Income Tax

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Income Tax for Domestic & Foreign Company

What is Income Tax in case of a company?

Ans:- In India we have two kinds of taxes one is direct tax and other is indirect tax direct tax is like income tax and indirect tax like GST, custom duty etc. Income tax is nothing but just a direct tax on company profit.

   Income Tax

Slab Tax                    surcharge                       Cess

Income tax is made of with three parts the major parts. First, the slap tax then, surcharge and in the end the health and education cess charges.

Let's understand each of this one by one.

1. What is Slab Tax?

Slab tax is a part of income tax which is calculate on base of the amount of company net profit in a year. Every year government realise this slap structure for income tax.
Nowadays in India we have two different slabs for Foreign & Domestic company

Domestic Company

Turnover Slab Rate Tax
up to 400 Cr 25%
(Sec:115BA) Company after 1/3/2016 in somw sector 25%
(sec:115BAA) Company after 1/3/2016 any sector 22%
(Sec:115BAB) Company after 1/10/2019 15%
Others 30%

Note:

  • A Company shall be liable to pay Minimum Alternate Tax (MAT) at 15% of book profit (plus surcharge and Health and Education cess as applicable) where the normal tax liability of the Company is less than 15% of book profit.
  • A Company, being a unit of an International Financial Services Centre and deriving its income solely in convertible foreign exchange, MAT shall be payable at 9% (plus cess and surcharge as applicable).
  • A Company opting for special rate taxation under Section 115BAA and 115BAB are exempt from paying MAT.
Let assume a company turnover is 500 Cr on this year And is not in 115BA, 115BAA, 115BAB
so it's fall in 30% slab rate
therefore, the slab tax = (500 Cr) x 30% INR.
= 150 Cr INR.

    2. What is Surcharge?

Surcharge is a extra tax which is applied on slap tax if income crosses a specific point. So basically surcharge is a tax on tax. Surcharge is applicable in your Income Tax if an only if you income goes beyond 1 Cr.
Income Surcharge on Tax
1 Cr - 10 Cr 7%
Above 10 Cr 12%
(For 115BAA & 115BAB) Company after 2019 1sst oct or after 2016 in any sector 10%
Let assume a company Slab tax is S and your income is above 10 cr and it's not in 115BAA, 115BAB
So, by the above list
surcharge will be = S x 7%
If S = 1 lakh,
then, Surcharge is = 1,00,000 x 7% = 7,000 INR.

    3. What is Cess? 

Cess means tax on tax. In this case Cess will be applicable on your slap tax + surcharge amount.
In India cess on income tax is just 4%.
Let say your Slab tax + surcharge tax is Y.
so your cess will be,
              Cess = Y x 4%
If Y = 10,000
Then cess = 10,000 x 4% = 400 INR.
Let's Try to Link everything:
Let a company ABC pvt. ltd. Income is 600Cr.
First, In Domestic company income fall above 400Cr.
so, your slab tax = ( 600 Cr ) x 30% INR
= 180 Cr INR

Second, it's fall above 10 Cr in Surcharge list. It's have to pay 12% surcharge on slab tax.
now, surcharge = 180Cr x 12%
= 21.6 Cr INR

Third, cess will be = (slab tax + surcharge) x 4%
= (180 Cr + 21.6 Cr) x 4% INR
= 201.6 Cr x 4% INR
= 8.064 Cr INR

Now net Income tax will be = Slab tax + surcharge + cess
= 180 Cr + 21.6 Cr + 8.064 Cr INR
= 209.664 Cr INR

Thus, Your Income tax is 209 Cr 67 lakh 4thousand rupees only.

Foreign Company

Turnover Slab Rate Tax
Royalty from Government or an Indian concern in pursuance of an agreement made with the Indian concern after 31st March 1961, but before 1st April 1976, or fees for rendering technical services in pursuance of an agreement made after 29th February 1964 but before 1st April 1976 and where such agreement has, in either case, been approved by the Central Government 50%
Any other 40%
Let assume a company turnover is 500 Cr on this year And the company registered after 1976
so it's fall in 40% slab rate
therefore, the slab tax = (500 Cr) x 40% INR.
= 200 Cr INR.

  Surcharge

Income Surcharge on Tax
1 Cr - 10 Cr 2%
Above 10 Cr 5%
Let assume a company Slab tax is S and your income is above 10 cr and it's not in 115BAA, 115BAB
So, by the above list
surcharge will be = S x 5%
If S = 1 lakh,
then, Surcharge is = 1,00,000 x 5% = 5,000 INR.

    Cess

Let say your Slab tax + surcharge tax is Y.
so your cess will be,
              Cess = Y x 4%
If Y = 10,000
Then cess = 10,000 x 4% = 400 INR.
Let's Try to Link everything:
Let a company ABC pvt. ltd. Income is 600Cr.
First, In Foreign company registered after 1976.
so, slab tax = ( 600 Cr ) x 40% INR
= 240 Cr INR

Second, it's fall above 10 Cr in Surcharge list. It's have to pay 5% surcharge on slab tax.
now, surcharge = 240Cr x 12%
= 12 Cr INR

Third, cess will be = (slab tax + surcharge) x 4%
= (240 Cr + 12 Cr) x 4% INR
= 252 Cr x 4% INR
= 10.08 Cr INR

Now net Income tax will be = Slab tax + surcharge + cess
= 240 Cr + 12 Cr + 10.08 Cr INR
= 262.08 Cr INR

Thus, Your Income tax is 262 Cr 8 lakh rupees only.

Note:

A Foreign Company not falling under Explanation 4 of section 115JB shall be liable to pay Minimum Alternate Tax (MAT) at 15% of book profit (plus surcharge and Health and Education cess as applicable) where the normal tax liability of the Company is less than 15% of book profit.