UNIT -I

Corporate Tax
In India, taxes on income, wealth, Capital Gains are some of the
most significant taxes paid by customers. Corporate houses too, be
it domestic or foreign, are required to pay taxes in order to run their
business. One of the may taxes that corporates are required to pay
to the Indian government is corporate tax or company tax.

What is Corporate Tax?

Corporate tax is a form of direct tax levied on profits earned by
businessmen in a particular period of time. Various rates of
corporate taxes are levied for different levels of profits earned by
business houses. Corporate tax is generally levied on the revenues
of a company after deductions such as depreciation, COGS (Cost of
goods sold) and SG&A (Selling general and administrative expenses)
have been taken into account.
Corporate tax or company tax can be assumed as an Income
Tax for income earned by businesses. Many countries levy
corporate tax in order to smooth out the tax process for enterprises.
Different countries have different rules that apply to taxing of
income.

Corporate Tax in India

Corporate tax in India is levied on both domestic as well as foreign
companies. Like all individuals earning income are supposed to pay
a tax on their income, business houses too are supposed to pay as
tax a certain portion of their income earned. This tax is known as
corporate tax, corporation tax or company tax.
Definition of a Corporate
Any juristic person having a separate and independent legal entity
from its shareholders is termed as a corporate. The income earned
by a company is computed and assessed separately from the
dividends that it offers to its shareholders. These dividends do not
figure out in the tax calculation of the company but are assessed as
part of the income of shareholder.
For the purpose of tax calculation, companies in India have been
broadly divided into the following two categories.
1. Domestic Corporate:
Any company that is Indian is called as domestic company or
if the company is foreign but the control and management is
wholly situated in India then also it is termed as a domestic
company. An Indian company means a company registered
under the Companies Act 1956
2. Foreign Corporate:
Any foreign company is one that is not of Indian origin and
has some part of control and management of affairs located
outside India

INCOME SLAB AND TAX RATES FOR F.Y. 2020-21/A.Y 2021-22

1. Tax Slab Rate for Domestic Company:

A domestic company is taxable at 30%. However, the tax rate is 25% if turnover or gross receipt of the
company does not exceed Rs. 400 crore in the previous year.

Particulars Tax Rate(%)

If turnover or gross receipt of the company does not exceed Rs. 400
25%
crore in the previous year 2018-19

If company opted section 115BA (Note 1) 25%

If company opted for section 115BAA (Note 2) 22%

If company opted for section 115BAB (Note 3) 15%

Any other domestic company 30%

Note 1: Section 115BA - A domestic company which is registered on or after March 1, 2016 and
engaged in the business of manufacture or production of any article or thing and research in relation to
(or distribution of) such article or thing manufactured or produced by it and also It is not claiming any
deduction u/s 10AA, 32AC, 32AD, 33AB, 33ABA, 35(1)(ii)/(iia)/(iii)/35(2AA)/(2AB), 35AC, 35AD,
35CCC, 35CCD, section 80H to 80TT (Other than 80JJAA) or additional depreciation, can opt section
115BA on or before the due date of return by filing Form 10-IB online. Company cannot claim any
brought forwarded losses (if such loss is related to the deductions specified in above point).
Note 2: Section 115BAA - Total income of a company is taxable at the rate of 22% (from A.Y 2020-
21), if the following conditions are satisfied:
- Company is not claiming any deduction u/s 10AA or 32(1)(iia) or 32AD or 33AB or 33ABA or 35(1)
(ii)/(iia)/(iii)/35(2AA)/(2AB) or 35AD or 35CCC or 35CCD or section 80H to 80TT (Other than
80JJAA).
- Company is not claiming any brought forwarded losses (if such loss is related to the deductions
specified in above point).
- Provisions of MAT is not applicable on such company after exercising of option. company cannot
claim the MAT credit (if any available at the time of exercising of section 115BAA).
Note 3: Section 115BAB - Total income of a company is taxable at the rate of 15% (from A.Y 2020-
21), if the following conditions are satisfied:
- Company (not covered in section 115BA and 115BAA) is registered on or after October 1, 2019 and
commenced manufacturing on or before 31st March, 2023.
- Company is not formed by splitting up or reconstruction of a business already in existence.
- Company does not use any machinery or plant previously used for any purpose.
- Company does not use any building previously used as a hotel or a convention center, as the case may
be.
- Company is not engaged in any business other than the business of manufacture or production of any
article or thing and research in relation to (or distribution of) such article or thing manufactured or
produced by it. Business of manufacture or production shall not includes business of -

