Business Tax in India: All about Business Tax, Types & Examples

What are tax and their types?

Taxes are an essential part authorised by the government on the whole population to generate income, to undertake the project to both economy and social welfare. As per India's Constitution, the consent of taxes is allotted to India's Central and State Governments. It is a mandatory financial charge imposed by the government on an organisation or an individual. This process of collecting business tax helps the government to develop facilities and infrastructure in the long term. If anyone denies paying the taxes, it will create some serious complications under the constituted law.

The Indian business taxation system is divided into two types- Direct Tax and Indirect tax. Furthermore, the direct tax is divided into two parts:

• Income Tax
• Corporate Tax

1. Direct taxes

Direct Taxes are those taxes that are directly paid to the government by an individual or an organised body in the form of a poll tax, income tax, land tax, etc. The Central Board of Direct Taxes(CBDT), formed by the Central Board of Revenue Act's result in 1924, controls direct taxes.

2. Indirect taxes

Indirect taxes are those taxes that are passed to another individual. The most common example of indirect tax is the excise tax added on alcohol and cigarettes.

What is business tax?

The business tax is imposed on both foreign and domestic companies. As individuals file the income tax every year, companies must pay from their leads and revenues. The income tax paid by a company is called corporate tax. It has its business tax slab, which decides the amount of tax that has to be paid by an organisation.

• Domestic Corporate: A company formed under the Indian Company Law is referred to as a domestic corporation. Any foreign company whose control is entirely situated in India is also called a domestic company.
  
• Foreign Corporate: A company whose origin is not Indian and has complete control and management located out of India is called a foreign corporation.

Types of business taxes with examples

• Income Tax: It is applicable for all types of business structures, except for business in partnerships. Most of the businesses file yearly income tax returns based on their taxation slab limit. This business taxation in India is directly proportional to the income generated in a particular year. Income tax depends on the organisation's income; for example, if you earn an LTA of 20,000 annually, a business tax calculator can be used to find the certain amount that you have to pay in a year. The tax amount is based on the age group and earning of a person.
• Estimated Tax: Estimated taxes refer to taxes paid in instalments. If you do not have enough taxes on hold, you can pay them in the form of regular instalments throughout the year. An example of estimated tax rents.

• Excise Taxes: If a company manufactures certain items, including gasoline, tobacco, and alcohol, they need to pay excise taxes for the specific services. It also includes environmental taxes, fuel taxes, tax on the retails, manufacturing taxes, and transportation taxes. The example of excise taxes includes the production of fuel, alcohol, tobacco, etc.
• Self-Employment Tax: These taxes include social security and Medicare tax. If you are self-employed, you have to pay the required amount of self-employment taxes yearly.
• Employment Taxes: If you own a business with employees, you have to pay employment taxes, which fall into various categories, which are Social Security and Medicare taxes, Federal Unemployment taxes, and federal income taxes.

What is included in the income of a company?

Before understanding tax rates' meaning, you should always know the types of income a business earns. Here is the list of income earn by a corporate:

• Income from rental properties

Companies that have invested in protecting money will generate income from rent. However, it requires a huge initial investment, and it can be time-consuming. So, if you need money as soon as possible, this is not the right choice for you.

• Capital gains income

Buying and selling properties is a great source of earning income. If you buy a property with 20 lakhs and sell it for 25 lakhs, 5 lakhs is your capital gain. Every country has different business tax rules; therefore, it is essential to discuss the rates before moving to any conclusion.

Business tax in India for domestic corporates

An organisation that originated in India is known as domestic corporates. As per the business taxation system, any domestic business with a turnover of 250 crores has to pay 25% of the government's tax rate. If the turnover is more than 250 crore, the company has to pay 30%. If the company has a branch located in foreign countries, the same rate would be charged on the overseas branches.

Business tax in India for foreign corporates

An organisation that is not originated in India is known as foreign corporates under the Companies Act, 2013. For foreign corporates, taxation allotment is different from domestic corporations. The business taxation of foreign companies depends upon the agreement of tax between the originated company and India. The tax rate for any fee or technical services received by a foreign business from an Indian concern based on an agreement before 1976, approved by India's Government, is 50%. Apart from this, the tax rate for other services is 50%.

Business tax procedures and management

Every company goes through business tax planning, also known as strategising a company's financials to minimise the expenses and maximise the organisation's profits. The goal of the company is achieved by utilising the available resources, deductions, and indemnity. Planning an effective tax process and management is a complicated task, and it may become a risk as well, and it is one reason why corporations hire experts for this challenging task. The professionals who handle this department are well-educated and highly experienced. These professionals keep the corporates updated with new information and the latest development regarding corporate tax.

Know everything about filing a tax return

The due date of filing a business tax return varies from country to country. Foreign companies file an income tax return every year before 30th October. It does not matter even if the company was established in the financial year; the company has to file for the specific period's income tax return. The companies registered under the Companies Act, 2013 have to file the business tax return form ITR 7. The tax Audit report is also necessary to be submitted by the permitted companies.

Who needs to file a business tax return?

• Business Companies, LLPs, Firms have to pay taxes at a rate of 30%.
• The basic limit of filing the income tax is 2.5 lakh, and if your income before the subtraction is more than 2.5 lakh, you have to file a business tax return.
• If the total income before the subtraction is more than the basic tax requirement, you have to file the tax return form, despite considering its loss and profit.
• If you are an individual entrepreneur, your salary, business income, the income of the property, and interest income need to be stated on the tax return.

Also read:

1) Why Do We Pay Income Tax in India? Importance, Applicability & more
2) Provisions for Income Taxes in India Applicable for Salaried People.
3) How To Pay Income Tax Online? Step-By-Step Guide.
4) The USA vs India: Taxation System
5) OkCredit: Simple, Paperless & Secure solution for businesses

FAQs

Q. How can I calculate my corporate tax?

Ans. You can use a business tax calculator to get an accurate corporate tax. Multiply the interest with the tax rate, keeping the net profit in consideration to get the payable business tax amount.  

Q. As a limited company owner, how much do I have to pay?

Ans. The tax amount depends on the amount of net profit referred to in the concerned financial year.

Q. What is the meaning of business tax in India?

Ans. Business tax in India is the tax imposed on the company's net profits after reducing the expanses.

Q. What is the business tax rate?

Ans. The business tax slab for domestic companies of up to 250 crores is 25%, and for companies having a turn of more than 250 crores is 30%.