An Article by Regulatory Compliance In India
Corporation tax is the direct tax imposed on the companies'profits, registered under Companies Act, 2013, during a particular financialyear. Tax rates vary based on profits earned by the company in a year.Therefore, every business starting a company in India must know which taxbracket to follow. Justlike an individual who is required to pay tax every year based on their income,it is also essential for companies to pay tax on the basis of the annualturnover in a financial year. Corporations and any business entities must abideby the regulatorycompliances in India.
How Is Corporate Tax Calculated?
Corporate tax is calculated on accumulated revenue of the companyafter deducting:
· Depreciation
- Cost of Goods Sold
Selling General and Administrative Expenses.
Indian Corporate Tax Structure
Auditors and finance team of the company must calculate tax andaccurately file the same to achieve a smooth flow of operation. The companywill be able to achieve a good corpus. It will function within regulatory compliances in India by following the guidelines laid down by the law.
The corporate structure in India has divided companies intodomestic and foreign companies. Let us understand a brief of how these taxeswork:
Domestic Company
A domestic company is registered under the Companies Act 2013. According toSection 2(22A), an Indian company or any other company liable to pay tax underthe governing Act will provide necessary declaration and has made paymentwithin India of dividends on preference shares, payable out of such income.
Tax Slabs Of Domestic Company
The following tax rates will beapplicable for domestic companies operating for Assessment Year 2022-23:
Tax rate will be 25%, where the turnover or gross revenue for the previous year 2019-20 does not exceed USD 52 million (400 crores rupees).
- Rate of taxes will be 22% where the company opted for Section 115BAA*
Tax slab will be 30% for any other domestic company.
- The following surcharges apply to income earned through thedomestic company:
Rate of surcharges will be 7% if the company's annual turnover has exceeded one crore but has not exceeded ten crore rupees.
- Surcharge rate will be 12% if the annual turnover has exceeded ten crore rupees.
- Foreign Company
As per Section2(23A)of the Companies Act, 2013, a foreign company means a company that is not adomestic company.
A company other than of Indian origin and where its operation isconducted entirely outside India is a foreign company. This type of company isnot registered under the law, and hence its taxation policy is different fromthat of domestic company. Tax agreement between India and the origin of theforeign company determines the taxation system. It is ideal to understand respectivetax agreement with the foreign country before starting a company in India.
Tax Slabs Of Foreign Company
Tax rate will be 50% if the foreign company receives any royalty or fee for technical services from an Indian company or the Indian government. This agreement is applicable if made before April 1, 1976, and approved by the central government.
- Rate of tax will be 40% in the case of other incomes.
- It is beneficial to understand how Indian corporate tax functions beforestartinga company in India and complying with the prevailing taxationsystems. A company will be able to lower its liabilities and be in a profitableposition with effective taxation planning.
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