corporate-taxation

Corporate Taxation Made Easy: Understanding Rates and Filing in India

Did you know that India’s startup ecosystem ranks third in the world? The Department for Promotion of Industry and Internal Trade (DPIIT) also reports that as of 2023, 7,834 international companies had opened up businesses and subsidiaries in India.

The number of businesses set up in India is relatively high. Following the establishment of their business, companies must then worry about financial management. In the world of finance, taxes have a significant impact on both domestic and international companies. Today, we’ll discuss corporate taxation, tax rates, and filing tax returns in India. Then let’s get going.

What Is Corporate Tax?

The tax on business or corporation profits is known as corporate tax. It is a direct tax levied by governments on the income generated by companies, including domestic and foreign entities. The corporate tax aims to generate revenue for the government and fund public services and infrastructure. A foreign corporation is only subject to taxation on income accumulated or received in India or income earned within India. A local business, however, is only taxed on its whole revenue.

Different tax rates apply to domestic and foreign businesses. Let’s get deeper into this.

The Tax Slab for Domestic companies for the year 2023-2024 are:

According to the Indian Companies Act, domestic and foreign-registered businesses with their whole management and control in India must be registered. Domestic firms include both private and public corporations.

ConditionIncome Tax Rate (excluding surcharge and cess)
Total Turnover or Gross Receipts during the previous year 2020-21 does not exceed ₹ 400 crores25%
If opted for Section 115BA25%
If opted for Section 115BAA22%
If opted for Section 115BAB15%
Any other Domestic Company30%

Surcharge: An additional amount of income tax will be added on at the specified rate of that tax:

7% – Taxable income above ₹ 1 crore– Up to ₹ 10 crore

12% – Taxable income above ₹ 10 crore

10% – If Company opting for taxability u/s 115BAA or Section 115BAB

Minimum Alternate Tax (MAT): If the tax determined using the rates as mentioned earlier is less than 15% of book earnings, all businesses, including those that are foreign-owned, must pay the Minimum Alternate Tax (MAT), which is imposed at a rate of 15% on book profits. This will apply if the business decides against Section 115BAA or Section 115BAB.

Tax Slab for Foreign Companies for the year 2023-2024:

A foreign company is not registered under the Indian Companies Act and whose management and control are outside India.

ConditionIncome Tax Rate
Royalty or technical service fees received under pre-approved agreements with the Indian concern made between specific dates before April 1976.50%
Any other income40%

Surcharge:

2% – Taxable income above ₹ 1 crore – Up to ₹ 10 crore

5% – Taxable above ₹10 crore

Income Tax Return:

The ITR, short for Income Tax Return, is a document that needs to be filled out. that taxpayers use to report their income and determine their tax obligations. Seven alternative ITR forms, each intended for a particular group of taxpayers, have been announced by the Income Tax Department of India. The ITR-1, ITR-2, and ITR-3 variants are the most popular ones.

Companies in India, both Domestic and Foreign, must submit an income tax return (ITR) each year. Depending on the type of the business and its profits, an ITR form must be filed:

Domestics Companies:

ITR-1: This is the most common ITR form for domestic companies. It is used by companies with a total income of up to ₹50 lakhs.

ITR-2: This form is used by companies with a total income of more than ₹50 lakhs.

ITR-3: This form is used by companies engaged in certain specified activities, such as banking, insurance, and finance.

Foreign companies:

ITR-6: This form is used by foreign companies in India engaged in business or professions.
ITR-7: This form is used by foreign companies not engaged in business or profession in India but have income from sources in India.

The following considerations for both domestic and international entities should be made before submitting an ITR:

Verify your qualification: Only some businesses must submit an ITR. The requirements a company must satisfy to be qualified to submit an ITR are laid out in the Income Tax Act.

Select the appropriate ITR form: There are various ITR forms for different businesses, and the company must select the proper ITR form.

Assemble the necessary paperwork: Before filing the ITR, the corporation must compile all the required paperwork. These records could be the PAN card for the business, a registration certificate, income and expense reports, and TDS certificates.

Determine the tax liability: Before submitting the ITR, the corporation must determine its tax liability. The tax obligation is determined by subtracting the allowable expenses from the total revenue.

Pay the tax: Before submitting the ITR, the business must pay any taxes owed. You can pay the tax in person or online.

ITR filing: The business has two options for ITR filing: online and offline. The company must register for an account on the Income Tax Department’s e-filing portal to submit the ITR online. The business can download the ITR form from the Income Tax Department website and submit it to the closest tax office to file the ITR offline.

Here are some additional considerations for foreign businesses:

Obtain a Permanent Account Number (PAN): All Indian taxpayers must have a PAN, a unique 10-digit identification number. Before submitting an ITR, foreign companies must get a PAN.

Register with the Income Tax Department: Foreign businesses and professionals operating in India must register with the Income Tax Department. Both online and offline registration are available.

Withholding tax from payments to residents: Foreign businesses are obligated to withhold tax from payments they make to Indian residents. The type of payment determines the withholding tax rate.
Claim tax credits for foreign taxes: Foreign businesses may be entitled to claim tax credits in India for taxes they have already paid in their home country. Tax credit claims must be made on Form 67.

Conclusion:

In conclusion, understanding the complexities of corporate tax is essential for both domestic and foreign businesses operating in today’s global economic scene. Corporate tax is necessary for determining a nation’s economy and ensuring that firms contribute pretty to public budgets. We have looked at the fundamentals of corporate tax throughout this blog, covering tax brackets for both domestic and foreign corporations, the relevance of filing Income Tax Returns (ITR), and significant factors for businesses to consider when making their tax files.

Both domestic and foreign companies face unique considerations when dealing with corporate tax. For domestic companies, the tax slab provides a framework to plan financial strategies and optimize tax liabilities, ensuring compliance while minimizing burdens. Staying updated with tax regulations is crucial for making informed financial decisions. On the other hand, foreign companies operating across borders encounter additional complexities. Understanding concepts like permanent establishment and double tax treaties is vital. Seeking professional guidance from experienced financial experts can help navigate the intricacies of taxation in a foreign jurisdiction.

At FinAccountants, we take great satisfaction in offering our clients excellent financial services. Our team of Taxation and Compliance experts is familiar with the complex nuances of business tax laws and regulations. We help firms through the complexity of taxation, guaranteeing compliance and optimizing tax strategies, thanks to our experience and sector understanding. Working with FinAccountants ensures that you will receive customized support catered to your unique needs, whether you are a domestic or international business. To enable companies to concentrate on their core activities and experience sustainable growth, we work to provide clarity and peace of mind when negotiating the complexities of corporate tax.

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