Corporate Tax

Corporate Tax

Subject : Economy

Context:

Corporate tax to GDP ratio exceeds 3 percent after two years in FY’22

Details:

• It reflects overall improvement in profitability of India Inc propelled by an increase in demand for goods and services.
• The corporate tax collection is yet to surpass its five-year high of 3.51 percent of GDP recorded in 2018-19.

Concept:

• A corporate tax, also called corporation tax or company tax, is a direct tax imposed by a jurisdiction on the income or capital of corporations or analogous legal entities.
• Corporate tax is the tax which is levied on the income of the domestic and foreign companies that arose in India.
• It is levied on both the public and private companies registered under the Companies Act of 2013.
• The rate at which the tax is imposed is as per the provisions of the Income Tax Act, 1961.
• The Minimum Alternate Tax (MAT) does not apply to such companies.
  • The Minimum Alternate Tax is a measure to include all companies in the income tax loop. The MAT ensures that no company with healthy finances and substantial income can avoid paying income tax, even after claiming exemptions.
• Taxes are levied on a company’s taxable income, which comprises revenue minus cost of goods sold, general and administrative expenses, selling and marketing, R&D, depreciation, and other operating costs.
  • Thus,it is imposed on the net income or profit that corporate enterprises make from their businesses.
• Corporate tax is an expense of a business levied by the government that represents a country’s main source of income, whereas income tax is a type of tax governmentally imposed on an individual’s income, such as wages and salaries.

Rates:

• The Taxation Laws (Amendment) Bill, 2019 caused a reduction in the base corporate tax rate, that is, from 30 percent to 22 percent for the existing businesses.
• Corporate tax rate is 22 per cent without exemptions and Effective corporate tax rate after surcharge and cess to be 25.17 percent for existing companies.
• For new manufacturing firms that have been established post 1st October, 2019 and prior to 31st March, 2023 (The period was later extended by another year till March 2024), the base corporate tax was reduced from 25 per cent to 15 per cent.
• The effective tax for new companies shall be 17.01 percent, including cess and surcharge.
• The new corporate tax rates in India are much lower than USA (27%), Japan (30.62%), Brazil (34%), and Germany (30%) and for the new firms the tax rate is similar to Singapore (17%)

India Inc. is a common term used by the Indian media to refer to the formal sector of the nation. It employed 7 percent of the workforce in 2000 and contributed 60 per cent of the nominal GDP of the nation.

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