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Corporate Tax Vs Income Tax in India: What is the Corporate Tax Rate in India Today?
Understanding what corporate tax in India is and knowing the differences between corporate tax and income tax are essential for businesses and individuals alike. Both taxes contribute significantly to government revenue but apply to different taxpayers and are calculated on different bases. This article explains the corporate tax system in India, who needs to pay it, and compares corporate tax rates vs income tax rates and revenue contributions in India. The insights here will benefit entrepreneurs, investors, and anyone interested in India's tax framework.
What is Corporate Tax in India? Who Needs to Pay It?
Corporate tax in India is a direct tax levied on the income earned by companies registered or operating in India. According to the Income Tax Act, it is applied to both:
- Domestic companies: Entities registered under Indian law, taxed on their worldwide income.
- Foreign companies: Companies not registered in India but earning income sourced within the country.
This taxation is a critical part of the Indian tax system, distinct from income tax paid by individuals. Companies, being separate legal entities from their shareholders, bear this tax obligation independently. Understanding what corporate tax in India is essential for businesses to calculate their net profitability accurately and ensure compliance with tax regulations.
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Corporate Tax Systems in India
The corporate tax system in India differentiates between two main classes of companies: domestic and foreign companies.
Domestic Companies
A domestic company incorporated under Indian law is liable to pay corporate tax in India on its worldwide income, regardless of where it is generated. Such companies must adhere to Indian tax laws, maintain detailed accounting records, and comply with various tax filing and audit regulations. They are eligible for different tax rates depending on their turnover, nature of activities, and concessions claimed.
Foreign Companies
Foreign companies do not have Indian residency but earn income sourced in India. Their tax liability is confined to income that is accrued or received in India. Types of income include royalties, technical service fees, interest, and business profits from operations within India. Corporate tax rates for foreign companies in India are generally higher, reflecting their limited tax base.
Types of Taxable Incomes in India
Section 28 of the Income Tax Act of 1961 has indicated that the corporate tax in India applies to a range of income types that companies may earn, such as:
- Business Income: Profits generated from core business activities, fully taxable for both domestic and foreign companies.
- Capital Gains: Income realised from the sale or transfer of capital assets, taxed according to holding period and asset type.
- Royalties and Technical Fees: Payments received for intellectual property use and technical services; often taxed at higher rates for foreign entities.
- Other Income: Includes interest, dividends, and miscellaneous earnings, subject to income tax provisions.
Each income source has specific tax rules and may be subject to deductions or exceptions under the Income Tax Act.
Latest Corporate Tax Rates in India
Both domestic and foreign companies in India follow distinct tax regimes and corporate tax rates set forth under the Income Tax Act, aimed at both encouraging investments and ensuring fair revenue generation. Below is a detailed overview of the tax structures applicable to domestic and foreign companies.
Domestic Companies
Domestic companies in India can choose from different tax regimes based on eligibility and strategic considerations. These regimes shift the tax burden according to company size, sector, and compliance with prescribed conditions. Among these, Sections 115BA, 115BAB, and 115BAA in India provide notable concessional corporate tax rates.
Section 115BA
Section 115BA offers domestic companies in India a concessional corporate tax rate of 25%, plus applicable surcharge and cess. Companies opting for this regime must forego most exemptions and incentives available under the Income Tax Act. The surcharge is generally 7% or 12% based on the total income, with the additional 4% cess applied on top of these amounts.
Section 115BAB
Under Section 115BAB, a concessional tax rate of 15% plus 10% surcharge and 4% cess is available for new manufacturing companies incorporated on or after 1 October 2019 and commenced production by 31 March 2024, subject to specific conditions such as using new machinery and exclusively undertaking manufacturing activities (not including software, mining, or gas bottling).
Section 115BAA
Domestic companies in India can opt for a corporate tax rate of 22% plus 10% surcharge and 4% cess. Companies that follow Section 115BAA will not avail any exemptions or incentives, and cannot opt out of this concessional tax rate until the provisions of the act are cancelled.
Others
Other domestic companies in India are taxed at the standard corporate tax rate of 30% with surcharges of 7% or 12%, plus the 4% cess depending on total income.
Foreign Companies
The corporate tax rate India provides for foreign companies usually starts at a higher base rate of 35%. However, certain incomes like royalties under old agreements can attract rates as high as 50%. Additionally, surcharges of 2% to 5% and the 4% cess apply.
Minimum Alternate Tax (MAT)
To ensure both domestic and foreign companies pay a minimum amount of tax, a Minimum Alternate Tax of 15% (plus surcharge and cess) is levied on "book profits" if the tax payable under normal provisions is lower than the MAT.
