In India, there are two different sorts of taxes: direct taxes and indirect taxes. In terms of direct taxes, they are assessed on the revenue that various corporate organisations generate over the course of a fiscal year. The Income Tax Department registers many taxpayer kinds, and each of these taxpayer types pays taxes at a different rate. For instance, although being taxpayers, an individual and a firm are not taxed at the same rate.
As a result, Direct Taxes are again divided into:
Personal Income Tax
Personal income tax is the type of tax paid by individual taxpayers. Individuals are subject to various rates of taxation based on tax slabs.
Corporate income tax is the tax that both domestic and foreign businesses pay on their income in India (CIT). The income tax statute sets a precise rate for the CIT, which is subject to annual rate changes in the union budget.
Understanding Indian Corporate Tax
A corporate is a business that has a distinct legal personality from its stockholders. According to the Income-tax Act, both domestic and international enterprises are required to pay corporate tax. A foreign corporation is only taxed on the money earned within India, that is, the income that is being accrued or received in India, whereas a local firm is taxed on its overall income.
The following categories of companies can be categorised for the purposes of calculating taxes under the Income Tax Act:
Domestic companies include those that are registered under the Indian Companies Act as well as those that are registered abroad but have their whole control and management in India. Private and public corporations are both considered to be domestic companies.
A foreign company is one that has management and control situated outside of India and is not registered under the Indian Companies Act.
What does the Income of a Company mean?
Before learning about tax rates and how taxes are applied to corporate profits, it is important to understand the different forms of income that corporations can generate. Here it is:
- Profits from the business
- Capital gains
- Income from property rentals
- Additional sources of income, such as interest and dividends.
Corporate Tax Rates for FY 2022–2023
Fiscal Years 2022–2023 Corporate Tax Rates for Domestic Companies
If the gross turnover range is up to Rs. 400 crores, then it is 25%.
If gross turnover is greater than 400 crore rupees, then 30%
If a domestic company’s total income range is between Rs. 1 crore and Rs. 10 crores, the applicable tax rate is 7%.
When total income reaches Rs. 10 crores, the tax rate is 12%.
Corporate Tax Rates for Foreign Businesses for the Fiscal Year 2022–23.
For any royalties or fees paid to the government or an Indian company for technical services rendered before April 1, 1976, which the central government has approved, the tax rate is 50%.
The tax rate is 40% for any other type of income.
Health & Education Cess
Prior to the health and education cess, 4% of the computed income tax and any applicable surcharge will be added to the amount that represents the entire tax obligation.
Minimum Alternate Tax (MAT)
For both domestic and international businesses, the minimum alternate tax rate cannot be less than 15%. According to section 115JB, this is based on the book earnings. A company that is a division of an international financial services centre and receives all of its revenue in convertible foreign currency is subject to MAT at a rate of 9% plus any relevant surcharge and cess.
Tax on Dividend Distribution
A tax that businesses are required to pay on the dividends delivered to shareholders each year. This dividend is exempt in the hands of the shareholders up to Rs. 10 lakh. However, businesses only pay 20.56% in taxes.
Liability of Minimum Alternate Tax (MAT)
In addition to surcharge and SHEC, a corporation will be required to pay a token amount of tax in the form of MAT, or Minimum Alternate Tax, if the total applicable payable tax on the total income is less than 15% of the profit that is recorded in their books.
However, adjustments can be made against normal tax and MAT can be carried forward. The MAT is transferable for ten further years.