Income Tax — Company Taxation

CS Executive Taxation | taxati-004

Welcome to the Income Tax — Company Taxation module, a critical component of the CS Executive Taxation syllabus. This module deals with the provisions of the Income Tax Act, 1961 as applicable to companies — covering company definition and residential status, computation of taxable income, deductions, depreciation, special tax rates, dividend taxation, advance tax, and tax audit requirements.

Company taxation under the Income Tax Act is distinct from individual taxation in several important ways — companies are subject to flat tax rates (unlike individuals who progress through slabs), companies have their own set of deductions and exemptions, and certain provisions like Minimum Alternate Tax (MAT), transfer pricing, and thin capitalization rules apply specifically to companies.

This comprehensive guide covers every aspect of company taxation required for the CS Executive examination.

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1. Company Definition [Section 2(17)]

1.1 Statutory Definition

Section 2(17) of the Income Tax Act, 1961 defines “company” to include:

(i) An Indian company — A company formed and registered under the Companies Act, 1956 or Companies Act, 2013.

(ii) A corporation — Established by or under a Central or State Act.

(iii) A co-operative society — Registered under the Co-operative Societies Act, 1912 or any similar law.

(iv) Any other body corporate — Which the Income Tax authorities may notify to be treated as a company.

Key Components of Section 2(17):

Category	Description
Indian Company	Company formed under Indian Companies Act — domestic company
Foreign Company	Company incorporated outside India — foreign body corporate
Corporation	Statutory bodies like LIC, UTI,SBI (though SBI is now a company)
Co-operative Society	Registered under Co-operative Societies Act
Body Corporate	Any entity with corporate structure — LLP is NOT included (LLP has separate provisions)

1.2 Types of Companies

A. Domestic Company

A domestic company is:

• An Indian company (formed under Companies Act, 2013), OR
• Any other company whose total income is chargeable to tax under the Income Tax Act
• Has made in India the entire manufacture/processing/construction of goods/services
• The company is not a foreign company

Key Features of Domestic Companies:

• Subject to Indian tax laws on global income
• Eligible for certain tax benefits and exemptions
• Subject to MAT provisions under Section 115JB
• Can opt for reduced tax rates under Section 115BAA or 115BAB

B. Foreign Company

A foreign company is:

• A company incorporated outside India
• Which has a place of business in India (branch, project office, liaison office)
• Or which derives income from India

Key Features of Foreign Companies:

• Taxed on Indian-source income only (not global income)
• Income from business connection in India is taxable
• Subject to Transfer Pricing provisions
• Royalty, technical services fees, dividends from Indian sources are taxable at special rates
• No MAT provisions apply (MAT applies only to domestic companies)

1.3 Distinction Between Company and Firm

Aspect	Company	Firm
Legal Status	Separate legal entity	Aggregate of partners
Liability	Limited (in most cases)	Unlimited (partners)
Tax Rate	Flat rates (22%, 25%, 30%)	Slab rates (slabs + surcharge)
Shareholders	Members (shareholders)	Partners
Management	Board of Directors	Partners manage directly
Perpetual Succession	Yes	No (dissolves on death of partner)
Audit	Statutory audit mandatory	Audit if turnover > Rs. 1 Crore

⚡ Exam tip: The definition of “company” under Section 2(17) is critical for determining the rate of tax applicable. A company (whether domestic or foreign) is always taxed at company tax rates — not at individual slab rates. The distinction between domestic and foreign company determines which special provisions (MAT, reduced rates) apply.

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2. Residential Status [Section 6(3)]

2.1 Residential Status of Companies

Section 6(3) specifically deals with the residential status of companies. The rules differ for Indian companies and foreign companies.

A. Domestic Company — Always a Resident

Under Section 6(1), an Indian company is always treated as a resident in India, regardless of where its management is located.

Rationale: The Indian government claims tax jurisdiction over all income of companies incorporated in India, as these companies enjoy the protection of Indian laws and infrastructure.

