Income Tax

CORPORATE VS PERSONAL INCOME TAX

by TaxAcumen Team

Taxes are the basis of a nation’s economy since they generate the money required for welfare and development initiatives. Both individuals and companies are subject to taxation in India under the Income Tax Act, 1961.

Despite having direct taxes, corporate tax and personal income tax have different regulations and apply to different entities. For the purpose of financial planning and compliance, it is crucial to understand the differences between these two.

WHAT IS CORPORATE TAX?

Corporate tax is the tax charged on the profits of companies registered under the Companies Act, 2013. It applies to both domestic and foreign companies that earn income in India. Corporate tax is calculated on the net taxable income, which is total revenue minus permissible expenses, depreciation, and deductions.

In India, the corporate tax rate has undergone significant changes in recent years. As of August 2025, the basic rates are

  • Domestic Companies:

22% (plus surcharge and cess) for companies not claiming exemptions or incentives under Section 115BAA.

15% for new manufacturing companies incorporated after October 1, 2019, and commencing production before March 31, 2025, under Section 115BAB.

  • Foreign Companies:

Taxed at 40% on income earned in India, plus applicable surcharge and cess.

Additional components like Minimum Alternate Tax (MAT) at 15% (Section 115JB) may apply if the company’s tax liability is lower than the prescribed threshold.

Corporate tax applies to:

  • All Indian companies (small, medium, and large).
  • Foreign companies operating through a permanent establishment in India.

The revenue collected through corporate taxes is a major source of funds for the government and is used to finance infrastructure, social welfare, and public services.

WHAT IS PERSONAL INCOME TAX?

Personal income tax is the tax imposed on the income of individuals, Hindu Undivided Families (HUFs), Associations of Persons (AOPs), and similar entities. It is payable on income from all sources combined, such as salary, house property, business or profession, capital gains, and other sources.

In India, individuals can choose between two tax regimes:

  • Old Regime: Offers higher tax rates but allows deductions and exemptions under various sections like 80C, 80D, HRA, and LTA.
  • New Regime: Provides lower tax rates with fewer deductions and exemptions.

As of FY 2025-26, under the new tax regime (which is now the default option), the slab rates for individuals are

  • ₹0 – ₹300,000: Nil
  • ₹300,001 – ₹700,000: 5%
  • ₹700,001 – ₹1,000,000: 10%
  • ₹10,00,001 – ₹12,00,000: 15%
  • ₹12,00,001 – ₹15,00,000: 20%
  • Above ₹15,00,000: 30%

For individuals, the tax is levied on the total income after allowing deductions and exemptions (if opted under the old regime). For example, if someone earns ₹10,00,000 and has deductions of ₹1,50,000 under Section 80C, the taxable income will be ₹8,50,000.

Most individuals pay tax based on progressive tax slabs, meaning higher income attracts higher rates.

Corporate vs Personal Income Tax: The Key Differences

Although both taxes serve the same purpose—raising revenue for the government—they differ in several ways:

  • Taxpayer: Corporate tax is paid by companies, while personal income tax is paid by individuals and certain other entities like HUFs.
  • Tax Rate: Corporate tax rates are fixed, whereas personal income tax follows a slab system under progressive taxation.
  • Deductions: Companies can claim business-related expenses and incentives, while individuals claim personal deductions like investments under Section 80C or medical expenses under 80D (if the old regime is chosen).
  • Compliance: Companies must file detailed financial statements and tax audit reports along with their ITR (Form ITR-6 for most companies). Individuals file simpler returns like ITR-1 or ITR-2, depending on their income sources.
  • Minimum Tax: Companies are subject to MAT, while individuals are not.

WHY UNDERSTANDING THE DIFFERENCE MATTERS

For business owners, tax planning must address both personal and corporate tax obligations. For example, if you draw a salary from your own company, it will be taxed under personal income tax, while your company’s profits will face corporate tax. Understanding both ensures proper compliance, avoids penalties, and helps optimize your tax liability through legitimate deductions and planning.

CONCLUSION

The two main foundations of India’s direct taxation system are personal income tax and corporate tax. Individuals’ income is subject to personal income tax, whilst companies’ profits are subject to corporate tax. Each has its own set of regulations, fees, and standards for compliance. Being informed is essential due to the constant changes made to the Finance Acts, such as the latest modifications to business tax benefits and the updated slab structure for individuals. It is always advised to consult a tax professional for appropriate filing and tax preparation.