Corporate tax is a form of direct tax, which refers to a tax imposed by various jurisdictions on the profits made by companies or associations. The tax rate may, however, vary between jurisdictions. In India, corporate tax rate for a company depends on the origin of that particular company. A company based in India will have to pay a flat tax rate of 30%. However, for a foreign company, the tax rate is dependent on a variety of factors. The companies that are domicile to India pay taxes based on the criteria of global income, whereas the foreign companies in India are taxed on the basis of their income generated out of Indian operations.
Minimum Alternate Tax (MAT)
Usually, a company is liable to pay Income tax on the income calculated according to the provisions of the Income Tax Act. However, the profit and loss account of the company is made as per the various provisions of the Companies Act. As a result, many companies (Zero Tax Companies) who had book profits were exempted from paying any tax, as their income calculated as per provisions of the income tax act was either inconsequential or nil.
Therefore, to bring such companies inside the bracket of income tax act, section 115JA was introduced in 1997-98. According to this section, a Minimum Alternate Tax has to be paid by companies whose total taxable income is less than 30 percent of its book profits. In such cases, the company would be required to pay income tax on 10.5 percent of its book profits.
Dividend Distribution Tax (DDT)
Generally, dividends paid by companies and mutual funds are also exempted from tax. A 15% Dividend Distribution Tax is however to be paid by companies before distribution. Liquid and Money Market funds are also required to pay about 25% Dividend Distribution Tax.
Fringe Benefit Tax (FBT)
Another form of tax is the Fringe Benefit Tax (FBT), introduced in 2005-06. It is a form of tax payable by companies against various benefits or perquisites that are provided to the employees, but cannot be attributed to them individually. According to Finance Minister P. Chidambaram, a FBT of 30% will be levied on 20% of the fringe benefit expense. However, the FBT turned out to be just 2% for regular companies and 0.5% for companies like pharmaceuticals and IT.
Capital Gains Tax (CGT)
Another noteworthy type of direct corporate tax is the Capital Gains Tax (CGT), where tax is levied if profits are made by selling or transferring any capital asset or investment (a home, a family business or a precious work of art). The most common type of capital gains generally takes place from the sale of items like stocks, bonds, property, expensive metals, etc.
