New Tax Regime- For Business Entities

 

In India, there are two different sorts of taxes: direct and indirect. In terms of direct taxes, they are assessed on the revenue that various corporate organisations generate over a fiscal year. The Income Tax Department registers many types of tax entities, and each of these tax entities pays taxes as per the tax rates prescribed in the law. The methodology of calculation of taxes is also different as per the entity status.

Direct taxes mainly Income Tax are divided into:

  • Corporate Tax: Refers to the income tax paid by corporate entities
  • Other than Corporation tax- Refers to the income tax paid by all other entities (Other than corporate entities)

The Government gets about 53% of all direct tax collection from corporate tax and the balance, while 47% from others.

Corporate Tax in India

A corporate is an entity, which is an independent and separate legal entity from its stockholders. Both domestic and foreign businesses are required to pay corporate tax under the Income-tax Act. In contrast to local businesses, which are taxed on their entire income, international corporations are only taxed on the income that is collected or received in India.

The following categories of companies can be categorised to calculate taxes under the Income Tax Act:

  • Domestic Company: A domestic company is registered under the Indian Companies Act, as well as any foreign-registered business that has its whole control and management in India. Private and public corporations are both considered to be domestic companies.
  • Foreign Company: A foreign company is one whose management and control are situated outside of India and which is not registered under the Indian Companies Act.

New Tax Regime Applicable for Business Entities

Based on their turnover, the following rates apply to domestic businesses for AY 2020–21:

SectionsTax rateSurcharge
Section 115BA (Companies having turnover up to Rs. 400 crores in FY 2017-18)25%7%/12%*
Section 115BAA22%10%
Section 115BAB15%10%
Any other case30%7%/12%*
  • Plus a surcharge if a corporation is subject to section 115BA tax. When the total income exceeds one crore rupees and is between one crore and ten crore rupees, there is a 7% surcharge. If your overall income is more than Rs. 10 crore, there is a 12% surcharge. However, the surcharge is 10% regardless of the total income if a firm chooses to be taxed under sections 115BAA or 115BAB.

Based on their turnover, the following rates apply to foreign businesses for AY 2020–21:

Nature of IncomeTax rate
Royalties or technical service fees from the government or any Indian company under an agreement signed before April 1, 1976, and approved by the central government50%
Any other income40%

In addition to the above rates:

Surcharge Rate:

ParticularsTax rate
If overall income is more than Rs.1 crore but less than Rs. 10 crore7% of tax calculated on domestic companies and 2 % of tax calculated on the foreign company as per the above rates
If total income surpasses Rs. 10 crore12% of tax calculated on the domestic company and 5 % of tax calculated on the foreign company as per the above rates
  • Health and education Cess: The amount of the overall tax obligation before this cess will be increased by an additional 4% of income tax calculated and appropriate surcharge.
  • Minimum Alternate Tax (MAT): Alternatively, if the tax determined using the aforementioned rates is less than 15% of book earnings, all companies (including foreign corporations) are obligated to pay the minimum alternate tax at the rate of 15% on book profits. This will apply if the b does business entities do not opt for Section 115BAA or Section 115BAB.

The Assessee need to make application in form 10-IB/ 10- IC/ 10-ID/10IF as the case may be before the prescribed due date of filing of the income tax return.

This option for alternative tax regime once exercised cannot be subsequently withdrawn for the same or subsequent years.
You may count on us if you want to file your tax returns accurately and efficiently according to the new tax regime. Digilekha Financial Services offers accounting and tax compliance services. As we are here to assist you with every solution and tax-related guidance you require, you do not have to worry about filling your tax return.

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