Corporate Tax in India: Overview, Tax Rates & Returns

This blog is updated as per the recent amendments and reforms brought by the finance minister on 20^th September 2019. 

This   article provides complete information about  income tax for  domestic and foreign companies. It gives  information about tax rates, surcharge and health and education cess payable by domestic and foreign companies.

Further, it also provides details of MAT provisions, dividend distribution tax and income tax return as applicable to companies.

Taxes paid by the companies on their income are called ‘Corporate Tax’. Under Income Tax, companies are divided into two categories –

1. Domestic Company; and
2. Foreign company.

Entire income earned by the domestic companies is taxed in India, whereas for foreign companies, only the income which has been received/accrued in India is taxed. The definition of domestic company and the foreign company as per the Income Tax Law is being provided herein below.

A domestic company means an Indian company or any other company which is liable to tax under Income Tax Act,  which has made prescribed arrangement for declaration and payment of dividend (including dividends declared on preference shares) within India, payable out of the said income.

A foreign company simply means a company which is not a domestic company. 

DOMESTIC COMPANIES INCOME TAX STRUCTURE FOR FY 2019-2020 (AY 2020-2021) –

Income Tax Rates –

PARTICULARS	TAX RATE(base rate)	Effective tax rate
Applicable to domestic company subject to condition* they will not avail any incentive or exemptions.	22%	25.17%(including 10% surcharge & 4% CESS)
Manufacturing companies set up after October 1, 2019 condition they will not avail any incentive or exemptions	15%	17.16% (including 10% surcharge & 4% CESS)

*MAT won’t be levied on companies opting for 22% corporate tax

It is pertinent to note that applicable surcharge and Health and Education Cess, as mentioned below, is payable over and above the tax rate mentioned in the above table.

In case of companies availing exemptions or incentives the tax rate shall be applicable as under:

PARTICULARS	TAX RATE
Turnover / Gross receipt of the company is less than Rs. 400 crore during the financial year 2017-18	25%
In any other case	30%

It is pertinent to note that applicable surcharge and Health and Education Cess is payable over and above the tax rate mentioned in the above table. 

Surcharge –

PARTICULARS	TAX RATE
Income below ₹ 1 Crore	Nil
Income between ₹ 1 Crore to ₹ 10 Crore	7% on the amount of income tax
Income exceeds ₹ 10 Crore	12% on the amount of income tax

Health and Education Cess –

Health and Education Cess is payable @4% on the amount of income tax and surcharge.

FOREIGN COMPANIES INCOME TAX STRUCTURE FOR FY 2019-2020 (AY 2020-2021) –

Income Tax Rates –

PARTICULARS	TAX RATE
A foreign company, operating in India, receives royalty income compensated by the Indian Government against the agreements executed with the Indian concern (after 31st March, 1961 and prior to 1st April, 1976)	50%
A foreign company, operating in India, receives fees for any technical service provided as per the agreements executed with the Indian concern (after 29th February, 1964 and prior to 1st April, 1976)	50%
Any other income	40%

It is pertinent to note that applicable surcharge and Health and Education Cess, as mentioned below, is payable over and above the tax rate mentioned in the above table.

Surcharge –

PARTICULARS	TAX RATE
Income below ₹ 1 Crore	Nil
Income between ₹ 1 Crore to ₹ 10 Crore	2% on the amount of income tax
Income exceeds ₹ 10 Crore	5% on the amount of income tax

Health and Education Cess –

Health and Education Cess is payable @4% on the amount of income tax and surcharge.

MINIMUM ALTERNATE TAX –

Provisions relating to Minimum Alternative Tax (MAT) are contained under section 115JB of the Income Tax Act, 1961.

As per the MAT provisions, the company is required to pay higher of the following taxes –

• Tax computed as per the normal provisions of the Income Tax Act; and
• 15% of the book profit.

However, MAT at the rate of 9% is leviable in case of a company is a unit of an International Financial Services Centre and earns its income solely in convertible foreign exchange.

In short, in the case of companies, whether domestic or foreign company, basic tax payable cannot be less than 15% of the book profit. It should be noted that applicable surcharge and Health and Education Cess is payable over and above the basic tax.

Exemption from the applicability of the MAT provisions –

MAT provisions are applicable to all the companies whether domestic or foreign company, however, following is the list of companies that are exempted from the applicability of MAT provisions –

Effective Section	Exemption
Section 115JB(5A)	MAT provisions are not applicable to income accruing / arising to a company from life insurance business referred in section 115B.
Section 115V-O	MAT provisions are not applicable to shipping income liable to tonnage taxation.
Section 115JB (Explanation 4)	MAT provisions are not applicable to foreign company being resident of a country / specified territory with which India has an agreement and the company doesn’t have a permanent establishment in India.
Section 115JB (Explanation 4)	MAT provisions are not applicable to foreign company being resident of a country with which India doesn’t have an agreement and the company is not required to obtain registration under any law for the time being in force.
Section 115JB (Explanation 4)	MAT provisions are not applicable to a foreign company whose total income comprises of profits arising from a business referred to in section 44B, section 44BB, section 44BBA or section 44BBB and income has been offered to tax at the rates specified in respective sections.

MAT credit –

When tax is paid as per MAT provisions by the company, then, the company is eligible to avail the MAT credit as per the provisions of section 115JAA of the Income Tax Act, 1961.

MAT Credit = Tax paid as per MAT – Tax payable as per normal provisions of Income Tax

Important points relating to MAT credit –

• MAT credit can be carried forward for 15 Assessment Year immediately following the Assessment Year in which such MAT credit is available. 
• MAT credit so available can be set off only in the year in which the tax becomes payable on the total income in accordance with the normal income tax provisions.

Amount of set off available = Tax paid on total income as per normal provisions – Tax payable as per MAT.

DIVIDEND DISTRIBUTION TAX –

The domestic company which has declared / distributed or paid an amount by way of a dividend is required to pay dividend distribution tax. The domestic company is required to pay dividend distribution tax @ 15%, however, the dividend distribution tax of 30% is payable in case of deemed dividend referred in section 2 (22) (e). Applicable surcharge and cess are payable above the said rates.

RETURN FILING FORMS –

Relevant ITR	Description
ITR – 6	Applicable to all the companies (other than companies claiming exemption u/s 11)
ITR – 7	Applicable to all the persons including companies who are required to file return u/s 139(4A) / 139(4B) / 139(4C) or 139(4D)

• It is mandatory for the company to file the income tax return electronically.
• It is mandatory for the company to file the return of income using a digital signature.
• Company is required to file its return of income on or before 30^th September every year.
• The company having an international transaction or specified domestic transaction for which furnishing of a report in Form No. 3CEB is required, such company are required to file its return of income on or before 30^th November every year.
• The company, to whom provisions of section 115JB apply, is required to obtain a report in FORM NO. 29B from a chartered accountant certifying that the book profit has been calculated in accordance with the provisions of section 115JB. The report should be filed electronically.