Synopsis Of The Corporate Taxation Structure In India
In the Indian taxation system, income tax, tax on capital gains and corporate tax are significant taxes. These taxes collected are the biggest source of revenue for the Government. This revenue is used for benefits of public utility projects. Hence, it is pivotal for companies and joint ventures in India, to manage their tax paying system.
The corporate tax or management tax is a direct tax imposed on the income generated from a yearlong business transaction. The computation of corporate tax considers revenue earned by the company and other manufacturing partners in India after the deductions –Depreciation, SG&A (Selling general and administrative expenses) and COGS (Cost of Goods Sold).
In India, a clear corporate structure is followed to ensure a simple understanding of taxation system. The tax collected from corporate houses covers25.17% of total tax collected from different types of the taxpayer.
What Are The Income Of A Business?
The accurate calculation of management tax is derived from a clear understanding of different types of income earned by a business. The revenue earned is categorized into four parts:
· Amount of profits incurred by business.
· Income from rental facilities.
· Capital gains.
· Income generated from other sources like interest, dividend, royalties and others.
Understanding The Corporate Structure
For the computation of corporate tax, companies are divided into foreign companies and domestic companies based on the origin of their business operations. Domestic and foreign companies, Hindu Undivided Firms and joint ventures in India follow respective tax structures.
· Domestic Companies
Any organization that is of Indian origin or exercises complete control and manages its business operation in India is termed a domestic company. The Companies Act 2013 is the governing body of all the domestic companies in India.
· Foreign Companies
A company originally located outside India and whose only some part of its operation and management is carried on in India is defined as a foreign company.
Under section 2(42) of the Companies Act, 2013, "any company or a corporate body incorporated outside India which – a) has its business established in India whether by itself or through an agent, physically or electronically, b) carries out any business operation in India in any other way.
Different Corporate Tax Brackets In India
The tax brackets, laid by the federal body Internal Revenue Service(IRS), differ across the types of the company. Every firm and manufacturing partners in India, registered under Company Act, 2013 will fall under these tax brackets.
· Tax Brackets For Domestic Company
The rate of tax is 25% when the gross revenue earned in a previous year does not exceed Rs.400 crore. Also, if the gross revenue earned exceeds Rs.400crores, rate of tax will be 30%.
To lower the liability from paying huge amount of tax, certain percentage of surcharge is granted to the company. A company is eligible for surcharges only after reaching an income threshold.
i. If the company's annual turnover exceeds Rs.1 crore, however, does not exceed Rs.10crores, rate of surcharge will be 7%.
ii. If the annual turnover exceeds Rs.10 crores, surcharge rate will be 12%.
· Tax Brackets For Foreign Company
A foreign company will be eligible for 50% of the rate of tax if the company receives any fees for technical services from the Indian Government or Indian company. However, for other sources of income, a foreign company will believed 40% of the rate of tax.
The foreign companies are also eligible for surcharges with a given income threshold. The surcharge rate is 2% when net income of a foreign company exceeds Rs.1 crore. However, it does not exceed 10 crores. Also, the rate of surcharge will be 5% when net income exceeds Rs.10 crores.
Corporate Income Tax (CIT) rates are highest effective rates for domestic companies, foreign companies and other joint ventures in India. The timely submission of tax determines company's credibility and ensures lucrative tax returns.
