Corporate tax is a direct tax levied on the net profits or income of companies and other corporate entities. It is imposed on income earned from business operations, investments, capital gains, and other sources during a financial year. A company is a legal entity registered under law, having a separate identity from its shareholders.
Corporate Tax in India
In India, corporate tax is governed by the Income Tax Act, 1961, which classifies companies into:
- Domestic Companies
- Foreign Companies
Corporate tax liability is computed on the total income of the company after allowable deductions and exemptions.
Sources of Corporate Income
- Profits from business or profession
- Income from house property
- Capital gains
- Income from other sources
Corporate Tax Rates in India
1. Domestic Companies
Standard Regime (Before concessional options)
- Base corporate tax rate: 30%
- Surcharge:
- 7% if income ₹1–10 crore
- 12% if income > ₹10 crore
- Health & Education Cess: 4%
Concessional Regime (Introduced in 2019)
Section 115BAA
- Optional regime for existing domestic companies
- Tax rate: 22%
- Effective rate (including surcharge & cess): ~25.17%
- Condition: No specified exemptions or incentives allowed
- Minimum Alternate Tax (MAT): Not applicable
Section 115BAB (Manufacturing Companies)
- Applicable to new domestic manufacturing companies
- Tax rate: 15%
- Effective rate: ~17.16%
- Conditions:
- Company incorporated after 30 September 2019
- Manufacturing commenced before prescribed deadline
- No specified deductions claimed
2. Foreign Companies
- Income earned or accrued in India is taxable
- Tax rates:
- 40% on regular income
- 50% on royalties and technical service fees
- Surcharge:
- 2% if income ₹1–10 crore
- 5% if income > ₹10 crore
- Health & Education Cess: 4%
Minimum Alternate Tax (MAT)
- Applied under Section 115JB
- Ensures companies with high book profits but low taxable income pay a minimum tax
- MAT rate:
- 15% (plus surcharge and cess)
- Companies opting for concessional regimes (115BAA / 115BAB) are exempt from MAT
- MAT credit can be carried forward where applicable
Taxation Laws (Amendment) Act, 2019 – Key Changes
- Reduced corporate tax burden to improve global competitiveness
- Introduced:
- 22% tax regime for existing companies
- 15% tax regime for new manufacturing companies
- Reduced MAT rate from 18.5% to 15%
- Made tax regime optional but irreversible once chosen
- Aimed to:
- Boost investment
- Promote “Make in India”
- Reduce tax litigation
- Improve ease of doing business
Corporate Tax: Key Characteristics
- Direct tax: Burden cannot be shifted
- Progressive in effect due to surcharges
- Significant source of government revenue
- Sensitive to economic cycles and profitability
- Strong link with investment decisions and capital formation
Recent Trends
- Gradual reduction in statutory corporate tax rates
- Shift from exemptions-based regime to lower-rate, broad-base structure
- Corporate tax collections crossing 3% of GDP in recent years
- Alignment with global tax reforms, including Base Erosion and Profit Shifting (BEPS) and global minimum tax discussions
Challenges in Corporate Taxation
- Revenue impact of rate cuts
- Balancing tax competitiveness with fiscal needs
- Preventing profit shifting and tax base erosion
- Ensuring compliance in digital and multinational businesses
Conclusion
India’s corporate tax framework has undergone a structural transformation, moving from high rates with multiple exemptions to a simplified, competitive, and transparent regime. The reforms aim to attract investment, enhance manufacturing, and integrate India more effectively into global value chains, while maintaining fiscal stability.
