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A company is required to pay tax on every rupee of its total income at a flat rate, without there being any

exemption limit.

Company [sec.2(17)]
i. ii. A company meansAny Indian company. Any body corporate incorporated under the law of a foreign country. iii. Any institution, association or body which was assessable or was assessed as a company for any AY upto1970-71, or iv. Any institution, association or body, whether incorporated or not and whether Indian or nonIndian, which is declared by general or special order of the CBDT to be a company.

Types of companies

Company in which the public are substantially interested. [Sec.2(18)] In the following cases, a company is said to be a company in which the public are substantially interested: 1. It is a company owned by the government or RBI or in which not less than 40% shares are held by the Government or RBI or a corporation owned by RBI.; or

2. It is a company which is registered u/s 25 of the Companies Act, 1956; or 3. It is a company, having no share capital and it is declared by order of the CBDT to be company in which public are substantially interested; or 4. it is a mutual benefit finance company, i.e., a company which caries on, as its principal business, the acceptance of deposit from its members and which is declared by the Central Government to be Nidhi or Mutual benefit society.

5. It is a company wherein shares carrying not less than 50% of the voting power are held by one or more co-operative societies throughout the relevant PY; or 6. It is a company which is not a private company and whose equity shares carrying not less than 50% (40% in the case of industrial company) of the voting power were beneficially held throughout the previous year by the Government, a statutory corporation or any other company in which public is substantially interested or a wholly owned subsidiary of such a company.

7. It is a company which is not a private company under the Companies Act, 1956, and its equity shares were, as on the last day of the relevant PY, listed in a recognised stock exchange in India.

If the majority of the equity shares of a public company are held by a foreign company in which public are substantially interested , such a company would be a company in which the public are substantially interested.

Widely held company Closely held company

Indian company [Sec.2(26)]


An Indian Company means a company formed and registered under the Companies Act, 1956. it includes a corporation established under a Central or State Act and any institution, association or body which is declared by the CBDT to be a company u/s 2(17).

In the case of the state of J&K, a company formed and registered under any law for the time being in force in that State is called an Indian Company . In the case of Dadra and Nagar Haveli, Goa, Daman and Dui and Pondichery a company formed and registered under any law for the time being in force in these places is called an Indian Company . In all cases the registered or principal office of the company, corporation, institution, association or body has got to be situated in India .

Public Sector Company [Sec.2(36A)]

It means any corporation established by or under any Central or State Act or a Government Company as defined in Sec.617 of the Companies Act, 1956.

Domestic company [Sec.2(22A)]


Domestic company means an Indian Company or any other company which, in respect of its income liable to tax under this act, has made a prescribed arrangements for the declaration and payment, within India, of the dividends payable out of such income.

Foreign company [Sec.2(33A)]

A foreign company is a company which is neither an Indian company nor has made a prescribed arrangements for the declaration and payment of dividends within India.

Company registered u/s 25 of Companies Act, 1956


It is a company formed to promote art, charity, commerce, religion or any other useful object nor for profit, and which intends to apply its profit, if any, or other income towards the further improvement of such objects and prohibits the payment of any dividend to its members. Such a company can be registered u/s 25 of Companies Act, 1956.

Principal officer [Sec.2(35)]


Principal officer means The secretary, treasurer, manager or agent of the company, or Any person connected with the management or administration of the company upon whom the assessing officer has served the notice of his intention of treating him as the principal officer of the company.

Person who has substantial interest in the company [Sec.2(32)]

It means a person who is the beneficial owner of equity shares carrying not less than 20% of voting power.

ASSESSMENT OF COMPANIES
A company is required to file its return of income u/s 139(1) of the Income Tax Act within the prescribed time, just like other assessees. The principal officer of the company files the return of income on behalf of the company. Thereafter the required procedures are followed by the Assessing Officer for the assessment of the company.

IMPORTANT POINTS REGARDING THE ASSESSMENT OF COMPANIES A company is liable to pay income tax on its total income, howsoever, small it may be. There is no exemption limit. Income tax is payable on a companies total income at a flat rate. However, different types of companies pay tax at different rates and on different types of incomes, the rates of tax are also different.

If the tax payable by the company is less than 15% (+ surcharge, if any education cess) of its book profits, it is liable to pay tax 15% (+ surcharge, if any education cess) of its book profit.

Computation of tax on companies


A company is assessed in its own name, i.e, a company pays tax on its income as a distinct unit. The tax paid by a company is not deemed to have been paid on behalf of its shareholder. A company is liable to pay income tax on its total income, however, small it may be. The income tax is payable on its total income at a flat rate except on the income for which special rates have been prescribed in the Act.

Rates of income tax


In the case of a domestic company. 1. Winnings u/s 115BB 30% 2. S-T capital gains specified in Sec.111A 3. L-T capital gain u/s 112 4. Other income

15% 10%/20% 30%

Surcharge.@ 10% (w.e.f.A.Y.2011-12 @7.5%) on the amount of income tax, if total income exceeds one crore rupees Where total income exceeds one crore rupees, the total amount payable as income-tax and surcharge on such income, shall not exceed, the total amount payable as income-tax on a total income of one crore rupees, by more than the amount of income exceeds one crore rupees.

