Assessement of

Companies
INTRODUCTION:

A company may be defined as ‘an incorporated association which

is an artificial person, having a separate legal entity, with a
perpetual succession, a common seal, a common capital
compromised of transferable shares and limited liability’.

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DEFINITION:

1. Company:
As per section 2(17), Company means:

• Any Indian company, or

• Any body corporate 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 as a company for any assessment
year commencing on or before 1.4.1970, or
• 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.
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:

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

• A company having Govt. participation.
• Companies registered under section 25 of the Indian Companies Act, 1956.
• A company declared by the CBDT.
• A company having co-operative society participation.
• A public limited company.

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Types of Companies
1. Indian company
2. Foreign company
3. Domestic Company
4. Closely Held Company
5. Widely Held Company
6. Statutory Company
7. Government Company
8. Subsidiary Company
9. Holding Company
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1. Indian company [Section 2(26)]:
'Indian Company' means a company formed and registered under the Companies
Act, 1956 and includes—

• A company formed and registered under any law relating to companies formerly in force in
any part of India
• A corporation established by or under a Central, State or Provincial Act;
• any institution, association or body which is declared by the Board to be a company;
• 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;
• 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.
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2. Foreign company [Section 2(23A)]:
Foreign company means a company which is not a domestic company.

3. 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 payable out of such income.

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4. Closely held company:
It is a company in which the public are not substantially interested.

5. Widely held company:

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

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MINIMUM ALTERNATE TAX (MAT)

>Companies can reduce their tax liability through various

provisions of the Income-Tax Act, such as exemptions, deductions,
depreciation, etc.
>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.
>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

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 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:

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Deletions to the Net Profit
>Amount withdrawn from any reserves or provisions
>The amount of income to which any of the provisions of section 10, 11 & 12 except 10AA & 10(38)
applies.
>Amount withdrawn from revaluation reserve and credited to profit & loss account to theextent of
depreciation on account of revaluation of asset.
>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.)
>Amount of Deferred Tax, is any such amount is credited in the profit & loss account
>Amount of depreciation debited to the Profit and Loss Account (excluding the depreciationon
revaluation of Assets)

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Additions to the NetProfit
>Income Tax paid or payable if any calculated as per normal provisions of income tax act.

>Transfer made to any reserve

>Dividend proposed or paid

>Provision for loss of subsidiary companies

>Depreciation including depreciation on account of revaluation of assets

>Amount/provision of deferred tax

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

>Amount of expense relating to exempt income under sections 10,11,12 (except sec 10AA and

10(38)
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Meaning

Computation of depreciation:
Meaning:
The term depreciation is defined as a reduction in the value of
an asset over time, due in particular to wear and tear in respect
of fixed assets.

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 Depreciation as per Income Tax

• Depreciation is an allowance which is allowed as a deduction while

computing the business income of an assessee.

• In the computation, the depreciation as per Income Tax Act, 1961 is allowed
while the book depreciation is disallowed.

• This is because the Income Tax Act prescribes its own rate of depreciation.

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 Methods of Calculating Depreciation as per IT ACT

• WDV Method(Block of Assets)

• Straight line method for Power generating units

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 Additional Depreciation

• Applicability: Additional depreciation is applicable on all

assessee engaged in the business of manufacture or
production of any article or thing or in the business of
generation, transmission or distribution of power

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 Rate of additional depreciation
╺ Rate of additional • Where, if the asset is acquired and put
depreciation is 20% of to use for less than 180 days then
actual cost of such plant additional depreciation @ 10% (i.e.,
or machinery. 50% of 20%) of actual cost shall be
allowed in that previous year and the
deduction for the balance 10% shall
be allowed in the immediately
succeeding previous year.

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Computation of Tax liability of company
Taxes on Income
The following rates are applicable to the domestic companies for AY 2020-21
based on their turnover:

Sections Tax rate Surcharge

Section 115BA (Companies 25% 7%/12%*

having turnover up to Rs 400
crore in FY 2017-18)

Section 115BAA 22% 10%

Section 115BAB 15% 10%

Any other case 30% 7%/12%*

if total income exceeds Rs. 7% of tax calculated on domestic
1 crore but not Rs. 10 company/ 2 % of tax calculated on
Crore foreign company as per above
rates

If total income exceeds 12% of tax calculated on domestic

Rs. 10╺crore
Surcharge rate : company/ 5 % of tax calculated on
foreign company as per above
rates
╺ Health & education Cess: Further 4% of income tax
calculated and applicable surcharge will be added to the
amount of total tax liability before this cess.
╺ Minimum Alternate Tax (MAT): Alternatively, all the
companies (including foreign companies) are required to
pay minimum alternate tax at the rate of 15% on book
profits if the tax calculated as per above rates are
less than 15% of book profits. This will be applicable if
the company does not opt for Section 115BAA or
Section 115BAB.
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