 Development of computer software;

 Mining ;

 Conversion of marble blocks or similar items into slabs;

 Bottling of gas into cylinder;

 Printing of books or production of cinematographic film; or

 Any other notified by Central Govt.

- Company is not claiming any deduction u/s 10AA or 32(1)(iia) or 32AD or 33AB or 33ABA or 35(1)
(ii)/(iia)/(iii)/35(2AA)/(2AB) or 35AD or 35CCC or 35CCD or section 80H to 80TT (Other than
80JJAA and 80M).

- Company is not claiming any brought forwarded losses (if such loss is related to the deductions
specified in above point).

- Provisions of MAT is not applicable on such company after exercising of option. company cannot
claim the MAT credit (if any available at the time of exercising of section 115BAA).
 Surcharge:
a) 7% of Income tax where total income exceeds Rs.1 crore
b) 12% of Income tax where total income exceeds Rs.10 crore
c) 10% of income tax where domestic company opted for section 115BAA and 115BAB
Education cess: 4% of Income tax plus surcharge
2. Tax Rates for Foreign Company:

A foreign company is taxable at 40%

Surcharge:
a) 2% of Income tax where total income exceeds Rs. 1 crore
b) 5% of Income tax where total income exceeds Rs. 10 crore
Education cess: 4% of Income tax plus surcharge

Types of Companies under Income

Tax Act.
1. Company: As per section 2(17), Company means:
2. A Company in which the Public are substantially interested (Section 2(18) :
3. Widely held company:
4. Closely held company:
5. Indian company [Section 2(26)]:
6. Domestic company [Section 2(22A)]:
7. Foreign company [Section 2(23A)]:
8. Investment Company:
9. Residence of a Company [Section 6(3)]
1. Company: As per section 2(17), Company
means:
1. any Indian company, or

2. any body corporate incorporated by or under the laws of a country

outside India, or

3. 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 as a company for any assessment year
commencing on or before 1.4.1970, or

4. Any institution, association or body, whether incorporated or not and

whether Indian or NonIndian, which is declared by a general or special
order of CBDT to be a company.

2. A Company in which the Public are substantially

interested (Section 2(18) :
Section 2(18) of the Income-tax Act, has defined "a company in which the
public are substantially interested". It includes:

1. A company owned by Government or Reserve Bank of India.

2. A company having Govt. participation i.e. A company in which not

less than 40% of the shares are held by Government or the RBI or a
corporation owned by the RBI.

3. Companies registered under section 25 of the Indian Companies

Act, 1956: Companies registered under section 25 of the Companies
Act, 1956 are companies which are promoted with special object such
as to promote commerce, art, science, charity or religion or any other
useful object and these companies do not have profit motive. However,
if at any time these companies declare dividend they would loose the
status of a company in which the public are substantially interested.

4. A company declared by the CBDT: It is a company without share

capital and which having regard to its object, nature and composition of
its membership or other relevant consideration is declared by the Board
to be a company in which public are substantially interested.

5. Mutual benefit finance company, where principal business of the

company is acceptance of deposits from its members and which has
been declared by the Central Government to be a Nidhi or a Mutual
Benefit Society.

6. A company having co-operative society participation: It is a

company in which at least 50% or more equity shares have been held by
one or more co-operative societies.
 7. A public limited company: A company is deemed to be a public
limited company if it is not a private company as defined by the
Companies Act, 1956 and is fulfilling either of the following two
conditions:

a. Its equity shares were listed on a recognised stock exchange, as

on the last day of the relevant previous year; or

b. Its equity shares carrying at least 50% of the voting power (in the
case of an industrial company the limit is 40%) were beneficially
held throughout the relevant previous year by Government, a
statutory corporation, a company in which the public is
substantially interested or a wholly owned subsidiary of such a
company.

