COMPUTATION OF AMOUNT OF CORPORATE TAX LIABILITY

Taxes on income, wealth, and capital gains are some of the biggest taxes that Indian consumers have to pay. Both domestic and foreign corporate houses must pay taxes in order to operate their businesses. Corporate tax, often known as company tax, is one of the several taxes that corporations are expected to pay to the Indian government.

 Meaning

A corporate tax is a type of direct tax which is assessed on the profits made by businessmen during a specific time period. For varying amounts of profits made by business houses, different rates of corporate taxes are imposed. Corporate tax is often assessed on a company's revenues following the deduction of charges like depreciation, COGS (cost of goods sold), and SG&A (selling general and administration expenses).

A corporate is a legal entity that is considered to be distinct and independent from its stockholders. Corporate tax, often known as corporation tax, is sometimes mistaken for an income tax on money made by firms. Corporate taxes are levied by several nations to simplify the taxation of businesses. When it comes to income taxation, different countries have distinct laws that apply.Both domestic and foreign companies must pay corporate tax in India. Businesses are required to pay a portion of their earned income as tax, just like everyone else who earns an income is required to do so. Corporate tax, corporation tax, or company tax are all terms for this tax.

CORPORATE TAX = TAXABLE INCOME * CORPORATE TAX RATE

Please note that here taxable income refers to adjusted gross income less all the deductions applicable. By deducting the appropriate adjustments from gross income, one might arrive at the Adjusted Gross Income (AGI). The total income from sales of commodities, commissions, interest, rent, and other sources is known as the gross income. Penalties for early withdrawals, staff costs, operational costs, and other business costs are among the adjustments that may be necessary.

 

A company's net revenue or net income is used to calculate corporate tax. A company's remaining funds after deducting all essential expenses are known as its net income or net revenue. A business has to pay a variety of costs when it sells products. The following are these costs:

·         Depreciation

·         Cost of goods sold (COGS)

·         Selling expenses

·         Expenses incurred for admin operations.

Net profit from the business, rent income, capital gains, or income from other sources like interest or dividends are all included in a company's income.

 

 Fundamentals

Every taxpayer, including businesses, needs to do some tax planning so they may maximise their profits while paying less in taxes. Corporate tax planning is creating a plan to do this, therefore the businesses hire experts who are familiar with all the rules and guidelines relevant to the laws governing tax payments. Due to the enormous financial risk involved in any organisation, proper corporate tax preparation is essential.

It's crucial to remember that tax evasion and business tax planning are two entirely distinct things. Tax evasion is the illegal practise of failing to pay taxes. Tax planning, on the other hand, refers to a method of calculating the amount of tax due so that the corporation will have a higher net profit and legally pay less tax. The corporation must be well-versed in all tax regulations as well as the financial guidelines established by the Indian government for corporate tax planning to be effective in India.

Types

Companies in India have been widely categorised into the following 2 categories for tax computation purposes:

1.    Domestic Corporation: A domestic corporation is any Indian company, or a foreign corporation whose control and management are entirely based in India. A company that is registered under the Companies Act of 1956 is referred to as an Indian corporation.

2.    Foreign corporation: Any foreign corporation is one that is not of Indian origin and has a portion of its administration and control situated outside of India.

 

Corporate Tax Rates for FY 2022-23

·         ForDomestic Companies

 

Particulars	Tax rate
Turnover/ Gross receipts in PY 2019-20 does not exceed Rs. 400 crores	25%
Any other case	30%

 

Surcharge –

Taxable income above ₹ 1 crore– upto₹ 10 crore	7%
Taxable income above ₹ 10 crore	12%

 

·         For Foreign Companies

 

Particulars	Tax rate
Royalty or fees received for any technical services from the government or an Indian concern under agreements made before April 1, 1976, which is approved by the CG	50%
Any other case	40%

 

Surcharge –

Taxable income above ₹ 1 crore– upto₹ 10 crore	2%
Taxable income above ₹ 10 crore	5%

 

It is important to note that to the amount i.e., the tax liability, HEC @4% of the income tax and the surcharge that is applicable will be added.