Corporate Tax - UPSC Indian Economy Notes

In order to run the government and manage the affairs of a state, money is required. So the government imposes taxes in many forms on the incomes of individuals and companies. Taxation in India can be classified as Direct and Indirect Taxes.

Corporation tax is a direct tax imposed on the net income or profit that enterprises make from their businesses. Companies, both public and privately registered in India under the Companies Act 1956, are liable to pay corporation tax. This tax is levied at a specific rate according to the provisions of the Income Tax Act, 1961.

Corporate Tax is an important topic for the IAS Exam and any other Government Exam.

This topic is a part of the Indian Economy section in General Studies Paper 3 of the UPSC Syllabus. 

Corporate Tax UPSC Notes:- Download PDF Here

What is Corporate Tax in India?

Also known as Corporation Tax, corporate tax is the tax imposed by the Government of India on the net income or profit that corporate enterprises make from their businesses. It is a tax imposed on the net income of the company.

• Corporate Income Tax is a Direct Tax.
• The tax is imposed at a specific rate as per the provisions of the Income Tax Act, 1961.
• In most nations, the Corporate Tax is levied at a national level and can also be levied at a State or local level.
• Private and public companies registered in India under the Companies Act are liable to pay corporate tax.
• Minimum Alternate Tax (MAT) is not applicable to such companies.
  • The Minimum Alternate Tax is a measure to include all companies in the income tax loop. The MAT ensures that no company with healthy finances and substantial income can avoid paying income tax, even after claiming exemptions.

Corporate Tax Latest News (2023)

The annual accounting information for the central government of India was made public by the Controller General of Accounts. As per this, in 2022-23, the government had a corporate tax of ₹8.26 trillion, amounting to 3.03% of the gross domestic product (GDP). A country’s economic size is gauged by its GDP for a certain year.

News in Detail:

• Total corporation tax in 2018–19, the year before the avian influenza pandemic began, was 3.51% of GDP. Over the past four years, business tax collections have decreased. However, during that time, the gross tax revenue, or the entire amount of taxes received by the government increased.
• Gross tax receipts for the 2018–19 fiscal year were 11.01% of GDP. It increased to 11.21% in 2022–2023 despite a decline in corporation tax receipts. This was mostly caused by a rise in personal income tax receipts, which went from 2.39% of GDP in 2018–19 to 2.97% in 2022–23. 
• Therefore, a decrease in corporate tax was more than offset by an increase in the mop-up for personal income taxes. 
• Additionally, the central goods and services tax (GST) collection rate increased from 2.42% of GDP in 2018–19 to 2.64% in 2022–23.

Taxation Laws Amendment Ordinance 2019

In order to revive the growth in the economy, an ordinance was passed by the President giving effect to the changes announced by the Finance Minister in the Corporate Income Tax Rates.

• Effective from April 2019, the corporate tax for domestic companies will be reduced.
• It will be applicable to companies incorporated on or after 1st October of 2019 and will start production on or before 31st March of 2023.
• This amendment will cost the government 1.45 lakh crore rupees annually which will increase the chance of higher Fiscal Deficit.
• It is expected that it will give a great stimulus to ‘Make In India’, attract private investment from across the globe, improve the competitiveness of the private sector, create more jobs.
• The reduction in corporate tax, effectively brings India’s ‘headline’ corporate tax rate broadly at par with an average of 23% rate in Asian countries.