Corporate Tax: What is it & How It Works?
Updated on Mar 20, 2023 | 9 min read | 6.1k views
Share:
For working professionals
For fresh graduates
More
Updated on Mar 20, 2023 | 9 min read | 6.1k views
Share:
Table of Contents
From Reliance and TCS, corporations have to pay taxes to the Indian government. Just as individuals have to pay personal income tax, corporations must also pay corporate tax every financial year on their income. Governments worldwide impose this direct taxation on companies under their respective corporate tax regime, though they vary greatly by country.
Nonetheless, it doesn’t matter whether it is a big or small company, domestic or foreign entity, public or private- all corporations have to pay corporate tax, albeit at different tax slab rates in India. It is an essential source of revenue for the state, evidenced by TCS’s mind-boggling tax payment of INR 11,536 crores in FY 2021-2022!
Learn Law Courses from the World’s top Universities. Earn an LLM Degree to fast-track your career.
Do you want to know more about corporate tax? Let’s get you started!
Corporate tax is the direct tax registered corporations pay to the Government of India on their net earnings or income. Consider it a company income tax or income tax for business activities. The law divides companies into two categories for taxation. They are:
They are public or private companies established and registered under the Companies Act, 2013 of India. Companies owned by foreign firms but with management or place of effective management entirely based out of India also fall within this category. Domestic companies pay corporate tax on their Universal Income to the government.
Companies not incorporated under the Companies Act 2013 and have control and management outside India fall under the category of foreign companies. The company must have a place of business by itself or through an agent (including electronic mode) and should conduct business activity in the country. They only pay taxes on the income earned or accrued in India.
Corporate tax is the company income tax. A company will have multiple streams of income or revenue and expenditures. Income tax for business accounts for income and expenditure to determine the tax rate and amount payable to the government every financial year. So, corporate tax is levied on a company’s net income, where net income is the gross income minus applicable tax deductions.
Let’s look at what comprises the income and expenditure for corporates.
Therefore,
Net Income = Total Income of a Corporation – Total Expenditure of a Corporation.
The corporate tax rate in India varies for companies along several criteria. Most significantly, whether a company is domestic or foreign will determine how much tax it will pay to the Government of India under the Income-tax Act of 1963.
Let’s look at the corporate tax rates for domestic and foreign companies based on the provisions of the Government of India.
The Government of India has made several provisions that allow companies to avail deductions, rebates, and exemptions.
Here are a few ways in which corporates can avail of tax deductions:
Corporate tax planning is the plan or strategy of reducing the tax liability of corporations by using the legal provisions available under government regulations. Tax deductions, rebates, and exemptions can reduce the burden of corporate tax on companies legally. Efficient corporate tax planning can reduce exposure to financial risk and capital outflow.
Corporate Tax Planning is essential for running an efficient and profitable business while keeping in line with the country’s legal framework. It is essential because:
Corporate Tax Planning is of the following types:
Corporate tax is a major revenue stream for the government. Companies are duty-bound to pay taxes to the government just like any other law-abiding citizen. Through proper corporate tax planning, corporates can reduce their tax liability within the purview of the law while contributing to the nation’s growth. The exchequer benefits considerably from a robust, efficient, and legally binding corporate tax regime. The health of the corporate tax regime is an indicator and a contributor to a well-functioning and healthy national economy.
If your interest is piqued and you want to kick-start a successful career in Corporate Law, look no further!
With upGrad’s blended learning program in LL.M. in Corporate and Financial Law, you will leave your competition in the dust. Learn from the world-renowned Jindal Global Law School, India’s No.1 Law School, and Institute of Eminence (IoE) faculty.
With a cutting-edge curriculum that includes subjects like Advanced Company Law, Competition Law, Financial Law, M&A Transactions, Commercial Contract Drafting, Private Equity, and Corporate Insolvency Law, learners can stay updated with the current times.
The course is tailored perfectly for Legal Professionals working in Law Firms, Fresh Law Graduates, Research Professionals, and Legal Professionals in Government roles. If you dream of making it big in the legal profession, here is your chance!
You can also check out our free courses offered by upGrad in Management, Data Science, Machine Learning, Digital Marketing, and Technology. All of these courses have top-notch learning resources, weekly live lectures, industry assignments, and a certificate of course completion – all free of cost!
Get Free Consultation
By submitting, I accept the T&C and
Privacy Policy
Top Resources