A resident company is taxed on its worldwide income. A non-resident company is taxed only on income that is received in India, or that accrues or arises, or is deemed to accrue or arise, in India.
The corporate income-tax (CIT) rate applicable to an Indian company and a foreign company for the tax year 2020/21 is as follows:
|Income*||CIT rate (%)|
|Turnover does not increase INR 4 billion in FY 2018/19||For other domestic companies||Foreign companies|
|Less than INR 10 million||25||26.00||30||31.20||40||41.60|
|More than INR 10 million but less than INR 100 million||25||27.82||30||33.38||40||42.43|
|More than INR 100 million||25||29.12||30||34.94||40||43.68|
* Surcharge of 10% is payable only where total taxable income exceeds INR 10 million.
** Effective tax rates include surcharge and health and education cess. (“Education Cess” was introduced in the year 2004. Subsequently, this cess was modified multiple times and currently known as “health and education cess”. It is a fixed percentage of levy on the total tax and surcharge liability of a taxpayer. The main objective of this cess is to meet the expenditure towards fulfilling the Government’s commitment of providing quality basic and higher education to the poor children and ensure basic health amenities to the needy. The rate of this cess has changed since its introduction in 2004 at 2% to 4% as of FY 2020/21.)
Reduced rate of tax for certain existing domestic companies
To provide a much required boost to the economy, a beneficial CIT rate of 22% (plus surcharge of 10% and applicable health and education cess of 4%) was announced with effect from tax year 2019/20. This beneficial rate is at the option of the company and is applicable on satisfaction of the following conditions, cumulatively:
- The company has not claimed a tax holiday available to a unit in an SEZ, benefit of accelerated depreciation, or benefit of additional depreciation, investment allowances, expenditure on scientific research, and any deduction in respect of certain income other than deduction in respect of employment of new employees and deduction of certain income of Offshore Banking Units and International Financial Service Centre.
- The company has not claimed set-off of loss and unabsorbed depreciation carried forward from any earlier years including set-off of any unabsorbed depreciation and losses relating to loss/depreciation on amalgamation, provided such loss is attributable to the deductions referred to in (i) above. However, the corresponding adjustment in written down value of such block of asset as on 1 April 2019 shall be allowed in the prescribed manner.
- The option of seeking the benefit of a reduced CIT rate of 22% is furnished in the prescribed manner before the due date of furnishing of income.
- Companies exercising this option have been excluded from the applicability of provisions of minimum alternate tax (MAT) and MAT credit.
Benefit of the above provision of reduced tax rate shall not be available in the year of non-compliance and all the subsequent years and other provisions of the Income-tax Act shall apply as if the option has not been exercised from the year of non-compliance.
Reduced rate of tax for newly set-up domestic manufacturing companies and companies engaged in generation of electricity
The Taxation Laws (Amendment) Act 2019 has announced a beneficial CIT rate of 15% (plus surcharge of 10% and applicable health and education cess of 4%) with effect from tax year 2019/20 for newly set-up domestic manufacturing companies. The benefit of concessional tax rate of 15% has been extended to domestic companies engaged in the business of generation of electricity from tax year 2020/21.
The beneficial rate of 15% (plus surcharge of 10% and applicable health and education cess) can be exercised at the option of the company and is applicable on satisfaction of the following conditions, cumulatively:
- The company is incorporated on or after 1 October 2019 and commences manufacture or production of any article or thing on or before 31 March 2023.
- The 'business' is not formed by splitting up or reconstruction of business already in existence (exception provided for undertaking formed as a result of re-establishment, reconstruction, or revival of business).
- Does not use plant and machinery previously used for any purpose in India, and no depreciation has been claimed on the same.
- Does not use any building previously used as a hotel or convention centre for which deductions under provisions of the Income-tax Act have been claimed or allowed.
- The company is not engaged in any business other than the business of manufacture or production of any article or thing and research or distribution of such article or thing manufactured or produced. The following businesses shall not be treated as business of manufacture or production of any article or thing:
- Development of computer software in any form or in any media.
- Conversion of marble blocks or similar items into slabs.
- Bottling of gas into cylinder.
- Printing of books or production of cinematograph films.
- Any other business notified in this behalf.
- The company has not claimed a benefit for establishing its unit in an SEZ, benefit of accelerated depreciation, or benefit of additional depreciation, investment allowances, expenditure on scientific research, and any deduction in respect of certain income other than deduction in respect of employment of new employees.
- The company has not claimed set-off of loss and unabsorbed depreciation carried forward from any earlier years, including set-off of any unabsorbed depreciation and losses relating to loss/depreciation on amalgamation, provided such loss is attributable to the deductions referred to in (vi) above.
- In case difficulty arises in non-fulfilment of certain conditions in this section, the CBDT may issue guidelines for removing the difficulty.
- The option of seeking the benefit of a reduced CIT rate of 15% is furnished in the prescribed manner before the due date of furnishing of income.
- Domestic transfer pricing provision shall be applicable for these companies.
- Companies exercising this option have been excluded from the applicability of provisions of MAT and MAT credit.
Benefit of the above provision of reduced tax rate shall not be available in the year of non-compliance and all the subsequent years and other provisions of the Income-tax Act shall apply as if the option has not been exercised from the year of non-compliance. However, such company may exercise an option to be governed under provisions of reduced tax rate of 22% (plus surcharge of 10% and applicable health and education cess).
