Corporation tax is the biggest worry of startups companies nowadays.
After all it is tax on the total earning of a company and covers a major portion.
Corporation tax is the tax levied on the companies earning by income tax department.
It is also called as corporate tax.
Every year finance act fixes the corporation tax in advance.
For example finance Act 2016 fixed the corporation tax for Financial Year 2016-17
The corporation tax rates can be divided into following categories:
- Basic Corporate tax rate levied on net profit.
- Surcharge levied on tax calculated by basic corporate tax rate.
- Educational Cess @ 1% levied on (Basic Corporate tax + Surchage)
- Secondary & Higher Education Cess @2% levied on (Basic Corporate tax + Surchage)
- Minimum Alternative Tax (MAT) is levied if the Basic corporate tax is less than MAT. In other words, if tax paid as per basic rate is less than MAT, and then at least MAT is paid. MAT is further increased by surcharge, educational Cess and Secondary & higher education cess.
The corporation tax for Indian company and foreign company are different.
Corporation tax rate for financial year 2015-16
| S.No. | Particulars | Tax | Surcharge | EC | S & H Cess | Effective Tax |
|---|---|---|---|---|---|---|
| 2 | Domestic Companies with total income less than 1 Cr. | 30 | Nil | 2 | 1 | 30.9 |
| 3 | Domestic Companies with total income more than 1 Cr but less than 10 Cr. | 30 | 7 | 2 | 1 | 33.063 |
| 4 | Other Domestic Companies | 30 | 12 | 2 | 1 | 34.608 |
| 5 | Foreign Companies with total income less than 1 Cr. | 40 | Nil | 2 | 1 | 41.2 |
| 6 | Foreign Companies with total income more than 1 Cr but less than 10 Cr. | 40 | 2 | 2 | 1 | 42.024 |
| 7 | Other Foreign Companies | 40 | 5 | 2 | 1 | 43.26 |
Corporation Tax Rate for Financial year 2016-17
In case of domestic company, the rate of corporate tax shall be 29% of the taxable profit if the total turnover or gross receipts of the company in the previous year 2014-15 does not exceed Rs. 5 crore and in all other cases the rate of Income tax shall be 30% of the taxable profit.
According to Section 115BA, the corporation tax rate shall be 25% of the taxable profit. It is optional for the company to choose this rate. The company will also have to follow the following conditions.
(i) the company must be registered on or after 1st day of March, 2016;
(ii) the company is engaged in the business of manufacture or production of any article or thing and is not engaged in any other business;
(iii) the company while computing its taxable income has not claimed any benefit under section 10AA, benefit of accelerated depreciation, benefit of additional depreciation, investment allowance, expenditure on scientific research and any deduction in respect of certain income under Part-C of Chapter-VI-A other than the provisions of section 80JJAA; and
(iv) the option is furnished in the prescribed manner before the due date of furnishing of income.
For others the corporate tax rates are as follows:
| S.No. | Particulars | Tax | Surcharge | EC | S & H Cess | Effective Tax |
|---|---|---|---|---|---|---|
| 1 | Domestic Companies with total turnover less than 5 Cr. | 29 | Nil | 2 | 1 | 29.87 |
| 2 | Domestic Companies with total income less than 1 Cr, but turnover exceeds Rs. 5 crore. | 30 | Nil | 2 | 1 | 30.9 |
| 3 | Domestic Companies with total income more than 1 Cr but less than 10 Cr. | 30 | 7 | 2 | 1 | 33.063 |
| 4 | Other Domestic Companies | 30 | 12 | 2 | 1 | 34.608 |
| 5 | Foreign Companies with total income less than 1 Cr. | 40 | Nil | 2 | 1 | 41.2 |
| 6 | Foreign Companies with total income more than 1 Cr but less than 10 Cr. | 40 | 2 | 2 | 1 | 42.024 |
| 7 | Other Foreign Companies | 40 | 5 | 2 | 1 | 43.26 |
Minimum Alternate Tax rates are same for Financial Year 2015-16 & 2016-17
| S.No. | Particulars | Tax (%) | Surcharge (%) | E.Cess (%) | S & H Cess (%) | Effective Tax (%) |
|---|---|---|---|---|---|---|
| 1 | Domestic Companies with total income less than 1 Cr. | 18.5 | Nil | 2 | 1 | 19.055 |
| 2 | Domestic Companies with total income more than 1 Cr but less than 10 Cr. | 18.5 | 7 | 2 | 1 | 20.389 |
| 3 | Other Domestic Companies | 18.5 | 12 | 2 | 1 | 21.342 |
| 4 | Foreign Companies with total income less than 1 Cr. | 18.5 | Nil | 2 | 1 | 19.06 |
| 5 | Foreign Companies with total income more than 1 Cr but less than 10 Cr. | 18.5 | 2 | 2 | 1 | 19.44 |
| 6 | Other Foreign Companies | 18.5 | 5 | 2 | 1 | 20.01 |
There is also a concept of marginal relief for corporation tax.
Read here the concept of marginal relief.
A company in India is also levied with service tax if it provides any services
Read here the latest service tax rates in India.
A company in India is also subject to Excise duty if it manufactures any thing.
A company is in India is also subject to custom duty if it import or exports anything.
Read here the latest Excise duty rates by budget 2016.
A company in India is also subject to sales tax if it sales any goods in India which is levied by the state government and rates differs state to state.
Please comment for any query related to Corporation tax.
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Sir, can you also share Minimum Alternative tax ( MAT ) calculations . Thanks
I am a business man. I think that Corporate tax rates are high in India as compare to other countries and there should be a single tax. Is it possible. Why there are so many categories of taxes to confuse people.
Dear All,
Solar roof top power plant is one of the biggest instrument for saving corporate tax through accelerated depreciation .Company can invest in their own property or on third party property for the purpose of regular and stable savings/income(income will get the benefit of tax holiday for 10 years ) .
This is the last months for the client who interested for solar roof top power plant with the objectives of savings as well as Accelerated Depreciation benefits.( As Budget capping the accelerated depreciation tax benefit at a maximum of 40 per cent from April 2017 from 80% as of now).
Plant should be commenced before march for all above benefits .
Below are the incentives offered by government to industrial and commercial consumer for fy 2016-17 as there is no capital subsidy available.
1) 10 Year of tax holiday- under section 80-IA of the income tax act 1961 for system owner /power generator.
2) Income tax benefit through Accelerated depreciation – Investor can use this is to substantially reduce tax burden in the first few years of the project up to 100% of the project cost ( 80% accelerated depreciation and 20% additional depreciation – Sec 32)
3) Concessional custom duty on imports .
We are pune based bankable MNRE em-paneled Solar EPC contractor .Company who are interested to save taxes through Accelerated tax benefit can contact me .
Regards
Anshuman Shrivastava
anshumanshrivastava2014@gmail.com
09028012464
What is mat why this is because income is same for the f.y 2015-16
If a Company is newly incorporated after 01-Mar-16 but does not satify the conditions specified u/s 115BA ,What rate of Corporate Tax should it pay ? , 29% or 30% ?
IF A NEWLY INCORPORATED COMPANY INCORPORATED IN 16-17 AND ENGAGED IN SERVICE SECTOR AND SO THE TURNOVER OF FINANCIAL YEAR 14-15 IS NOT AVAILABLE SO AT WHAT RATE TAX ON THE ABOVE COMPANY IS APPLICABLE ?
Greetings sir
For Computing cost of debt after taxes which rate of tax should be taken into consideration basic or including surcharge n cess?
Thank you