Gross profits tax

Gross Profits Tax – Gross profits tax is a tax levied on a business’s gross profit, which is calculated as total revenue minus the cost of goods sold (COGS). Unlike conventional corporate income tax that applies to net income after deducting all operating expenses, gross profits tax focuses solely on the profit generated from core business operations. This type of tax ensures that companies contribute to government revenue based on their revenue-generating efficiency, regardless of other operational costs or deductions. It is often applied in sectors where net profits may be difficult to measure or where governments want to ensure minimum tax collection from business activities.

Example: A business earns ₹50 lakh in revenue and has ₹30 lakh in COGS. Its gross profit is ₹20 lakh, and the gross profits tax is levied on this amount, regardless of other expenses such as salaries, rent, or utilities.