Tax Rate on Domestic Company in India

Introduction

Businesses operating in India must understand the domestic company tax rate. Whether you run a startup, small business, or established corporation, knowing the tax structure helps you plan finances better and comply with the law. India sets specific tax rates for domestic companies, which vary based on company size and chosen tax regime. This blog explains the tax rates for domestic companies, available incentives, and ways to optimize tax liabilities to maximize savings. Let’s explore how tax planning can benefit your business in India.

What is a Domestic Company?

A domestic company in India refers to a company that incorporates and registers under the Companies Act, 2013, and qualifies as an Indian company for tax purposes. It may operate as a private limited company, public limited company, or a limited liability partnership (LLP) that chooses corporate taxation. Such companies manage and control their operations within India, making them subject to Indian tax laws. The authorities tax these companies on both their domestic and global income, based on the applicable tax provisions.

What is the Tax Rate for Domestic Companies?

The tax rate for domestic companies is the percentage of their total income that they have to pay to the Indian government as tax. If a company earns money, a part of it goes as tax based on certain rules. Normally, companies with a turnover up to ₹400 crore pay 25% tax, and bigger companies pay 30%. Some companies can choose a special lower tax option and pay 22%, and new manufacturing companies can pay just 15%. On top of these rates, a little extra called surcharge and cess is also added.

Tax rates for Domestic Company in India

When running a business in India, it is important to know how much tax your company has to pay. The tax rate for domestic companies depends on their turnover, the type of company, and whether they choose the normal or special tax system. Let’s understand this in detail.

1. Normal Tax Rates for Domestic Companies

Under the regular system, domestic companies are taxed based on their annual turnover:

• If the company’s turnover or gross receipts were up to ₹400 crore in the financial year 2022-23, the tax rate is 25%.
• If the turnover is more than ₹400 crore, the tax rate is 30%.

This is the basic rule for calculating tax for most companies unless they opt for a special lower rate.

2. Special Concessional Tax Rates

The government introduced special tax schemes to encourage businesses to grow and simplify tax payments. Companies that choose these schemes have to follow some conditions, like giving up certain deductions and benefits.

Here are the two main options:

• Section 115BAA: Any domestic company can choose to pay tax at a lower rate of 22%. But if the company chooses this, it cannot claim many common deductions and exemptions like additional depreciation, incentives under SEZ, etc.
• Section 115BAB: Manufacturing companies incorporated after 1st October 2019 that begin manufacturing activities before 31st March 2024 can opt for a 15% tax rate. The government introduced this incentive to boost India’s manufacturing sector.

Choosing these lower rates can save tax, but companies must carefully check the conditions before opting.

3. Surcharge and Cess

Apart from the basic tax rate, companies also have to pay:

• Surcharge: An additional tax on the income tax amount, depending on the total income.

  • If total income is between ₹1 crore and ₹10 crore, surcharge is 7%.

  • If total income is more than ₹10 crore, surcharge is 12%.

• Health and Education Cess: After adding the surcharge, the government charges a 4% cess on the total tax and surcharge amount. The government uses this cess to fund health and education programs.