Understanding Corporate Income Tax in India: Rates, Rules, and Key Insights for 2025

A Comprehensive Guide to Corporate Income Tax in India for 2024

Navigating corporate income tax in India can be complex. This guide will simplify the corporate income tax rates and regulations that affect both domestic and foreign companies operating in India. We will cover everything you need to know about corporate income tax, including the rates, how they are calculated, and key changes for the assessment year (AY) 2024-25.

What is Corporate Income Tax?

Corporate income tax is a tax levied on the income earned by companies. In India, the tax rate varies between 20% and 40%, depending on the specifics of the company. Both domestic and foreign corporations are subject to this tax under the Income Tax Act of 1961.

Tax Rates for Domestic Corporations

Domestic companies are those that are registered under the Indian Companies Act and have their business operations and management based entirely in India. The tax rates for these companies can vary based on their turnover and the specific sections of the Income Tax Act they qualify for.

General Tax Rates for Domestic Companies

• Resident Companies: Generally taxed at around 34% (including surcharge and cess) if the net income exceeds INR 4 billion.
• Turnover Below INR 4 Billion: Companies with a total turnover not exceeding INR 4 billion can benefit from a reduced tax rate of 25%. The effective maximum rate for such companies is 29.12%.

Special Tax Rates Under Various Sections

1. Section 115BA: For companies set up and registered on or after March 1, 2016, engaged in manufacturing or production, and not claiming specified exemptions. The tax rate is 25%.
2. Section 115BAA: For companies not claiming specified exemptions, deductions, or incentives, the tax rate is 22%.
3. Section 115BAB: For companies set up on or after October 1, 2019, engaged in manufacturing, and commencing manufacturing on or before March 31, 2024. The rates are:
   • 15% for income from manufacturing and short-term capital gains from depreciable assets.
   • 22% for income from non-manufacturing activities and short-term capital gains from non-depreciable assets.

Additional Rates

• For Other Domestic Companies: If the turnover exceeds INR 4 billion, the tax rate is 30%.

Surcharge and Cess

In addition to the basic tax rates, companies are subject to a surcharge and health and education cess:

• Surcharge:
  • 7% if total income exceeds INR 10 million.
  • 12% if total income exceeds INR 100 million.
  • 10% for companies opting for Section 115BAA or 115BAB.
• Cess: An additional 4% of the income tax and surcharge amount is charged as health and education cess.

Tax Rates for Foreign Companies

Foreign companies are taxed differently. They are liable to pay tax at a flat rate of 40% on their average taxable income earned within India.

Tax Rates for Partnership Firms and LLPs

• Partnership Firms and LLPs: These entities are taxed at 30% on their average taxable income.

Components of Taxable Income

Taxable corporate income in India is calculated after considering various deductions. These deductions include:

• Depreciation: Prescribed under the Income Tax Act.
• Administrative Expenses: Costs related to running the business.
• Cost of Goods Sold: Expenses related to manufacturing products.
• Salary Expenses: Costs associated with employee salaries.

Lowered Corporate Tax Rates for Eligible Companies

Starting from FY 2023-24, domestic companies can benefit from reduced tax rates if they meet specific conditions. The rates are:

• 22% for companies that do not claim any exemptions or deductions.
• 15% for new manufacturing companies, provided they start production within the specified period and do not claim certain incentives.

Recent Changes and Updates

For the assessment year (AY) 2024-25, there have been notable changes:

• Presumptive Taxation Scheme: The threshold limit for Section 44AD has increased to INR 3,00,00,000, and for Section 44ADA, it has increased to INR 75,00,000.
• Non-Resident Companies: If a non-resident company opts for a specific tax regime in a given year, they cannot offset unabsorbed depreciation or carry forward losses in future years.

FAQs

1. What is the corporate income tax rate for domestic companies for FY 2023-24?

For domestic companies with a turnover of INR 4 billion or less, the tax rate is 25%. For other domestic companies, it is 30%. Specific rates apply for companies under Sections 115BA, 115BAA, and 115BAB.

2. How is the corporate income tax calculated in India?

Corporate income tax is calculated based on the income earned, after deducting eligible expenses such as depreciation, administrative costs, and salaries. The applicable tax rate depends on the company’s turnover and specific tax regulations.

3. What are the surcharge rates for corporate tax in India?

Surcharge rates are:

• 7% if total income exceeds INR 10 million.
• 12% if total income exceeds INR 100 million.
• 10% for companies opting for Sections 115BAA or 115BAB.

4. Are there any special tax rates for new manufacturing companies?

Yes, new domestic manufacturing companies registered on or after October 1, 2019, can benefit from a 15% tax rate on manufacturing income and short-term capital gains from depreciable assets.

5. What are the tax implications for foreign companies in India?

Foreign companies are taxed at a flat rate of 40% on their income earned within India. They are not taxed on income earned outside the country.

6. How has the presumptive taxation scheme changed for AY 2024-25?

The threshold limits for presumptive taxation under Sections 44AD and 44ADA have increased to INR 3,00,00,000 and INR 75,00,000, respectively.

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