Is a company explicitly defined under the Act?

Yes, section 2(17) of the Act defines a company. Its scope is much broader in the Income-tax Act than in the Companies Act. Under the Act, the expression ‘Company’ means:

  • (a) any Indian company incorporated under the Companies Act, 2013 and has a registered or principal office here in India; or
  • (b) a body corporate that is incorporated under the laws of any foreign company; or
  • (c) any institution, body or association which is to be assessed or was assessed as a company for any assessment year under the previous Income Tax Act or the present Act; or
  • (d) any association, institution or body, whether incorporated or not and whether Indian or non-Indian, which is declared by a general or special order of the Central Board of Direct tax (CBDT) to be a company for such assessment years as may be specified in the CBDT’s order.
Companies are classified as:

Income-tax Act

Corporate Tax in India

Corporate Taxes are computed based on income grouped under various heads such as:

  • Rental income grouped under the head Income from House Property,
  • Income from Profits and Gains of Business or Profession,
  • Capital Gains,
  • Income from Other Sources like dividends, interest etc.

The tax shall be computed based on either of the following incomes:

  • Net profits from business computed in accordance with the Income-Tax Act, or
  • Book profits computed in accordance with the Companies Act (sec 115JB Minimum Alternate Tax (MAT))

The corporate income-tax rate(%) applicable for the financial year 2020-21 is as follows:

Income Domestic Company- If total turnover or gross receipts is upto INR 400 crores in the financial year 2018-19 Other domestic companies Foreign companies
Basic Effective Basic Effective Basic Effective
Upto INR 1 Crore 25% 26% 30% 31.20% 40% 41.6%
More than INR 1 Crore but upto 10 Crores 25% 27.82% 30% 33.384% 40% 42.432%
More than INR 10 crores 25% 29.12% 30% 34.944% 40% 43.68%

The effective rate above includes surcharge, as applicable and health and education cess of 4%

The surcharge rates vary based on the turnover, which is as given below:

Income Domestic companies Foreign companies
Upto INR 1 Crore Nil Nil
More than INR 1 Crore but upto 10 Crores 7% 2%
More than INR 10 crores 12% 5%

Reduced rate of taxes for certain domestic companies

Reduced taxes rates were introduced to encourage the companies to expand their operations, thereby providing the much-needed boost to the economy. Certain conditions are attached to such beneficial rates. Therefore, the companies have an option to pay tax at the reduced rates or the normal rates. The benefits and conditions are as follows:

A) Existing Companies:
  • a) Section 115BAA

    i) Tax Rate:
    Effective rate: 25.168%
    Basic: 22%
    Surcharge: 10% (irrespective of the turnover)
    Cess: 4%

    ii) The companies should not claim the deduction of the following benefits otherwise available to them :

    1. deduction under section 10AA available for newly established units in Special Economic Zones.
    2. additional depreciation under section 32
    3. The benefit of investment allowance under section 32AD regarding investments made in new plant and machinery made in notified backward areas of Andhra Pradesh, Telangana, Bihar, and West Bengal
    4. deduction for expenditure on scientific research under section 35(1)(ii), 35(1)(iia), 35(1)(iii), 35(2AA), 35(2AB)
    5. 100% deduction of capital expenditure incurred towards specified business under section 35AD
    6. tea, coffee, rubber manufacturing companies should not claim a deduction under section 33AB
    7. companies engaged in production or extraction of petroleum or natural gas or both in India shall not claim any deduction towards deposits made for site restoration fund under section 33ABA
    8. deduction of expenditure incurred on an agriculture extension project under section 35CCC
    9. deduction of expenditure incurred on skill development project under section 35CCD
    10. deductions under chapter VI-A except for 80JJAA for employment of new employees, 80LA for off-shore banking units etc., and 80M for inter-corporate dividends
    11. Set-off of any carried forward losses or unabsorbed depreciation, including those of the amalgamated company which was transferred to it under amalgamation, if they are attributable to the deductions mentioned above

    iii) Companies must exercise the option to pay [email protected]% before the due date of filing return in Form 10-IC

    iv) on electing to pay tax under this section, MAT and MAT credit shall not apply to such companies

  • b) Section 115BA:

    i) Tax Rate
    Effective rate: depends on turnover (refer to the third column of the first table)
    Basic: 25%
    Surcharge: based on the turnover
    Cess: 4%

    The company can exercise such an option if it fulfils all the following conditions:

    1. The company is set up and registered on or after 1 March 2016
    2. The company is engaged in the manufacturing or production of any article or thing
    3. Same as point (ii) of section 115BAA above
    4. The company must exercise the option upto the due date of return filing in Form 10-IB
    5. The option, once exercised, shall continue for the lifetime of the company except when it switches to section 115BAA.
B) Newly set-up manufacturing companies

