TAXATION OF COMPANIES

Group members:Akanksha Gupta

LakshmiKant PatnaikKhushboo GoelPulkit Sachdeva

WHAT IS A COMPANY?

• A company has been defined as a juristic

person having an independent and separate

legal entity from its shareholders.

WHAT IS A COMPANY?• As per section 2(17) of Income Tax Act, company means:

– Any Indian company; or

– Any body incorporated by or under the laws of a country outside India; or

– Any institution, association or body which was assessed as a company for any assessment year under the Income-tax Act, 1922 or was assessed under this act for any assessment year as a company commencing on or before 01.04.1970

– Any institution, association or body, whether incorporated or not and whether Indian or Non-Indian, which is declared by a general or special order of CBDT to be a company

COMPANY

A company in which the public are substantially interested u/s 2(18)

– A company owned by Government or Reserve Bank of India

– A company having Govt. participation.

– Companies registered under sec 25 of the Indian Companies Act, 1956

– A company declared by the CBDT

– Mutual benefit finance company

– A company having cooperative society participation

– A public limited company

TYPES OF COMPANY

1. Widely held company –It’s a company in which the public are substantially interested.

2. Closely held company – It’s a company in which the public are not substantially interested

3. Indian company u/s 2(26) –means a company formed and regd. under the Companies Act, 1956. It shall be registered or, as the case may be, principal office of the company, corporation, institution, association or body, in all cases is in India

TYPES OF COMPANY

4. Domestic Company u/s 2(22A) –means an Indian Company or any other

company which in respect of its income, liable to tax under the Income-

tax Act, has made the prescribed arrangements for the declaration and

payment within India payable out of such Income.

5. Foreign company u/s 2(23A) – A company which is not a domestic

company.

TYPES OF COMPANY

6. Investment company –means a company whose GTI

mainly consists of Income chargeable under the

heads House Property, Capital Gains, and other

sources.

RESIDENTIAL STATUS OF COMPANIES

Resident

• An Indian Company

• The control and management of its affairs is situated wholly in India

Non Resident

• Not an Indian Company

• The control and management of its affairs is situated partially or wholly outside India

INCIDENCE OF TAX

• Covered u/s 5 of Income-tax Act

• In case of Company Resident in India– Any income received or deemed to be received in India during

the relevant previous year by or on behalf of such person

– Any income which accrues or arises or is deemed to accrue or arise in India during the relevant previous year

– Any income which accrues or arises outside India during the relevant previous year

INCIDENCE OF TAX

• In case of Company Non-Resident

– Any income which is received or is deemed to be received in India during the relevant previous year by or on behalf of such person

– Any income which accrues or arises or is deemed to accrue or arise to him in India during the relevant previous year

COMPUTATION OF TOTAL INCOME

Calculate income under four heads (Salary head to be

excluded)

Section 60 and 61, and set off and carry

forward of losses applicable to calculate

GTI.

Subtract deductions to be allowed from

GTI to arrive at Total Income

DEDUCTIONSNO. SECTION EXPLANATION

1 80G DONATIONS TO CERTAIN FUNDS/CHARITABLE INSTITUIONS, ETC.

2 80GGA CERTAIN DONATIONS FOR SCIENTIFIC RESEARCH OR RURAL DEVELOPMENT

3 80GGB CONTRIBUTIONS GIVEN BY COMPANIES TO POLITICAL PARTIES

4 80IA PROFITS AND GAINS OF NEW INDUSTRIAL UNDERTAKINGS OR ENTERPRISES ENGAGED IN INFRASTRUCTURAL DEVELOPMENT,ETC.

5 80IAB DEDUCTIONS IN RESPECT OF PROFITS AND GAINS BY AN UNDERTAKING OR ENTERPRISE ENGAGED IN DEVELOPMENT OF SPECIAL ECONOMIC ZONE

6 80IB PROFITS GAINS FROM CERTAIN INDUSTRIAL UNDERTAKING OTHER THAN INFRASTRUCTURE DEVELOPMENT UNDERTAKINGS

DEDUCTIONSNO. SECTION EXPLANATION

7 80IC DEDUCTIONS IN RESPECT OF CERTAIN UNDERTAKINGS OR ENTERPRISES IN CERTAIN SPECIAL CATEGORY STATES

8 80ID DEDUCTIONS IN RESPECT OF PROFITS AND GAINS FROM HOTELS AND CONVENTION CENTRES IN SPECIFIED AREA

9 80IE SPECIAL PROVISIONS IN RESPECT OF CERTAIN UNDERTAKINGS IN NORTH-EASTERN STATES

10 80JJA DEDUCTIONS IN RESPECT OF PROFITS AND GAINS FROM BUSINESS OF COLLECTING AND PROCESSING BIO-DEGRAGDEABLE WASTE

11 80LA DEDUCTIONS IN RESPECT OF CERTAIN INCOMES OF OFFSHORE BANKING UNITS AND INTERNATIONAL FINANCE SERVICES CENTRE

12 80JJAA DEDUCTION IN RESPECT OF EMPLOYMENT OF NEW WORKMEN

TAX RATESShort-term capital gain on equity shares in a company or units of an equity oriented fund where the transaction is chargeable to securities transaction tax

15%

Tax on long-term capital gains 20%

Tax on winnings from lotteries, cross word puzzles, races including horse races, etc.

30%

Tax on income by way of dividends declared, distributed or paid by a specified foreign company

15%

Tax on any other income•Domestic Company•Foreign Company

30%40%

Surcharge in case total income exceeds Rs 10 crores•Domestic Company•Foreign Company

10%5%

Education cess 2% on Tax

Senior and Higher education cess 1% on Tax

MINIMUM ALTERNATE TAX

Tax payable for any assessment year cannot be less than 18.5% of

book value:

In case of company, the income tax payable on total income is

computed under the Income Tax Act, in respect of PY relevant to AY

or is less than 18.5% of its book profit, such book profit shall be

deemed to be the total income of the assessee and the tax payable

by the assessee on such total income (book profit) shall be the

amount of the income tax at the rate of 18.5%.

SPECIAL PROVISION

• Section 115JAA provides that where any amount of tax is paid under section 115JB(1) by a company for any AY shall be computed as under

MAT credit available = Tax paid u/s115JB – Tax Payable on the total income under normal provisions of the act.

The amount of credit so determined shall be allowed to carried forward and set of in a year when the taxes become payable on the total income computed under the regular provisions.

Illustration:

Suppose the book profit of a company for the AY

2014-15 are 10,00,000 whereas its total income

(including STCG of 1,60,000 referred to in section

111A) as per provisions of Income Tax Act is

4,00,000. The tax shall be payable as under:

(1) Tax on total income as per provision of the Act tax on STCG referred to in section 111A

1,60,000 @ 15% 24000

Tax on balance total income

2,40,000 @ 30% 72000

Total tax 96000

(2) Tax @ 18.5% on book profit

of 10,00,000 1,85,000

In the above case tax payable on total income i.e.

96,000 is less than 18.5% of the book profits i.e.

1,85,000. Hence in this case, deemed total income

shall be 10,00,000 and the tax payable shall be:

Tax payable 1,85,000

Add: Surcharge NIL*

Add: Edu. Cess and SHEC @ 3% 5,550

Total tax payable 1,90,500

* Surcharge is charged only when total income of the

company exceeds 10 crores.