Understanding business income tax in India and its slabs and rates is crucial for every business, regardless of size. This tax is significant in the government’s revenue and can considerably impact business operations.
What is Business Income Tax?
The government charges business income tax on your company’s revenues, similar to an income tax for businesses; the higher your company’s profits are, the more tax you owe. This tax supports financing government initiatives and maintaining operations.
Business Income Tax Slabs and Rates
The appropriate tax rates for different business entities differ based on their legal structure. Here’s a breakdown of the recent Business Income Tax slabs and rates:
| Entity | Tax Slabs (Income in INR) | Tax Rate |
| Individuals/Sole Proprietors | Up to 2.5 lakhs | 0% |
| 2.5 lakhs to 5 lakhs | 5% | |
| 5 lakhs to 10 lakhs | 20% | |
| Above 10 lakhs | 30% | |
| Companies (Domestic) | Up to 250 crores | 25% |
| Above 250 crores | 30% | |
| Companies (Foreign) | All Income | 40% |
| Partnership Firms | All Income | 30% |
| LLPs | All Income | 30% |
Calculating Business Income Tax
To calculate the business income tax, businesses need to follow these steps:
- Determine the total income from all sources.
- Identify and deduct eligible expenses and deductions.
- Calculate the taxable income by subtracting deductions from the total income.
- Apply the appropriate tax slab or rate based on the type of business entity and taxable income.
- Add any applicable surcharge and cess to the calculated tax amount.
For Example
Mr. King is a sole proprietor with a gross income of ₹15 lakhs from his business. His admissible expenditures amount to ₹8 lakhs.
- Taxable Income = Gross Income – Expenses = 15-8 = ₹7 lakhs
- Applicable Tax Rate = 20% (for income between ₹5 lakhs and ₹10 lakhs)
- Tax Liability = Taxable Income * Tax Rate = ₹7 lakhs * 20% = ₹1.4 lakhs
- Surcharge (if applicable) = (10% on income exceeding ₹10 lakhs) =₹40,000
- Cess = (4% of total tax amount) =₹56,000
- Total Tax Liability = Tax + Surcharge + Cess = 1.4 lakhs + 40,000 + 56,000 = ₹2.36 lakhs
Filing Business Income Tax Returns
Businesses are required to file their income tax returns (ITRs) annually with the Income Tax Department (ITD). The specific ITR forms used for filing business income returns depend on the type of business entity:
- ITR-4: For Individuals/Sole Proprietors
- ITR-6: For Companies
- ITR-5: For Partnership Firms and LLPs
ITR Filing Deadlines
- Companies: September 30th of the subsequent financial year.
- Other Entities: July 31st of the subsequent financial year.
New Business Tax Regime
In 2020, India’s government unveiled an optional tax system for businesses. This system proposes reduced tax rates, albeit with some limitations.
- Eligibility: Domestic companies with a turnover of up to ₹400 crores.
- Tax Rates:
- Up to ₹250 crores: 15%
- Above ₹250 crores: 22%
Tax Deductions and Exemptions
Businesses can claim various deductions and exemptions to reduce tax load. Some of the Tax deductions and exemptions are:
- Expenses: Costs related to rent, salaries, utilities, travel, and other business operations.
- Depreciation: Asset deterioration due to business use.
- Charitable Contributions: Gifts made to authorised charitable organisations.
- Startups and New Businesses: Tax incentives provided by the Indian government to inspire startups and new ventures.
Calculating Total Tax Liability
To determine the total tax liability, consider all these applicable taxes:
- Basic Tax: This is calculated based on income and applicable tax slab.
- Surcharge: This applies to individuals/single proprietors exceeding a certain income threshold.
- Cess: This is charged 4% of the total tax amount.
Mistakes to Avoid
It’s not uncommon for businesses to encounter errors while submitting their tax returns.
Here are some common mistakes to avoid:
- Taxable Income Miscalculation: Ensure accurate deduction and expense calculations.
- Choosing the Wrong ITR Form: Choose the appropriate form based on your business structure.
- Missing Deadlines: File your ITR within the specified timeframe.
- Ignoring Deductions and Exemptions: Claim all eligible deductions and exemptions to minimise your tax burden.
Seeking Professional Guidance for Business Income Tax
Professional advice from a tax consultant or chartered accountant can give reassurance and confidence.
Tax Professionals can help you:
- To calculate tax liability accurately.
- To choose the best tax regime.
- To claim all allowable deductions and exemptions.
- To ensure timely and accurate ITR filing.
If you require assistance with your business income tax matters, seek guidance from a qualified professional. Contact TAXVIC for expert advice and ensure accurate tax compliance.
Accurate calculation and timely payment of business income tax are essential for maintaining compliance with Indian tax laws and ensuring the smooth operation of businesses. Businesses can effectively manage their tax liabilities and optimise their cash flows by understanding the applicable tax slabs, rates, deductions, and exemptions.
FAQs about Business Income Tax in India
What are the differences between the old and new business tax regimes?
The significant differences between the old and new business tax regimes are:
- Tax Rates: The new regime offers lower rates, which are 15% up to ₹250 crores and 22% for above, while the old regime tax rate is 25% flat for companies.
- Deductions: The new regime has removed certain deductions available under the old regime.
Is my business eligible for the new tax regime with lower rates?
Yes, domestic companies with a turnover of up to ₹400 crores are eligible for the new tax regime.
What types of expenses can I claim as deductions for my business?
Some expenses that can be claimed as deductions include rent, wages, utilities, travel, office materials, promotion, repairs, and other business-associated valid expenditures.
Do freelancers and consultants have any tax advantages?
Yes, freelancers and consultants can claim deductions for business expenses and contributions to schemes such as EPF, PPF, and NPS.
What are the consequences of filing my business income tax return late?
Some of the consequences of Late Income Tax Return Filing are:
- Late ITR filing causes interest charges and penalties.
- Delay in ITR filing can lead to legal action.
What are the mistakes businesses make during income tax filing?
Some of the income tax filing mistakes that businesses make are:
- Miscalculation of taxable income.
- Selecting the wrong ITR form.
- Missing the deadlines.
- Ignoring eligible deductions and exemptions.
Is it mandatory to consult a tax consultant or chartered accountant?
It is not mandatory but highly recommended for complex tax matters. Because they can help with accurate calculations, choose the best tax regime, claim deductions, and ensure compliant ITR filing.
What are the regulations and limitations for claiming tax deductions?
Each deduction and exemption has definite regulations and limitations, so consulting a tax professional confirms accurate claim and compliance.
How can I ensure accurate calculation and compliance with tax laws?
To ensure accurate calculation and compliance, always remember to:
- Keep accounting records for accurate financial tracking.
- Consult a tax professional for guidance to ensure accurate calculation and compliance.
- File Income Tax Returns (ITRs) within the deadlines.
- Claim all eligible deductions and exemptions to reduce your taxable income.
Where can I find resources and information about business income tax in India?
For resources and information about business income tax in India, businesses can:
- Visit Income Tax Department of India website
- Consult with a Chartered Accountant or Tax Consultant.
- Read about business income tax in India in Government publications and online resources.
Expert Insights
Business Income Tax in India covers tax slabs, deductions, filing processes, and recent changes. A valuable resource for Indian businesses. – CA Reetu