3. Widely held company:

It is a company in which the public are substantially interested.

4. Closely held company:

It is a company in which the public are not substantially interested.

5. Indian company [Section 2(26)]:

'Indian Company' means a company formed and registered under the
Companies Act, 1956 and includes—

1. a company formed and registered under any law relating to companies

formerly in force in any part of India (other than the State of Jammu and
Kashmir and the Union Territories;

i. a corporation established by or under a Central, State or

Provincial Act;

ii. any institution, association or body which is declared by the

Board to be a company;

2. in the case of the state of Jammu and Kashmir, a company formed and
registered under any law for the time being in force in that State;
 3. in the case of any of the Union territories of Dadra and Nagar Haveli,
Goa, Daman and Diu, and Pondicherry, a company formed and
registered under any law for the time being in force in that Union
Territory.

Provided that the registered or, as the case may be, principal office of the
company, corporation, institution, association or body, in all cases is in India.

6. Domestic company [Section 2(22A)]:

A domestic company 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, of the
dividends (including dividends on preference shares) payable out of such
income.

Thus, all Indian Company are treated as Domestic Company but all Domestic
Company are not Indian Company.

If a Foreign Company makes prescribed arrangements for payment of

dividends in India it shall be treated as Domestic Company.

7. Foreign company [Section 2(23A)]:

Foreign company means a company which is not a domestic company, i.e. a
company registered outside India in any other foreign country.

The Foreign Company may be treated as Domestic Company if such company

makes prescribed arrangement in India as per Rule 27.
Rule 27. : Prescribed arrangement for declaration and payment of dividends
within India.
The arrangements referred to in sections 194 and 236 to be made by a
company for the declaration and payment of dividends ( including dividends
on preference shares) within India shall be as follows :

1. The share-register of the company for all shareholders shall be regularly

maintained at its principal place of business within India, in respect of
any assessment year from a date not later than the 1st day of April of
such year.

2. The general meeting for passing the accounts of the previous years
 relevant to the assessment year and for declaring any dividends in
respect thereof shall be held only at a place within India.

3. The Dividend declared , if any, shall be payable only within India to all
shareholder

Sec.6(3), Residential Status of foreign Company

Foreign Company is treated as Resident in India if its Control and
Management is located wholly in India.

Foreign Company is treated as Non-Resident in India if its Control and

Management located wholly / partially Outside India.

Sections applicable to Foreign Company are 44BBB, 44D, 115A, 195 etc.

8. Investment Company:
Investment company means a company whose gross total income consists
mainly of income which is chargeable under the heads Income from house
property, Capital gains and Income from other sources.

9. Residence of a Company [Section 6(3)]

When is a company said to be Resident in India?

A company is said to be Resident in India in any previous year, if—

1. it is an Indian company; or
2. its place of effective management, in that year, is in India.

When is a company said to be Non-Resident in India ?

Provisions applicable from assessment year 2017-18

A Company will be a Non-Resident in any previous year if:

3. it is not an Indian company and

4. its place of effective management, in that year, is not in
India.
Residential Status is to be determined for the taxability of income of
a person. This term is coined under the Income Tax Act and has nothing to do with
the nationality or citizenship of a person. The residential status of the assessee is to
be determined each year with reference to the ‘previous year'. A person may be a
resident in one previous year and non- resident in other. Residential status of
assessment year is not important. The residential status of a company is to be
determined on the basis of its registration. Section 6(3) provides the following
conditions in this connection.

Resident [Section 6(3)] A company shall be said to be resident in

India, in any previous year, if
(a) it is an Indian company; OR
(b) its place of effective management, at any time in that year, is in India. Now let
us understand the meaning of 'Place of Effective Management'. For this purpose,
the expression "place of effective management” shall mean a place where key
management and commercial decisions that are necessary for the conduct of the
business of an entity as a whole are, in substance made.

