Corporate tax is a direct tax levied on the profits of companies in India. It is one of the key revenue sources for the government and is applicable to domestic companies and foreign companies operating in India. Domestic companies, which are incorporated in India and operate within its jurisdiction, are subject to corporate tax under the Income Tax Act, 1961.
In this article, we will explore corporate tax on domestic companies, including tax rates, exemptions, deductions, compliance requirements, and recent amendments to taxation laws.
Understanding Corporate Tax on Domestic Companies
A domestic company refers to a company that is registered under the Companies Act, 2013, or any earlier company law in India. These companies are taxed on their global income, irrespective of whether their earnings come from India or abroad.
Key Features of Corporate Tax for Domestic Companies:
- Tax is levied on net profits after deducting business expenses.
- The tax rate varies based on turnover and whether the company opts for concessional tax schemes.
- Companies can claim deductions and exemptions under different provisions of the Income Tax Act.
- Minimum Alternate Tax (MAT) applies in certain cases where a company’s tax liability is lower than the prescribed minimum threshold.
Corporate Tax Rates for Domestic Companies
The corporate tax rates for domestic companies in India depend on their turnover and whether they opt for concessional tax regimes.
1. Normal Tax Regime (Without Special Concessions)
| Turnover (FY 2021-22) | Corporate Tax Rate |
|---|---|
| Up to ₹400 crore | 25% |
| Above ₹400 crore | 30% |
- In addition, a surcharge is applicable as follows:
- 7% on income between ₹1 crore and ₹10 crore.
- 12% on income above ₹10 crore.
- Health and Education Cess: 4% on total tax liability.
2. Concessional Tax Regimes (Optional)
To promote investment and ease taxation, the government has introduced lower tax rates under special schemes:
| Type of Company | Tax Rate | Conditions |
|---|---|---|
| New Manufacturing Companies (under Section 115BAB) | 15% | Must be incorporated after Oct 1, 2019, and start production before March 31, 2024. |
| Other Domestic Companies (under Section 115BAA) | 22% | No claim of exemptions and deductions allowed. |
Companies opting for concessional tax regimes must forgo various exemptions and deductions under the Income Tax Act.
Minimum Alternate Tax (MAT) for Domestic Companies
Minimum Alternate Tax (MAT) is applicable when a company’s taxable income is significantly reduced due to exemptions and deductions. To ensure a minimum tax contribution, companies must pay at least 15% of their book profits as MAT.
MAT Applicability:
- MAT applies at 15% of book profits (plus surcharge and cess).
- Companies opting for the concessional tax regimes (22% or 15%) are exempt from MAT.
MAT Calculation Example:
If a company’s taxable income after deductions is ₹5 crore, but its book profits are ₹8 crore, the company must pay:
- 15% of ₹8 crore = ₹1.2 crore (plus surcharge & cess).
Deductions and Exemptions for Domestic Companies
Domestic companies can claim several deductions and exemptions to reduce their tax liability under the Income Tax Act.
1. Depreciation Deduction (Section 32)
- Companies can claim depreciation on fixed assets like machinery, buildings, and equipment.
- Additional depreciation (20%) is allowed for new machinery in the manufacturing sector.
2. R&D and Innovation Benefits (Section 35)
- 150% deduction on expenditure incurred for in-house research and development (R&D).
3. Deduction for Startups (Section 80-IAC)
- Eligible startups can claim 100% tax exemption for 3 out of the first 10 years.
- The total turnover should not exceed ₹100 crore in any year.
4. Deductions on Charitable Contributions (Section 80G, 80GGA)
- Donations made to approved charitable institutions and research organizations qualify for 50% to 100% deductions.
5. Export Incentives (Section 10AA)
- Special Economic Zone (SEZ) units can claim tax exemptions for export income.
Companies opting for lower tax rates (22% or 15%) under Sections 115BAA & 115BAB cannot claim most deductions.
Advance Tax and Compliance for Domestic Companies
1. Advance Tax Payment
Companies must pay advance tax in installments throughout the year if their tax liability exceeds ₹10,000 per year.
| Due Date | Advance Tax Payable |
|---|---|
| June 15 | 15% |
| September 15 | 45% (cumulative) |
| December 15 | 75% (cumulative) |
| March 15 | 100% |
Late payments attract interest under Sections 234B and 234C.
2. Tax Filing and Reporting
- Income Tax Return (ITR-6): Companies (except those claiming exemption under Section 11) must file ITR-6.
- Tax Audit (Section 44AB): Mandatory for companies with turnover exceeding ₹1 crore.
- Transfer Pricing Audit (Section 92E): Required for companies engaged in international transactions.
3. TDS Compliance
Companies must deduct and deposit TDS (Tax Deducted at Source) for payments made to vendors, employees, and professionals.
- Salaries (Section 192): As per income slab rates.
- Professional Fees (Section 194J): 10% TDS.
- Rent (Section 194I): 10% for land/building, 2% for machinery.
Non-compliance can result in penalties and interest charges.
Recent Amendments in Corporate Taxation
The government periodically revises corporate tax policies to boost economic growth and ease compliance. Some key amendments include:
- Reduction of corporate tax rates (22% & 15%) for companies opting for no-exemption regimes.
- Tax holiday for startups extended under Section 80-IAC.
- Increased deduction for R&D investments in technology and innovation.
These measures aim to make India a more attractive destination for businesses.
Conclusion
Corporate tax on domestic companies in India varies based on turnover, tax schemes, and deductions claimed. While companies have multiple options to reduce tax liability, they must carefully assess compliance requirements and concessional tax benefits before choosing a tax regime.
By understanding applicable rates, exemptions, and compliance rules, companies can effectively plan their tax strategies and maximize profitability while staying compliant with Indian tax laws.
For better tax planning and compliance, companies should seek professional advice from tax consultants and chartered accountants.
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