  • a) Section 115BAB i) Tax Rate
    Effective rate: 17.16%
    Basic: 15%
    Surcharge: 10% (irrespective of the turnover)
    Cess: 4%

    However, the above tax rates are only for income from manufacturing businesses. Tax rates for other income are summarised below:

    Summary of tax rates applicable for companies opting to pay tax under section 115BAB:

    Income Tax Rate
    Income from manufacturing 15%
    Income from non-manufacturing activity (If no specific rate is prescribed) 22%
    Short-term capital gain(STCG) on the transfer of depreciable assets 15%
    STCG on the transfer of non-depreciable assets 22%
    Excess profit computed by tax authority u/s 115BA(6) 30%
    Special tax rates for income under chapter XII Special rates applicable

    ii) The company can exercise such an option if it fulfils all the following conditions:

    1. The company is set up and registered on or after 1 October 2019, and it commences its operations on or before 31 March 2023
    2. The company is not formed by splitting up or reconstruction of an existing business
    3. Plant and machinery should be new. Exceptions:
      a) 20% of total plant and machinery can be second hand.
      b) Imported plant and machinery shall be treated as new for this section.
    4. Should not use any building previously used as hotel or convention centre
    5. Should not be engaged in any business other than the business of manufacture of any article or thing
    6. Same as point (ii) of section 115BAA above
    7. The company must exercise the option upto the due date of return filing in Form 10-ID
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Minimum Alternate Tax (MAT)

Where the tax payable under the normal provisions (excluding surcharge and health and education cess) of the Act exceeds 15% of tax on adjusted book profits(except the income from life insurance business), then the companies shall be required to pay MAT on such book profits. Such excess tax paid is termed as MAT credit which can be carried forward and utilised for the next 15 years.

The MAT rate is 15% plus the surcharge based on the turnover and cess of 4%.

Note: MAT does not apply to:
  • A foreign company that does not have a permanent establishment(PE) in India.
  • Foreign companies engaged in the shipping business, the business of aircraft, exploration of mineral oils, civil construction in turnkey projects and whose income is offered to tax under specific provisions of the Act.
  • Capital gains from transfer of securities, royalties, interest, and FTS accruing or arising to a foreign company (which has a PE in India) if the tax payable on such income is less than 15% (exclusive of surcharge and health and education cess).
  • Sick companies (i.e. where losses wiped out their net worth and are now being revived)
  • Companies exercising the lower tax rate option of 22% u/s 115BAA (discussed above)

Return Filing

All the companies must file an income tax return by the due dates. The tax return forms to be filed by a company is ITR 6 or ITR 7 if it is a religious or charitable trust, political party, research association, news agency or similar organisations specified in the Act. Also, the companies must get their books of accounts audited and submit a tax audit report along with the return.

The due dates for filing such return and report are as under:

  • a company having international transactions, which is required to file a transfer pricing report: 30 November.
    (Note that this date has been extended to 31 December 2021 for FY 2020-21)
  • Other companies: 31 October.
    (Note that this date has been extended to 30 November 2021 for FY 2020-21)

Frequently Asked Questions

Q When does the liability to pay GST arise in respect of the supply of goods?

Liability to pay GST arises on the date of issue of invoice or on the date on which the supplier receives the payment with respect to the supply.

Q What does ‘date of receipt of payment’ mean?

The date of receipt of payment is the date on which the payment is entered in the books of accounts of the supplier or the date on which the payment is credited to his bank account whichever is earlier.

Q What is the time period within which invoice has to be issued in case of involving in a continuous supply of goods?

In case of continuous supply of goods, where successive statements of accounts or successive payments are involved, the invoice shall be issued before or at each time such statement is issued or at the time each payment is received.

Q What is the time of supply?

The time of supply is the point when the liability to charge GST arises. GST Act provides separate times of supply for goods and services.

Q Relationship of a wholesaler and a retailer is to be considered as continuous supply of goods?

Yes, if an agreement exists between the wholesaler and retailer for periodic billing and periodic payments.

Q Can a supplier reduce his tax liability even if ITC is not reversed by the recipient?

Yes, the supplier can reduce his tax liability by issuing a commercial credit note even if the recipient did not reverse the input tax credit claimed by him.

Q Suppose, the invoice is not issued and the date of payment or date of completion of service are also not ascertainable, what will be the time of supply in this case?

The time of supply would be the date on which the recipient shows the recipient of services in his books of accounts.

Q Part advance payment is made or invoice is issued for part payment, whether the time of supply will cover the full supply?

No. The supply shall be deemed to have been made to the extent it is covered by the invoice or the part payment.

Q What is the last date for the issue of the invoice in case of supply of goods?

Usually, the invoice is to be issued before or after the completion of supply. If issued after the supply of goods or services, it has to be done within 30 days from such supply.