Taxation and Assessment of Companies under the Income Tax Act, 1961

The Income Tax Act, 1961 governs the taxation of companies in India, outlining rules for computation, deductions, assessments, and compliance. Below is a structured breakdown of key aspects related to the taxation and assessment of companies under the Act.

1. Taxability of Companies

Companies are classified into two categories for taxation:

• Domestic Companies(incorporated in India) – Taxed on global income.
• Foreign Companies(incorporated outside India) – Taxed only on income earned in India.

Applicable Tax Rates (FY 2024-25)

• Domestic Companies:
  • 22%(plus surcharge & cess) if opting for concessional tax regime (without exemptions).
  • 30%(plus surcharge & cess) under the normal regime.
• Foreign Companies:
  • 40%(plus surcharge & cess) on royalty/fees for technical services.
  • 50%(plus surcharge & cess) on other income.

2. Key Provisions for Company Taxation

(A)  Computation of Taxable Income

Income is computed under five heads:

1. Profits & Gains from Business/Profession(Sections 28–44D).
2. Capital Gains(Sections 45–55).
3. Income from House Property(Sections 22–27).
4. Income from Other Sources(Section 56).
5. Dividends(Taxable under Section 115BBDA if exceeding ₹10 lakh).

(B)  Deductions & Exemptions

• Section 80IA/80IB:Deductions for infrastructure, SEZ, and industrial undertakings.
• Section 35:R&D expenditure deductions.
• Section 10AA:Tax holidays for units in Special Economic Zones (SEZs).
• Section 32:Depreciation on assets.

(C)  Minimum Alternate Tax (MAT)

• Applicability:Companies with book profits exceeding taxable income.
• Rate:15% (plus surcharge & cess) on book profits under Section 115JB.

(D)  Dividend Distribution Tax (DDT) Replaced

• Since 2020, dividends are taxable in shareholders’ hands, and companies must deduct TDS @ 10%(if dividend > ₹5,000) under Section 194.

3. Assessment Procedures for Companies

(A)  Types of Assessments

1. Self-Assessment (Section 140A):Company computes tax and files return.
2. Scrutiny Assessment (Section 143(3)):Detailed examination by tax authorities.
3. Best Judgment Assessment (Section 144):If company fails to comply.
4. Reassessment (Section 147):If income escaped assessment.

(B)  Compliance Requirements

• Filing of Returns:Mandatory by October 31 (for companies not under audit) or November 30 (audit cases).
• Tax Audit (Section 44AB):Required if turnover exceeds ₹10 crore (or ₹5 crore for presumptive taxation).
• Advance Tax:Quarterly installments under Section 208.

(C)  Penalties for Non-Compliance

• Late Filing:₹5,000–₹10,000 under Section 234F.
• Underreporting Income:50%–200% of tax evaded under Section 270A.
• Fraud/Willful Evasion:Prosecution under Section 276C.

4. Special Provisions for Companies

• Section 115BAA/115BAB:Lower tax rates (22%/15%) for manufacturing companies opting for no exemptions.
• Section 79:Carry forward of losses (restricted if shareholding changes >49%).
• Transfer Pricing (Sections 92–92F):Compliance required for international transactions.

5. Recent Changes (Finance Act 2025)

• Simplified Tax Regime:New bill replaces “Assessment Year” with “Tax Year” (aligned with financial year).
• Reduced Litigation:Faceless assessments and appeals introduced for transparency.

All Sections related to Taxation & Assessment of Companies are given below :

• Types, Definitions, And Residential Status of Companies Under the Income Tax Act, 1961
• Special Provisions for Foreign Companies Deemed Resident in India (Section 115JH)
• Special Provisions Applicable to Closely Held Companies (Public Not Substantially Interested)
• Tax on Dividends from Specified Foreign Companies [Section 115BBD]
• Tax on Total Income of a Company under Income Tax Act, 1961
• Tax on Income of Certain Manufacturing Domestic Companies [Section 115BA]
• Special Provisions for Tax on Income of Certain Domestic Companies under Section 115BAA
• Special Provisions for New Manufacturing Domestic Companies under Section 115BAB
• Provisions of MAT (Minimum Alternate Tax) Under Section 115JB
• MAT Credit Mechanism Under Section 115JAA (Tax Credit for MAT Paid Against Future Tax Liability)
• Preparation of Statement of Profit & Loss Under Section 115JB (2) for MAT Calculation
• Computation of Book Profit Under Explanation 1 to Section 115JB (1) & (2)
• Deduction of Brought Forward Losses & Unabsorbed Depreciation from Book Profits (Section 115JB)
• Furnishing of Accountant’s Report Under Section 115JB (4) & Rule 40B
• Special Provisions for Tax on Buyback of Shares (Sections 115QA to 115QC)