scorecardWhat is Corporate Income Tax in India and what has changed after today's announcement?
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What is Corporate Income Tax in India and what has changed after today's announcement?

What is Corporate Income Tax in India and what has changed after today's announcement?
Business2 min read
Revenues from corporate taxes is one of the main sources of income for the Government of India. Vide a very important announcement, the government made a surprising lowering in the corporate tax rate on September 20, 2019. Here is what you need to know about corporate taxation in India, tax rates over the past decade and what has changed now.

Corporate tax in India

Indian Taxation Act mandates that domestic as well as foreign companies need to pay what is known as corporate tax. A domestic company in India is taxed on the basis of its universal income. On the other hand, a foreign company is taxed only on the basis of the income it has earned in India. On the other hand, a foreign company will be taxed only for the earnings it made from India or received in India. For the purpose of calculating the corporate tax, the companies are categorized in the following way.

Domestic company

The name domestic company in India applies to the one that has been registered in India under the Companies Act of India. This category will also include the companies that are registered in India but have their management and control located in India. The term domestic company will include both private as well as public enterprises.

Foreign company

For the purpose of taxation, the term foreign company can be understood as the one that is nor registered under the Companies Act of India. In this case, the control and management of these companies will be usually located outside India.

What does ‘Income of the company’ means as per taxation laws

Before going into the tax rates and how it is calculated in India, we need to define what ‘Income of a company’ in India means. The following earnings are considered as the income of a company.

  • Capital gains
  • income generated out of renting out a property
  • Profits made from sales
  • Incomes generated from other sources like interests and dividends
Tax rates that were applicable on corporate taxation applicable for AY 2019-20

Domestic companies and corporate tax rate

For gross turnover up to Rs. 250 crores the corporate taxes applicable (for the FY 2016-17) was 25% of the total income. If the gross turnover exceeded Rs. 250 crores, the tax rate will be 30%. Surcharges and cess extra.

Foreign companies and corporate tax rate

Royalties received or fees collected for technical services from the government or from any other firm in India as per the agreement made before April 1, 1976 which was duly approved by the central government, the tax rate will be 50%. Tax rate on any other kinds of income will be 40%. Surcharges and cess extra.

What has changed now?

On September 20, 2019, the government made a significant announcement cutting down the corporate tax rate for the domestic companies from 30% to 22%. The new tax rate will be applicable from April 1, 2019.

Overview of corporate tax rate in India

Over the past 12 years starting from 1997, the corporate tax rate in India averaged 34.52 percent. It reached the all-time high of 38.95 percent in 2001 and came to touch the record low of 25.17 percent in 2019.

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