Corporate Tax Rates - Applicable Rates & Plan after Union Budget FY 2020

All private and public companies registered in India have to pay Corporation or Corporate Tax or Corporate Tax on their net income. Apart from domestic companies, foreign enterprises conducting their businesses in India must also pay Corporate Tax on their profits. For calculating corporate taxes , the Income Tax Act, 1961, classifies companies as below:

• Domestic Company: A public or private company having its entire control and management in India and registered under the Companies Act, 1956. A company of foreign origin, but having its full management and control confined in India comes under this category as well.
• Foreign Company: A Non-Indian company that has not registered under the Companies Act but has business in India and its control and management are outside India.

In simpler terms, just like individuals having income have to pay taxes on their income, companies, too, have to pay a certain amount of tax on their net income. So, what comprises the income of a company? For a company, its income can arise from the following sources:

• Profits incurred from business
• Income from rents from their properties
• Capital Gains
• Income from dividends, interests, etc.

According to their origin and annual turnovers, different corporate tax slabs are applicable for companies.

Domestic Company

Foreign Company

1. As per the Union Budget, 2020, the corporate tax rates for all domestic companies are as below:
2. For the Financial year 2020-21, the corporate tax slabs for foreign companies are:

In addition to the corporate tax, companies have to pay the surcharge depending on their income levels. Surcharge rates for foreign and domestic companies for the financial year 2020-21 are as below:

Further, all companies, irrespective of the origin and incomes, have to pay an education cess @ 4% on the sum of corporate tax and surcharge.

To check irregularities of tax filing by some companies by showing zero or negligible income, the Indian Government introduced Minimum Alternate Tax (MAT) in the Finance Act in 1987. Under this Act, all companies are liable to pay MAT @ 18.5% (plus applicable surcharge and cess) on their book profit if the Corporate Tax, as computed by the above tax-rates, works out to be under 18.5%.However, the following companies are exempt from MAT:

• Companies that deal with life insurance business
• Companies generating income from shipping services

Earlier, companies had to pay DDT for distributing dividends to their shareholders every year as well. However, in the Union Budget 2020, the Finance Ministry has removed the DDT for companies, and the dividends will be taxed only for the recipients.

Now that you are aware of the different corporate tax rates in India, you can adopt a strategy to manage your finances to minimise your taxes. Managing taxes of a large company can be confusing, and it is, therefore, no surprise that these corporates hire financial experts to avoid any legal implications. By keeping yourself aware of all applicable rules and regulations, you can plan your taxes properly to maximise your gain.Ready to make the most of your money? Start your tax planning journey now!

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.