Corporate Income Tax

CORPORATE INCOME TAX

As per the Income Tax Act 1961, tax rates options are given for the corporates and corporates can avail any of the tax rates which is most suitable one according to them.

Corporate Income Tax is a tax that is imposed on a company’s net income. As per the Income Tax Act 1961, all the public and private registered companies in India are liable to pay Corporate tax to the Government of India. For the financial year 2014-15, the corporate tax for domestic companies was charged at 30%, which now been reduced after the Taxation (Amendment) Ordinance was passed on September 20, 2019.  The base corporate with tax rate changes was reduced to 22% from 30%, and to 15% for new manufacturing companies in place of 25%.

Corporate Tax Rates 2020

Below are the tax rates options available for the corporates:

SECTION 115BAA: 15% and 22%

Under the purview of Section 115BAA a domestic company can choose to pay the corporate tax at 22% from the Assessment Year 2020-2021 provided it adheres to the specific guidelines such as:

  • The companies should not avail any tax exemptions/ tax deductions or set off of loss under different provisions of income tax.
  • The company cannot withdraw from Section 115BAA once it is opted for a financial year
  • MAT provisions/MAT Credits will also not applicable.

So, the new effective corporate tax rate after with tax rate changes is 22% with 10% surcharge and 4% Cess.

SECTION 115BAB:

The Taxation Law Amendment Ordinance that was passed in 2019 also introduced Section 115BAB providing a lower tax rate of 15% to new manufacturing companies. As per this amendment new manufacturing companies can select the option for taxation u/s 115 BAB.

A new manufacturing company can exercise the option to be taxed under section 115BAB. The company cannot withdraw from Section 115BAB once it is opted for a financial year.

Companies that are Eligible to Claim Tax Benefits Under Section 115BAB:

  • Companies that are set up or registered on or after Oct 01, 2019
  • Companies commencing manufacturing on or before Oct 01, 2023
  • Companies that have not used a building used as a convention centre or a hotel
  • Provides the company adheres to the tax deduction guidelines and has not claimed deductions under section 10 AA, 33AB, 35AD, 35CCC, 32AD, 33ABA, and 32.

Amendment of Section 115JB

The tax rate change u/s 115 JB are 15% from previous rate of 18.5% applicable to the Assessment Year 2020-2021. The provisions of this section shall not apply to: –

  • Companies that have exercised the option referred under section 115BAA or 115BAB
  • Companies accruing income from life insurance business under section 115B