4 Tax rates for Companies. Know which option to choose

Corporate Tax prominently known as Corporate Tax is an immediate assessment imposed on the net income or profit that corporate endeavors make from their organizations. The expense is forced at a particular rate according to the provisions of the Income Tax Act, 1961. A corporate is a substance that has a different and free legitimate element from its investors. In India, partnerships are grouped into two distinct classes as follows:

• Domestic Companies

  An organization that is built up in India and is enlisted under India's Companies Act, 2013 is named as a Domestic Corporate. Indeed, even an unfamiliar organization can be considered as a domestic corporate if the Indian arm's administration and control is entirely situated in India.

• Foreign Companies

  In the event of Foreign Corporation, as the name proposes, an organization that is arranged abroad and not in India is known as an foreign corporate. Once more, if some aspect of an foreign organization's administration and control is arranged outside of India, at that point likewise it is known as a foreign organization.

This distinction is significant as domestic organizations in India are charged corporate assessment on their widespread pay while foreign partnerships get charged expense just on the income, they produce through their Indian tasks as it were.

Tax rates for domestic company for FY 2020-21

Tax rate of 25% is applicable for company who opted section 115BA

Section 115BA provides that subject to the fulfilment of conditions specified therein, the total income of certain newly set-up domestic companies shall, at their option, be taxed at the rate of 25%.

The following conditions shall apply:

• the company has been set-up and registered on or after the 1st March, 2016;
• the company is not engaged in any business other than the business of manufacture or production of any article or thing and research in relation to, or distribution of, such article or thing manufactured or produced by it; and
• the total income of the company has been computed:

1. without any deduction under the provisions of section 10AA, 32AC, 32AD, 33AB, 33ABA, 35(1)(ii)/(iia)/(iii)/35(2AA)/(2AB), 35AC, 35AD, 35CCC, 35CCD, section 80H to 80TT (Other than 80JJAA)
2. without set off of any loss carried forward from any earlier assessment year if such loss is attributable to any of the deductions referred above and
3. depreciation under section 32, other section 32(1)(iia), is determined in the manner as may be prescribed.
• Nothing contained in this section shall apply unless the option is exercised by the person in the prescribed manner on or before the due date specified under section 139(1) for furnishing the first of the returns of income which the person is required to furnish under the provisions of this Act
• Once the option has been exercised for any previous year, it cannot be subsequently withdrawn for the same or any other previous year.

Tax rate of 22% is applicable for company who opted section 115BAA

Section 115BAA was embedded in the Income Tax Act, 1961 to give the advantage of a decreased corporate tax for the domestic organizations. Section 115BAA states that domestic organizations have the alternative to pay charge at a pace of 22% on the satisfaction of the accompanying conditions:

The total income of such company shall be computed without claiming the below deductions:

1. Deduction available for units established in special economic zones under section 10AA
2. Additional depreciation under section 32 and investment allowance under section 32AD towards new plant and machinery made in notified backward areas in the states of Andhra Pradesh, Bihar, Telangana, and West Bengal
3. Deduction under section 33AB for tea, coffee and rubber manufacturing companies
4. Deduction towards deposits made towards site restoration fund under section 33ABA by companies engaged in extraction or production of petroleum or natural gas or both in India
5. Deduction under Section 35 for expenditure on scientific research, or an amount paid to a university or research association or National Laboratory or IIT.
6. Deduction for the capital expenditure incurred by any specified business under section 35AD
7. Deduction for the expenditure incurred on an agriculture extension project under section 35CCC or on skill development project under section 35CCD
8. Deduction under chapter VI-A in respect to certain incomes, which are allowed under section 80IA, 80IAB, 80IAC, 80IB and so on, except deduction under section 80JJAA and 80M.
9. Deduction under chapter VI-A in respect to certain incomes, which are allowed under section 80IA, 80IAB, 80IAC, 80IB and so on, except deduction under section 80JJAA
10. Set-off of any loss carried forward or depreciation from earlier years, if such losses were incurred in respect of the aforementioned deductions
11. A claim by an amalgamated company for set-off of carried forward loss or unabsorbed depreciation belonging to an amalgamating company if such loss or unabsorbed depreciation is on account of the above deductions; claiming a deduction for additional/accelerated depreciation. The normal depreciation can however be claimed.