Education cess - on the amount of income tax and surcharge @ 3%.

In the case of a company other than domestic company


On income from royalty received from government or an Indian concern in pursuance of an agreement made after march 31st ,1961 but before 1st April, 1976.---- 50% On income from fees for rendering technical services received from government or an Indian concern in pursuance of an agreement made after 29th February ,1964 but before 1st April, 1976.---- 50%

In respect of income under (i) and (ii) there should be an agreement with the government or Indian concern for the purpose, which should be approved by the Central Government.

1. Winnings u/s 115BB 2. S-T capital gains specified in Sec.111A 3. L-T capital gain u/s 112 4. Other income

30%

15% 10%/20% 40%

Surcharge-- @ 2.5% if total income exceeds one crore rupees Marginal relief- same Education cess-on the amount of income tax and surcharge @ 3%.

Special provision for payment of tax by certain companies or Minimum Alternative Tax (MAT) (Sec.1115JB) Where in the case of a company the income tax payable on its total income in respect of any PY relevant to AY commencing on or after 1.4.2010 is less than 15% (+ surcharge, if any + education cess) of its book profits, such book profit shall be deemed to be the total income and tax payable on such total income shall be the amount of income-tax @ 15% (+ surcharge, if any education cess) of such book profit.

Tax credit in respect of tax paid on deemed income of Certain Companies or Tax Credit in respect of MAT (Sec.15JAA)

Where MAT is paid by a company for the AY 2007-08 or any subsequent AY (u/s115JB) a tax credit will be allowed to it in subsequent years as under..

1. The tax credit shall be the difference between the tax paid under MAT and the tax payable on the total income computed under other provisions of the Act .

Suppose tax payable on total income is Rs.20,000 and the tax has been paid under MAT Rs.50,000. the tax credit will be allowed s.50,000-20,000=Rs.30,000.

2. The tax credit will be allowed to be carried forward for a maximum of 10 AYs succeeding the AY in which the credit becomes allowable . Suppose credit is allowable in the AY 2009-10, it can be carried forward and setoff upto the AY 2019-20

3. The tax credit will be allowed in the year in which the tax payable on total income is more than the tax payable under MAT u/s 115JB. 4. The set of will be allowed to the extent of an amount equal to the difference between the tax payable on the total income and the tax payable under MAT. Suppose b/f tax credit is Rs.40,000. the tax payable on total income is Rs.1,00,000 and the tax payable under MAT is Rs.80,000. Rs.20,000 can be set off this year and the company will pay Rs.80,000 only .

5. No interest shall be payable on tax credit. 6. Where as a result of assessment, reassessment, rectification of mistake, settlement, appeal or revision, the amount o tax payable is reduced or increased, the amount of tax credit shall also be increased or reduced accordingly.

While computing the profit the following points should be considered

1. The profit and loss account should be prepared in accordance with the provisions of parts II and III schedule VI to the companies Act, 1956.

2. While preparing the annual accounts including P&L A/c : The accounting policies The accounting standards The methods and rates of depreciation Shall be the same as has been adopted for preparing such accounts laid before the company at its annual general in accordance with the provisions of section.210 of the Companies Act.

Where a company adopts accounting year under the Companies Act, 1956 different from the PY under this Act, the items mentioned in ii shall be correspond for such financial year or part of such financial year falling within the relevant PY.

Book Profit

It means the net profit as shown in P&L A/c prepared based on the provisions of Companies Act, 1956. and adjusted as specified below:-

Increased by the following if debited to the P&L A/c


The amount of income tax paid or payable and the provision thereof. The amount carried to any reserve by whatever name called. The amount set aside to provisions made for meeting liabilities other than ascertained liabilities; The amount by way of provisions for losses of subsidiary companies The amount of dividends paid or proposed.

The amount of expenditure relatable to income to which sections 10,11 or 12 apply. However the expenses relatable to long term capital gains which are exempt u/s10(38) shall not be added. The amount of depreciation. The amount of deferred tax and the provision therefore; The amount or amounts set aside as provision for diminution in the value of any asset.

Reduced by the following The amount withdrawn from any reserve or provision credited to P&L A/c. Exceptions-any amount withdrawn from any reserve created before1.4.1997, which was not debited to P&L A/c shall not be deductible. Any provision or reserve was allowed in computing the book profit in a PY relevant to AY commencing on or after 1.4.1997, such provision or reserve if credited to P&L A/c shall not be deductible.

Exempted incomes (u/s 10, 11 or 12) credited to P&L A/c. However, the long term capital gains which are exempt u/s 10(38) shall not be deducted. The amount of depreciation claimed in P&L A/c, excluding the claim of depreciation on account of revaluation of assets.

The amount withdrawn from revaluation reserve and credited to P&L A/c to the extent it does not exceed the depreciation on account of revaluation of assets. The b/f loss or absorbed depreciation, whichever is less as per books of accounts.

The profits of sick industrial company for the AY commencing from the AY relevant to PY in which the company has become sick and ending the AY during which the entire net worth of such companies becomes equal to or exceeds the accumulated losses.

The amount of deferred tax , if such amount is credited to P&L A/c.

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