Companies resident in India are taxed on their worldwide income arising from all sources in accordance with the provisions of the Income Tax Act. Non-resident corporations are essentially taxed on the income earned from a business connection in India or from other Indian sources. A corporation is deemed to be resident in India if it is incorporated in India or if it's control and management is situated entirely in India.
The current rates of Corporate tax on profits and other incomes generated by a company are as follows:
- Domestic companies are subject to tax at a basic rate of 35% and a 2.5% surcharge.
- Foreign companies have a basic tax rate of 40% and a 2.5% surcharge.
- An education cess at the rate of 2% on the tax payable is also charged.
- A Wealth tax at the rate of 1% is charged, if the net wealth exceeds Rs.1.5 million.
- A dividend distribution tax at the rate of 12.5% (propose to raise to 15% as per Union Budget 2007-08) is charged on Domestic companies.
- A Minimum Alternative Tax at 7.5% (plus surcharge and education cess) of book profit is charged, if the tax payable as per regular tax provisions is less than 7.5% of its book profits.