Topic 03 of 6 · Chapter 08 · Indian Economy
Income Tax & Corporate Tax
Income tax slabs, exemptions, deductions, corporate tax rates, MAT, and recent tax reforms in India.
1. Income Tax
Income tax is a direct tax levied on the income of individuals, HUFs, firms, and other entities. It is governed by the Income Tax Act, 1961.
| Income Slab (New Regime 2024-25) | Tax Rate |
|---|---|
| Up to ₹3 lakh | Nil |
| ₹3 lakh to ₹7 lakh | 5% |
| ₹7 lakh to ₹10 lakh | 10% |
| ₹10 lakh to ₹12 lakh | 15% |
| ₹12 lakh to ₹15 lakh | 20% |
| Above ₹15 lakh | 30% |
⭐ New vs Old Tax Regime: India has two income tax regimes — Old (with deductions like 80C, HRA) and New (lower rates but no deductions). From 2023-24, the New Regime is the default. Taxpayers can opt for Old Regime if beneficial.
2. Corporate Tax
Corporate tax is levied on the profits of companies. India reduced corporate tax rates significantly in 2019:
- Existing domestic companies: 22% (reduced from 30%)
- New manufacturing companies (set up after Oct 1, 2019): 15%
- Foreign companies: 40%
- Effective rate (including surcharge and cess): ~25.17% for existing companies
✅ 2019 Corporate Tax Cut: In September 2019, Finance Minister Nirmala Sitharaman announced a major cut in corporate tax rates — from 30% to 22% for existing companies and 25% to 15% for new manufacturing companies. This was done to boost investment and make India competitive globally.
3. Minimum Alternate Tax (MAT)
MAT ensures that companies with large book profits but low taxable income (due to deductions) pay a minimum tax.
- MAT rate: 15% of book profit
- If regular tax < MAT → company pays MAT
- MAT credit can be carried forward for 15 years
- Companies opting for new 22% rate are exempt from MAT
4. Key Points for Exam
🔑 Must-Remember Facts
- Income Tax governed by: Income Tax Act, 1961
- Income tax administered by: CBDT
- New tax regime is default from 2023-24
- Corporate tax for existing companies: 22% (reduced from 30% in 2019)
- Corporate tax for new manufacturing companies: 15%
- Foreign companies corporate tax: 40%
- MAT rate: 15% of book profit
- MAT credit carry forward: 15 years
- Surcharge on income tax: additional % on tax for high earners
- Health and Education Cess: 4% on income tax + surcharge