Corporate Tax is a concept and a direct tax levied by the Government of India on the net income or profits of companies operating within the country. It is a central-level tax, distinct from the income tax paid by individuals. The history of corporate taxation in India is intrinsically linked to the Income Tax Act, 1961, which provides the comprehensive legal framework for its levy and collection. This Act, which took effect on April 1, 1962, governs how companies, both public and private, registered under the Companies Act, are taxed.
The mechanism of Corporate Tax is governed by the Income Tax Act, 1961, which applies to both domestic and foreign companies. A domestic company is taxed on its worldwide income, while a foreign company is taxed only on the income generated within India. The tax is calculated on the company's net profits, which are determined after accounting for various deductions and expenses. The tax rates vary based on factors like turnover and the nature of the company's activities.
A significant recent change occurred with the enactment of the Taxation Laws (Amendment) Act, 2019, which replaced the earlier Ordinance of the same name. This amendment was introduced to stimulate the economy and attract investment by substantially reducing the tax rates. Under this amendment, a new provision was inserted into the Income-tax Act, allowing any domestic company to opt for a reduced tax rate of 22% (effective rate of 25.17% including surcharge and cess) if they forego claiming specified tax exemptions and incentives. Furthermore, a new provision, Section 115BAB, was introduced to provide a lower tax rate of 15% (effective rate of 17.16% including surcharge and cess) for new domestic manufacturing companies incorporated on or after October 1, 2019, that commence production before March 31, 2023, provided they also do not avail of any exemptions. Companies that do not opt for these concessional regimes continue to pay tax at the pre-amended rates. A key connection is the concept of Minimum Alternate Tax (MAT), which is not applicable to companies that opt for the new concessional tax rates under the 2019 amendment.