However, companies opting for the concessional regimes under Sections 115BAA and 115BAB are exempt from MAT, and MAT does not apply to foreign companies without permanent establishment (PE) or those under specified presumptive taxation schemes.
| Condition | Corporate Rate | Surcharge |
|---|---|---|
| Section 115BA | 25% | 7% or 12% |
| Section 115BAA | 22% | 10% |
| Section 115BAB | 15% | 10% |
| Other Domestic Company | 30% | 7% or 12% |
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Filing and Compliance Requirements of the Corporate Tax in India
Every company should file tax returns before due dates and submit certain tax forms. Here are the filing and compliance requirements of the corporate tax in India:
Filing Tax Return
All companies in India subject to corporate tax are required to file their Income Tax Returns annually by 31st October for the relevant financial year. General companies must use Form ITR-6, while companies covered under specific provisions use Form ITR-7. According to Section 234F of the Income Tax Act, a late filing fee applies if returns are filed after the due date: a penalty of ₹5,000 is levied if the return is delayed, except when the total income does not exceed ₹5 lakh, in which case the late fee is ₹1,000.
Tax Audit
Companies whose turnover surpasses the specified threshold are obligated to conduct a tax audit of their accounts and submit the audit report by 30th September. This mandatory corporate tax audit in India ensures accuracy and transparency in financial reporting and tax calculations.
Failure to comply with these requirements exposes companies to significant consequences, including interest charges on unpaid taxes, monetary fines, and legal prosecution.
Corporate Tax Vs Income Tax in India
To fully understand what corporate tax is in India, and how it differs from the Income Tax, it is important to examine its tax bases, rates, and compliance requirements. Corporate tax vs income tax in India serve different taxpayer groups and apply to distinct bases.
Major Differences Between Corporate Tax Vs Income Tax in India
Corporate tax is charged on companies' net profits at relatively fixed rates with surcharges, reaching up to around 35%. Income tax applies to individuals' total income across various sources, using a progressive rate structure topping near 39%.
Moreover, companies face stricter compliance, including audits and fixed annual filing deadlines, while individuals have more flexible obligations. From corporate tax vs income tax in India you can know that corporate tax in India targets business earnings, whereas income tax covers a broader personal income spectrum.
| Corporate Tax | Income Tax | |
|---|---|---|
| Applicable to | Companies (domestic and foreign) | Individuals and Hindu Undivided Families (HUFs) |
| Tax base | Net profits of companies | Total income of individuals |
| Maximum rate | Up to approx. 34.94% (including surcharges) | Up to approx. 39% (plus surcharge and cess) |
| Return filing deadline | 31st October | Usually 31st July |
| Compliance burden | Includes audits and specific filing requirements | Varies based |
Revenue Contribution in India: Corporate Tax Vs Income Tax
In the discussion of corporate tax vs income tax in India, recent years have seen personal income tax surpass corporate tax as the main source of government revenue. This shift is driven by an expanding taxpayer base and better compliance, like TDS and GST reforms.
According to a recent report, declared salaries rose from ₹9.8 trillion to ₹35.2 trillion and personal income tax revenue grew at about 15% CAGR between FY14 and FY23, while corporate tax growth was more modest. Consequently, the share of personal income tax in total direct tax revenue climbed from 38.1% to 53.4%, and corporate tax's share fell to 46.6%, underscoring the changing landscape of corporate tax vs income tax in India.
With the government extending tax incentives for startups until 2030 and simplifying compliance requirements, India offers a growing and supportive environment for new businesses. These policies, coupled with the expanding individual taxpayer base highlighted in the corporate tax vs income tax India discussion, make India an attractive destination for entrepreneurs seeking sustainable growth.
| Tax Type | Growth over the Last Decade | Share of Government Direct Tax Revenue (FY24) |
|---|---|---|
| Corporate Tax | Moderate | 46.6% |
| Income Tax | Rapid (~15%) | 53.4% |
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Start Your Business in India: Office Solutions from TEC
Navigating the landscape of corporate tax in India is essential for business owners and entrepreneurs, especially as tax policy continues to adapt to a fast-changing economy. Understanding what corporate tax is in India, from eligibility to compliance and taxation methods, not only helps ensure legal adherence but also allows companies to optimise their financial planning. With varying corporate tax rate schemes and a clear distinction between corporate tax vs income tax India, business owners can confidently assess the impact of both on growth, profitability, and long-term sustainability.
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Frequently Asked Questions
Corporate tax rates in India vary from 15% to 30% for domestic companies, with different slabs based on turnover and industry. Foreign companies are generally taxed at 40% plus applicable surcharges and cess.
Foreign companies pay corporate tax on India-sourced income, and can make payments conveniently online through the official e-Pay Tax system.
Selecting a tax solution depends on your company's turnover, industry type, eligibility for concessions, and compliance preferences. Consulting a tax advisor can help identify the best solution.
Yes, common deductible expenses in India's corporate tax include operational costs, employee salaries, depreciation, and specific government-approved incentives.
Companies exceeding prescribed turnover thresholds must conduct a tax audit annually to ensure compliance and accuracy of financial reporting.