The above misfortunes will be considered to have been permitted and will not be qualified for take forward and set away in ensuing years this implies on the off chance that the organization selects 115BAA, at that point the open door for guaranteeing set off is lost until the end of time.

Such companies will have to exercise this option to be taxed under the section 115BAA on or before the due date of filing income tax returns. Once the company opts for section 115BAA in a particular financial year, it cannot be withdrawn subsequently. There is no restriction on turnover and the company need not be a new company, any existing company can migrate into this section at any point.

Tax rate of 15% is applicable for company who opted section 115BAB

Section 115BAB states that domestic companies have the option to pay tax at a rate of 15% on the fulfilment of the following conditions:

1. The company has been set up and registered on or after 1 October 2019 and has commenced manufacturing on or before 31 March 2023. Such a company should:
• Not be formed by the splitting up and reconstruction of a business already in existence except in case of a business re-established under section 33B
• Does not use any plant or machinery previously used for any purpose.
• However, the company can use plant and machinery used outside India and used in India for the first time.
• Also, the company can use old plant and machinery, the value of which does not exceed 20% of the total value of the plant and machinery used by the company.
• Does not use a building previously used as a hotel or a convention centre.
• ‘Hotel’ means a hotel of two-star, three-star or four-star category as classified by the Central Government.
• ‘Convention centre’ means a building of a prescribed area comprising of convention halls to be used for the purpose of holding conferences and seminars, being of such size and number and having such other facilities and amenities, as may be prescribed.
2. The company should be engaged in the business of manufacture or production of any article or thing, and research in relation to such article or thing. The company can also be engaged in the distribution of such article or thing manufactured or produced by it.
3. The total income of the company should be calculated without claiming tax exemptions and incentives:
• Deduction under section 10AA for units in Special Economic Zone
• Deduction for additional depreciation under section 32 and investment allowance under section 32AD towards new plant and machinery made in notified backward areas in the states of Andhra Pradesh, Bihar, Telangana, and West Bengal
• Deduction under section 33AB for tea, coffee and rubber manufacturing companies
• Deduction towards deposits made towards site restoration fund under section 33ABA by companies engaged in extraction or production of petroleum or natural gas or both in India
• Deduction for expenditure made for scientific research under section 35
• Deduction for the capital expenditure incurred by any specified business under section 35AD
• Deduction for the expenditure incurred on an agriculture extension project under section 35CCC or on skill development project under section 35CCD
• Deduction under Chapter VI-A in respect to certain incomes, which are allowed under section 80IA, 80IAB, 80IAC, 80IB and so on, except deduction under section 80JJAA
• Set-off of any loss carried forward from earlier years if such losses were incurred in respect of the aforementioned deductions
• Deduction for depreciation under section 32, except the additional depreciation
4. The company has to exercise the option on or before the due date of filing income tax returns. Once the company opts for section 115BAB in a particular financial year, it cannot be withdrawn subsequently.

Tax Rate for Other Domestic Companies

A domestic company is taxable at 30%. However, the tax rate is 25% if turnover or gross receipt of the company does not exceed Rs 400 crores in the previous year.

It is also important to remember that, surcharge + education cess as given below will be added to the above tax rate:

• Surcharge @ 7% of Income tax where total income exceeds Rs.1 crore
• Surcharge @ 12% of Income tax where total income exceeds Rs.10 crore
• Surcharge @ 10% of income tax where domestic company opted for section 115BAA and 115BAB
• Education cess @ 4% of Income tax plus surcharge

Tax Rate for Foreign Company for FY 2020-21 is as follows:

• A foreign company is taxable at 40%
• Surcharge @ 2% of Income tax where total income exceeds Rs 1 crore
• Surcharge @ 5% of Income tax where total income exceeds Rs 10 crores
• Education cess @ 4% of Income tax plus surcharge