'Place of effective management' (POEM) is internationally

used as a condition for determination of residence of a company incorporated in a
foreign jurisdiction. Almost all the tax treaties entered into by India recognises the
concept of 'place of effective management for determination of residence of a
company as a tie-breaker rule for avoidance of double taxation. Determination of
the POEM will depend upon the facts and circumstances of a particular case.
Moreover, an entity may have more than one places of management, but it can
have only one place of effective management at any point of time. Since
"residential status" is to be determined for each year, POEM will also be required
to be determined on year to year basis. The process of determination of POEM
would be primarily based on the fact as to whether or not the company is engaged
in active business outside India.
Not Ordinarily Resident A company cannot have this status. It can either be
resident or non-resident.

Non-resident [Section 2(30)] A company shall be considered as a 'non-

resident' if it is not resident in India during the relevant accounting year. It implies
that, a non-Indian company whose place of effective management is not in India at
any time during the financial year, shall be a non-resident of India for that previous
year. Similarly, non Indian company having turnover or gross receipts of 50 crores
or less in a financial year shall also be a non-resident of India because of non-
applicability of POEM guidelines (issued by CBDT) to such companies.

MAT – A Brief Introduction

Minimum Alternative Tax is payable under the Income Tax Act. The
concept of MAT was introduced to target those companies that make huge
profits and pay the dividend to their shareholders but pay no/minimal tax
under the normal provisions of the Income Tax Act, by taking advantage of
the various deductions, and exemptions allowed under the Act.
But with the introduction of MAT, the companies have to pay a fixed
percentage of their profits as Minimum Alternate Tax. MAT is applicable to
all companies, including foreign companies. MAT is calculated under
Section 115JB of the Income-tax Act.

Every company should pay higher of the tax calculated under the following
two provisions:

1. Tax liability as per the Normal provisions of income tax act (tax rate
30% plus 4% eEdu. cess plus surcharge (if applicable)

Tax liability for the domestic companies is 25% plus 4% cess and
applicable surcharge, as per the normal provisions of the Income Tax Act
whose turnover or gross receipts is upto Rs. 400 crore

2. Tax liability as per the MAT provisions are given in Sec 115JB (The tax
rate is 15% of Book Profits plus 4 % education cess plus a surcharge, if
applicable, with effect from AY 2020-21 (FY 2019-20))Prior to FY 2019-20,
the MAT rates were 18.5 %

How to calculate MAT?

MAT is equal to 15% with effect from AY 2020-21(18.5% prior to AY 2020-
21) of Book profits (Plus Surcharge and cess as applicable).

Book profit means the net profit as shown in the profit & loss account for
the year as increased and decreased by the following items:
Additions to the Net Profit (If debited to
the Profit and Loss Account)

1. Income Tax paid or payable if any calculated as per normal provisions of

income tax act.

2. Transfer made to any reserve

3. Dividend proposed or paid

4. Provision for loss of subsidiary companies

5. Depreciation including depreciation on account of revaluation of assets

6. Amount/provision of deferred tax

7. Provision for unascertained liabilities e.g. provision for bad debts

8. Amount of expense relating to exempt income under sections 10,11,12

(except sec 10AA and 10(38) This means income under section 10AA &
long term capital gain exempt under section 10(38) are subject to
MAT.Provision made for diminution in the value of any asset

Deletions to the Net Profit (If credited

to the Profit and Loss Account)

1. Amount withdrawn from any reserves or provisions

2. The amount of income to which any of the provisions of section 10, 11 &
12 except 10AA & 10(38) applies.
3. Amount withdrawn from revaluation reserve and credited to profit & loss
account to the extent of depreciation on account of revaluation of asset.

4. Amount of loss brought forward or unabsorbed depreciation, whichever

is less as per the books of account. However, the loss shall not include the
depreciation. (if loss brought forward or unabsorbed depreciation is nil then
nothing shall be deducted.)

5. Amount of Deferred Tax, is any such amount is credited in the profit &
loss account

6. Amount of depreciation debited to the Profit and Loss Account (excluding

the depreciation on revaluation of Assets)