₹10 crore) |
Section 115BAA (Optional for domestic companies) | 22% | 10% (flat rate, irrespective of income) |
Section 115BAB (For new manufacturing companies incorporated after Oct 1, 2019) | 15% | 10% (flat rate, irrespective of income) |
Other Cases | 30% | 7% (if income exceeds ₹1 crore) / 12% (if income exceeds ₹10 crore) |
Note: Companies opting for Section 115BAA or Section 115BAB have a fixed surcharge rate of 10%, regardless of their income levels.
Foreign Companies (AY 2025-26 onwards)
The tax rates for foreign companies are determined by the nature of their income:
Nature of Income | Tax Rate |
Royalty or fees for technical services (under agreements made before April 1, 1976, approved by the Central Government) | 50% |
Other Income (from AY 2020-21 to AY 2024-25, this rate was 40%) | 35% |
Surcharge Rates
For both domestic and foreign companies, the following surcharge rates apply:
Income Slab | Domestic Companies | Foreign Companies |
Income exceeds ₹1 crore but not ₹10 crore | 7% of tax | 2% of tax |
Income exceeds ₹10 crore | 12% of tax | 5% of tax |
Health & Education Cess: An additional 4% of Income Tax + Surcharge is levied as Health and Education Cess on the total tax liability.
Minimum Alternate Tax (MAT): If a company’s tax liability, calculated as per the above rates, is lower than 15% of its book profits, it must pay Minimum Alternate Tax (MAT) at 15% of its book profits.
Exemption: Companies opting for taxation under Section 115BAA or Section 115BAB are exempt from MAT.
Corporate tax rates vary significantly by country:
Companies often use legal methods to minimize their tax liability, such as:
–Incorporating in low-tax countries (tax havens)
–Claiming deductions and tax credits
-Income shifting (transfer pricing)
–Deferring income to future tax years
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