Corporate Tax: Definition, Deductions & How It Works
Table of Contents
- jaro education
- 20, July 2024
- 11:00 am
Corporate tax is the fee governments impose on company earnings. For many nations, including India and the United States, it is a major source of income. When we discuss taxes, we are referring to the mechanism by which businesses pay the government a share of their profits.
Fundamentals of Corporate Tax Rates
A company’s corporate tax rate is the proportion of its earnings that must be paid to the government. In India, the corporate tax system is more complex than a single fixed rate, with different rates applying to various types of companies and income levels.
As of the 2023-24 financial year, the standard corporate tax rate for domestic companies in India is 30%. However, this rate can be reduced to 25% for companies with an annual turnover of up to ₹400 crore. Furthermore, under Section 115BAA of the Income Tax Act, domestic companies have the option to pay tax at a reduced rate of 22%, provided they forgo certain deductions and incentives.
It’s worth noting that corporate tax rates vary significantly across countries. While some nations are considered tax havens due to their very low rates, India maintains a moderate to high corporate tax rate compared to many other countries.
Corporate Tax Mechanisms in India
To understand how corporate tax is calculated in India, one must examine the concept of taxable income. Companies pay taxes on their taxable income, computed by deducting allowable expenses from their total income. These expenses typically include:
- Cost of goods sold (COGS)
- General and administrative (G&A) expenses
- Marketing and selling expenses
- Research and development expenditure
- Depreciation
- Other op