Every legal entity in India, an individual, HUF, or a company, needs to pay tax on its income. The Income Tax Department collects the tax on income on behalf of the Central Government. There are different tax rates and slabs for different entities. Today, we are going to talk about private limited companies and look at the tax laws and the income tax rate for company.
What is a company?
A company is a separate legal entity. It has its income and expenses and is called a corporate for the purpose of taxation. Before we look at the income tax rate for company, let’s understand corporate tax.
What is Corporate Tax?
Corporate tax is levied on corporates (or companies) on the profits earned by them. The tax is levied after deductions like depreciation, administrative expenses, cost of goods sold, etc. For all practical purposes, a corporate tax or company tax is as good as an income tax for companies. The income tax rate for company varies according to the profits earned by it.
In India, the Income Tax Department levies a corporate tax on both domestic and foreign companies.
- Domestic Company – According to Section 2 (22A) of the Income Tax Act, 1961, “a domestic company is an Indian company, or any other company which, in respect of its income liable to tax under this Act, has made the prescribed arrangements for the declaration and payment, within India, of the dividends (including dividends on preference shares) payable out of such income.”
- Foreign Company – According to Section 2 (23A) of the Income Tax Act, 1961, “a foreign company means a company which is not a domestic company.”
Income Tax Rate for Company (domestic)
The income tax rate for company (domestic) for the financial year 2019-20 is as follows:
| If the total turnover or gross receipt of the company during the previous year 2017-18 does not exceed Rs. 400 crore | 25% |
| For companies that have opted for Section 115BA | 25% |
| Companies that have opted for Section 115BAA | 22% |
| For companies that have opted for Section 115BAB | 15% |
| Any other domestic company | 30% |
Surcharge
The following surcharges are applicable on the corporate tax:
- If the total income of the company is more than Rs.1 crore but less than Rs.10 crore, then the applicable surcharge is 7% of the income tax. This is provided that the total amount payable as income tax + surcharge does not exceed the total amount payable as income-tax on a total income of Rs.1 crore by more than the amount of income that exceeds Rs.1 crore.
- If the total income of the company is more than Rs.10 crore, then the applicable surcharge is 12% of the income tax. This is provided that the total amount payable as income tax + surcharge does not exceed the total amount payable as income-tax and surcharge on Rs.10 crore by more than the amount of income that exceeds Rs.10 crore.
- If the company has opted for taxability under Section 115BAA or Section 115BAB, then the applicable surcharge is 10% of the amount of total income
Health and Education Cess
An additional health and education cess of 4% is levied on the total amount of income tax plus the surcharge.
Minimum Alternate Tax
If the normal tax liability of a company is less than 15% of the book profit, then the company must pay a Minimum Alternate Tax at the rate of 15% plus surcharge and cess.
Note: The Minimum Alternate Tax is proposed to be abolished from the financial year 2020-21.
Income Tax Rate for Company (foreign)
The income tax rate for company (foreign) for the financial year 2019-20 is as follows:
| Royalty received from the Government or an Indian concern in pursuance of an agreement made with the Indian concern after March 31, 1961, but before April 1, 1976, or fees for rendering technical services in pursuance of an agreement made after February 29, 1964, but before April 1, 1976, and where such agreement has, in either case, been approved by the Central Government | 50% |
| Any other income | 40% |
Surcharge
- If the total income of the company is more than Rs.1 crore but less than Rs.10 crore, then the applicable surcharge is 2% of the income tax. This is provided that the total amount payable as income tax + surcharge does not exceed the total amount payable as income-tax on a total income of Rs.1 crore by more than the amount of income that exceeds Rs.1 crore.
- If the total income of the company is more than Rs.10 crore, then the applicable surcharge is 5% of the income tax. This is provided that the total amount payable as income tax + surcharge does not exceed the total amount payable as income-tax and surcharge on Rs.10 crore by more than the amount of income that exceeds Rs.10 crore.
Health and Education Cess
An additional health and education cess of 4% is levied on the total amount of income tax plus a surcharge.
Minimum Alternate Tax (MAT)
Let’s say that the normal tax liability of a company is less than 18.5% of the book profit. In such cases, the company must pay a Minimum Alternate Tax at the rate of 18.5% of the book profit plus surcharge and cess.
Note: The Minimum Alternate Tax is proposed to be abolished from the financial year 2020-21.
However, a foreign company is exempt from paying MAT on the following incomes if the income-tax payable thereon under the normal provisions is at a rate of less than 18.5%:
- Capital gains arising from the transfer of securities;
- Interest;
- Royalty;
- Fees for technical services.
Summing Up
We hope that this article cleared all questions regarding the income tax rate for company – both domestic and foreign. You can visit the Income Tax Department’s website for any updates on the same.
