Comprehensive Guide to Corporate Taxation in India
By SOMPALLI PRAVEEN
Introduction
Corporate taxation in India forms the backbone of the government’s revenue system and significantly influences business decisions. Governed by the Income Tax Act, 1961, it applies to domestic and foreign companies, with different rates and incentives depending on the company's type, size, and structure.
1. Normal Taxation
Normal taxation applies to all companies, allowing access to all deductions, exemptions, and incentives under the Income Tax Act.
- Tax Rates: Domestic: 30% (or 25% for turnovers ≤ ₹400 crore), Foreign: 40%.
- Additional Charges: Surcharge (7% or 12%) + Health & Education Cess (4%).
- Benefits: Full deductions like accelerated depreciation and MAT credit.
2. Section 115BA
Introduced to promote domestic manufacturing, this section offers a reduced tax rate of 25% for eligible companies.
- Eligibility: Domestic companies in manufacturing, incorporated after March 1, 2016.
- Conditions: Relinquish deductions like Section 10AA and accelerated depreciation.
3. Section 115BAA
Provides a simplified tax regime with a reduced rate of 22%, requiring companies to forego most exemptions.
- Benefits: Simplified compliance and no MAT applicability.
4. Section 115BAB
This section offers the lowest tax rate of 15% for new manufacturing companies incorporated after October 1, 2019.
- Eligibility: Companies commencing manufacturing by March 31, 2024.
5. Foreign Company Taxation
Foreign companies are taxed only on income sourced from India. General tax rates are 40%, with additional surcharges.
6. Summary
Corporate taxation in India offers flexibility through various regimes, tailored to different needs. Evaluate long-term strategies before selecting a regime as most choices are irrevocable.
Comparison of Corporate Taxation Regimes
| Aspect | Normal Taxation | Section 115BA | Section 115BAA | Section 115BAB | Foreign Company Taxation |
|---|---|---|---|---|---|
| Applicable Tax Rate | 30% for domestic companies | 25% | 22% | 15% | 40% for general income; 50% for royalties/technical fees |
| Eligibility | All companies | Domestic manufacturing companies incorporated on/after March 1, 2016 | All domestic companies | New domestic manufacturing companies incorporated on/after October 1, 2019, and commencing production by March 31, 2024 | All foreign companies operating in India |
| Turnover Criteria | 25% rate for turnover ≤ ₹400 crore | No turnover limit | No turnover limit | No turnover limit | Not applicable |
| MAT Applicability | Applicable at 15% | Applicable | Not applicable | Not applicable | Not applicable |
| Surcharge | 7% for income > ₹1 crore ≤ ₹10 crore; 12% for income > ₹10 crore | Same as Normal Taxation | 10% flat | 10% flat | 2% for income > ₹1 crore ≤ ₹10 crore; 5% for income > ₹10 crore |
| Health & Education Cess | 4% | 4% | 4% | 4% | 4% |
| Depreciation | Full depreciation benefits available | Accelerated depreciation not allowed | Accelerated depreciation not allowed | Accelerated depreciation not allowed | Allowed as per applicable treaties or domestic law |
| Carry-forward of Losses | Allowed | Allowed with restrictions on losses from disallowed deductions | Not allowed for disallowed deductions | Not allowed for disallowed deductions | Allowed if arising from Indian-sourced income |
| Deductions Allowed | All deductions and incentives under the Income Tax Act | Limited; deductions under Section 35, 10AA, etc., are disallowed | Restricted deductions; Section 35, 10AA, etc., disallowed | Restricted deductions; Section 35, 10AA, etc., disallowed | Subject to DTAA and specific conditions |
| Specific Restrictions | None | Must forego specified exemptions (e.g., SEZ, accelerated depreciation) | Must forego almost all exemptions/incentives | Must forego all exemptions/incentives | Subject to permanent establishment rules and DTAA |
| Filing Requirement | No special forms; file ITR-6 | File Form 10-IB before filing ITR-6 | File Form 10-IC before filing ITR-6 | File Form 10-ID before filing ITR-6 | File ITR-6 |
| Irrevocability | Not applicable | Irrevocable once opted | Irrevocable once opted | Irrevocable once opted | Not applicable |
| Example Tax Calculation | ₹1.5 crore tax on ₹5 crore profit (30%) + surcharge + cess | ₹1.25 crore tax on ₹5 crore profit (25%) + surcharge + cess | ₹1.1 crore tax on ₹5 crore profit (22%) + cess | ₹75 lakh tax on ₹5 crore profit (15%) + cess | ₹2 crore tax on ₹5 crore Indian income (40%) + surcharge + cess |
FAQs
What is the general corporate tax rate in India?
For domestic companies, the rate is 30% or 25% (based on turnover). For foreign companies, the rate is 40%.
Can companies switch between tax regimes?
No, once a company opts for a tax regime under Sections 115BA, 115BAA, or 115BAB, it is irrevocable.
Are MAT credits applicable under Section 115BAA?
No, MAT is not applicable under Section 115BAA.
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