New Delhi, September 20: Union Finance Minister Nirmala Sitharaman on Friday slashed the corporate tax rate for domestic companies to 22 percent (inclusive of all cesses and surcharges). The rates were cut from the existing 30 percent, which was fixed in 2014. Considering the issue of corporate tax being reduced by the Union government amid economic crisis, here's an explainer on what is corporate tax and how government charges the companies under various provisions of corporate tax.

What is Corporate Tax?

Called mostly as corporation tax or company tax, this corporate tax is a direct tax which is imposed by the Union government on the net income of the company. Under this, both public and private companies -- registered under the Companies Act 1956 -- are liable to pay taxes to the government. Corporate Tax Slashed For Domestic Companies, Existing And Fresh; Nirmala Sitharaman Announces New Rates

The government imposes a tax on the net profit of a corporation which is defined as the financial statement net profit. The net profit is determined by each country under its tax system differently, and based on it, the percentage of tax is to be imposed are decided. For example, in Hungary, the corporate tax is 9 percent, while France charges a whopping 32 percent tax.

Types of Corporate Entities:

a) Domestic Corporations: Company established in India and is registered under India’s Companies Act, 2013. A foreign corporation can also be considered as a domestic corporation, provided an Indian arm’s management and control is wholly based in India.

b) Foreign Corporations: Company situated overseas and not in India. Also, if some part of a foreign company’s management and control is situated outside of India, it comes under the category of foreign corporations.

Types of Corporate Taxes in India:

a) Corporations not seeking any incentives/exemptions

b) Corporations seeking incentives/exemptions

c) New Manufacturing Companies

Corporate Tax Applied to Corporations:

a) Incorporated in India.

b) Acquire revenues from India and do business on those earned incomes.

c) Foreign corporations which have permanently established themselves in India.

d) Those who have earned the title of being an Indian resident, only for tax payment. What Are Loan Melas? Here's All About The Meetings Announced by Nirmala Sitharaman And How They Help Prospective Borrowers.

Corporation Tax Rates in India for a Domestic Corporation:

a) Gross turnover upto Rs 250 Crore -- 15% tax

b) Gross turnover more than Rs 250 Crore -- 22% tax.

Here's the explainer on Corporate Tax:

The government, under its new announcement, has decided to bring down the effective tax rate from 30 percent to 25.17 percent -- inclusive of all surcharges and cess for such domestic companies. However, the new manufacturing companies will now have to pay 15 percent corporate tax, which was earlier 25 percent. For them, the effective tax rate after surcharges and cess will be 17 percent.

(The above story first appeared on LatestLY on Sep 20, 2019 05:07 PM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).