Minimum alternative tax (MAT)
Companies are liable to pay MAT on their adjusted book profits (other than income from life insurance business) where the tax liability under the normal provisions (excluding surcharge and health and education cess) of the Income-tax Act for the tax year is not more than 15% (excluding surcharge and health and education cess) of such book profits. MAT credit is the amount paid over and above the normal tax liability, which can be carried forward and can be utilised for 15 years. However, MAT credit to the extent of difference between the foreign tax credits allowed against MAT over such credit allowable against the tax under the other provisions of the Income-tax Act shall not be eligible to be carried forward.
It provides for deduction of loss or unabsorbed depreciation, whichever is less. However, if a company has applied for corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016, then the aggregate amount of brought forward loss and unabsorbed depreciation shall be allowed.
Further, due to implementation of Indian Accounting Standards (Ind AS), by the government, which are converged with the International Financial Reporting Standards (IFRS), the government amended the MAT provisions of the Income-tax Act, so as to provide the framework for the computation of book profit for the purpose of levying MAT in the case of companies required to comply with Ind AS in the year of adoption and thereafter. This framework was specified on the basis of the recommendations of the MAT Ind AS Committee constituted for this purpose.
MAT provisions are not applicable to foreign companies that do not have a PE in India. However, MAT provisions shall not apply to foreign companies where their total income is solely derived from shipping business, exploration of mineral oils, business of aircraft, civil construction in turnkey projects and income thereon is offered to tax as per specific provisions provided under the Income-tax Act.
Capital gains from transfer of securities, interest, royalties, and FTS accruing or arising to a foreign company (which has a PE in India) have been excluded from chargeability of MAT if tax payable on such income is less than 15% (exclusive of surcharge and health and education cess). Further, expenditure, if any, debited to the profit and loss account corresponding to such income shall be added back to the book profit for the purpose of computation of MAT.
Further, Finance Act 2021, has provided that, in case there is an increase in book profit of the previous year due to income of past year(s) being included in the book profit on account of an advance pricing agreement entered into by the taxpayer or on account of secondary adjustment, the Tax Officer shall, recompute the book profit of the past year(s) and tax payable, if any, by the taxpayer during the tax year in the prescribed manner, if an application in this regard is made to him by the taxpayer. It has been further provided that the provisions of rectification of mistake under the Indian Income-tax Act shall be applicable to the aforesaid computation made by the Tax Officer and the period of four years shall be reckoned from the end of the FY in which the said application is received by the Tax Officer.
The aforesaid provisions shall apply only if the taxpayer has not utilised the credit of tax paid under this section in any subsequent tax year.
The above provisions will take effect from 1 April 2021 and no interest shall be payable to the taxpayer on the refund arising on account of application of the provisions of this section.
Sick companies (i.e. companies whose losses have been wiped out of their net worth and that are doubtful of being revived and nursed back to profitability) are not subject to MAT.
An SEZ developer and a unit in an SEZ are also liable to pay MAT.
Companies exercising the option of lower tax rate of 22% (discussed above) have been excluded from the applicability of provisions of MAT and MAT credit.
The existing tax rates under MAT are provided in the below table:
|Income*||MAT rate (%)|
|Indian company||Foreign company (other than exempted)|
|Less than INR 10 million||15||15.600||15||15.600|
|More than INR 10 million but less than INR 100 million||15||16.692||15||15.912|
|More than INR 100 million||15||17.472||15||16.380|
* Surcharge of 10% is payable only where total taxable income exceeds INR 10 million.
** Basic rate of MAT is 9% of book profits in case of a corporate and non-corporate taxpayer located in an International Financial Services Centre and deriving income solely in convertible foreign exchange.
*** Effective tax rates include surcharge and health and education cess.
Tonnage tax scheme
The tonnage tax scheme, a presumptive tax provision, can be chosen by a non-resident company that has a place of effective management (PoEM) in India, owns at least one qualifying ship, and whose main objective is to carry on the business of operating ‘qualifying ships’. Once the scheme is exercised, there is a lock in period of ten years.
The tonnage tax scheme is in place of CIT and is levied based on tonnage of vessels owned, operated, or chartered by it instead of net income generated by commercial operations. The notional income is taxable at the normal corporate rate applicable for the year even if there is loss in a year.
Under this scheme, separate business and separate accounts are to be maintained. Manner of computation is as follows:
|Net tonnage of qualifying ship||Amount of daily tonnage income|
|Up to 1,000||INR 70 for each 100 tons|
|Exceeding 1,000 but not more than 10,000||INR 700 plus INR 53 of each 100 tons exceeding 1,000 tons|
|Exceeding 1,000 but not more than 10,000||INR 5,470 plus INR 42 of each 100 tons exceeding 10,000 tons|
|Exceeding 25,000||INR 11,770 plus INR 29 of each 100 tons exceeding 25,000 tons|
Shipping business of non-residents
Deemed income shall be assessed at 7.5% of the amount paid or payable (whether in or out of India) for carriage of passengers, livestock, mail, or goods shipped from any port in India, and the amount received or deemed to be received in India on account of carriage of passengers, livestock, mail, or goods shipped to any port outside India shall be treated as profits and gains of business.
Treaty rates will apply to non-resident shipping companies if they are lower than the rates under the tonnage tax scheme.
Local income taxes
There are no local, state, or provincial taxes on income in India at present.