Corporate tax is the tax imposed on the profits earned by companies or corporations. It is a direct tax charged by the government on the net income (revenue minus expenses) of a business. Corporate taxes are a major source of revenue for governments and help fund public services, infrastructure, and welfare programs.
Unlike personal income tax (paid by individuals), corporate tax is levied specifically on legal entities like private limited companies, public limited companies, and foreign companies operating within a country.
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Types of Corporate Tax
1. Corporate Income Tax
Levied on the net profits of a company.
Companies calculate their income after deducting all allowable expenses, depreciation, and other costs.
In India, domestic companies are taxed at different rates depending on turnover and whether they opt for concessional tax regimes.
Example (India, FY 2025):
Domestic company: 22% (plus surcharge & cess) under Section 115BAA if opting for the new regime.
Manufacturing companies (new): 15% under Section 115BAB.
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2. Minimum Alternate Tax (MAT)
Some companies show very low or zero taxable income by using exemptions, deductions, or incentives.
To ensure they pay a fair share, MAT is levied on "book profits" of the company.
In India, MAT is 15% (plus surcharge & cess) on book profits under Section 115JB.
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3. Dividend Distribution Tax (DDT) (Abolished in India in 2020 but still applicable in some countries)
Earlier, companies had to pay tax before distributing dividends to shareholders.
Now, dividends are taxed directly in the hands of shareholders in India.
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4. Capital Gains Tax on Corporations
When a company sells capital assets (like land, buildings, shares, machinery), the profit made is subject to capital gains tax.
Short-term and long-term capital gains are taxed at different rates.
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5. Surcharge and Health & Education Cess
Apart from the base corporate tax, companies must pay:
Surcharge: Extra charge if income crosses a specified threshold.
Cess: Additional tax for funding health and education schemes (currently 4% in India).
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Example with Current Situation (India, FY 2025)
Suppose ABC Pvt. Ltd. is a domestic manufacturing company with a net taxable income of ₹10 crore.
1. Base Corporate Tax under Section 115BAA:
22% of ₹10 crore = ₹2.2 crore
2. Surcharge (since income > ₹1 crore but ≤ ₹10 crore, surcharge @ 7%):
7% of ₹2.2 crore = ₹0.154 crore
3. Subtotal = ₹2.354 crore
4. Health & Education Cess (4%):
4% of ₹2.354 crore = ₹0.094 crore
5. Total Corporate Tax Payable = ₹2.448 crore
Thus, ABC Pvt. Ltd. must pay ₹2.448 crore as corporate tax.
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In simple terms: Corporate tax ensures companies contribute to the nation’s revenue, just like individuals pay income tax.
