Understand new business taxation in India

Corporate Tax

Corporate Tax is a tax levy on a firm’s profit by the government . The money collected from corporate taxes is a source of income for the nation . Both private and public company pay corporate tax in India . Domestic as well as foreign companies are liable to pay corporate tax under the Income-tax Act. While a domestic company is taxed on its universal income, a foreign company is only taxed on the income earned within India i.e. is being accrued or received in India.

Type of Company Corporate Tax Rate

Domestic with annual turnover upto Rs 250 Crore 25%

Domestic Company with turnover more than Rs 250 Crore 30%

Foreign Companies 40%

Tax Rebates applicable on corporate tax are -

· In certain cases, domestic companies can deduct dividend received from other domestic companies

· Deductions, in some cases are allowed for exports and new undertakings

· New infrastructure and power sources set-up is subject to certain deductions

· Business losses have the provision of being carried over for a maximum of 8 years

· Interest, capital gains and dividends can also be deducted in some cases

Income Tax

Income tax is a tax paid by individuals or entities depending on the level of earnings or gains during a financial year. The Government of India decides the rate of income tax as well as income tax slabs on which individuals are taxed. Those under higher income slabs are taxed at higher rates. The taxable income slabs are changed from time to time, keeping in mind the price levels. Sometimes, the government also provides income tax rebates, which benefit people in the lower-income group.

Total income (Rs) Income tax rate

Up to 2.5 lakh Nil

From 2,50,001 to Rs 5,00,000 5%

From 5,00,001 to Rs 7,50,000 10%

From 7,50,001 to 10,00,000 15%

In order t calculate the income tax all the below factors are added to assess the total income –

1. Income from salary

2. Income from house property

3. Income from capital gains

4. Income from profits / gains from business or profession

5. Income from other sources like gift , dividend , interests

Health and Education Cess

Health and education cess is collected with the aim of addressing the educational and healthcare needs of rural families in India. A cess is a tax on tax .

At present government charges a 4% health and education cess on the direct income tax liability of individuals .