B. Foreign Company — Resident Only If Control in India

A foreign company is treated as a resident in India if at any time during the previous year:

• The control and management of its affairs is wholly situated in India

“Control and Management”:

• This refers to the board meetings and strategic decision-making
• Not the day-to-day operations
• If the board of directors meets in India, the company is likely resident
• If the real control is exercised from abroad (board meetings abroad), the company is non-resident

Practical Test:

Foreign Company Resident if:
→ Board of Directors meets in India (entirely or partly)
→ Strategic decisions (policy, finance, taxation) are made in India
→ Company is managed from India

2.2 Tax Implications of Residential Status

Status	Taxable Income	Tax Rate
Domestic Company	Global income (income from India + abroad)	22% / 25% / 30%
Foreign Company (Resident)	Global income	40% (on royalty, FTS, dividends: special rates)
Foreign Company (Non-Resident)	Indian-source income only	40% (on royalty, FTS, dividends: special rates)

Note on Foreign Company Tax Rates:

• 40% on ordinary business income
• 10% on royalties and technical services fees from Indian government/public sector undertakings (under DTAA or Section 115A)
• 10% on dividends from Indian companies (under Section 115A)
• 20% plus surcharge + cess on other income

🔴 High Priority: An Indian company is always a resident — this is a statutory rule. A foreign company is a resident only if control and management is wholly situated in India. This distinction is critical for determining global vs. Indian-source taxation.

2.3 “Place of Effective Management” (POEM)

For companies other than Indian companies, the concept of POEM (Place of Effective Management) is used to determine residential status.

POEM is defined as:

The place where the key management and commercial decisions that are necessary for the conduct of the company’s business are made (substantially in free text — but in practice, it is the place where the board operates or where real decisions are taken).

POEM Guidelines:

• If the board meets in India and makes decisions → POEM in India → Resident
• If decisions are made abroad (even if board meets in India formally) → POEM abroad → Non-Resident

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3. Computation of Taxable Income

3.1 Heads of Income

Companies, like all taxpayers, are taxed under the following Heads of Income:

Head	Description
A — Income from House Property	Rental income from properties owned by the company
B — Profits and Gains of Business or Profession	Business income / professional income
C — Capital Gains	Gains on transfer of capital assets
D — Income from Other Sources	Interest, dividends, royalties, lottery, etc.

For most operating companies, the primary head is “Profits and Gains of Business or Profession” (Head B).

3.2 Computation of Business Income

Section 28 specifies the incomes chargeable to tax under the head “Profits and Gains of Business or Profession”:

Incomes Chargeable under Section 28:

Income	Description
Profits of business	Net profit from business operations
Professional fees	Fees for services rendered
Commission income	Brokerage, commission
Rental income	From letting of machinery, plant, furniture
Casual income	Non-recurring receipts in business
Interest	Business interest income
Royalties	Royalty income
Exports incentives	DEPB, duty drawback, etc.
Lump sum compensation	For termination or modification of business

Deductions Allowed [Sections 30-37]:

The following expenses are allowed as deductions from gross business income:

Section	Deduction
Section 30	Rent, rates, taxes, repairs (for premises)
Section 31	Repairs and insurance of machinery, plant, furniture
Section 32	Depreciation on assets
Section 32AC	Investment in new plant/machinery (withdrawn)
Section 33AC	Reserve for shipping business (withdrawn)
Section 35	Expenditure on scientific research
Section 35AD	Capital expenditure on specified business (infrastructure, hospital, hotel, etc.)
Section 35D	Preliminary expenses (amortized)
Section 35DD	Amortization of expenditure under voluntary retirement scheme (VRS)
Section 36(1)(i)	Insurance premium
Section 36(1)(ii)	Bonus or commission paid to employees
Section 36(1)(iii)	Interest on borrowed capital
Section 36(1)(iv)	Employer contribution to approved superannuation fund
Section 36(1)(v)	Employee contribution to recognized provident fund
Section 36(1)(vi)	Contribution to approved gratuity fund
Section 36(1)(vii)	Bad debts
Section 36(1)(via)	Provision for bad debts (for banks and financial institutions)
Section 36(1)(viii)	Discount on zero coupon bonds
Section 36(1)(ix)	Accumulated compensation to workers
Section 36(1)(x)	No-proof expenses (trivial breaches)

3.3 Section 37 — General Deductions

Section 37(1) allows deduction of any expenditure (not capital in nature, not personal) that is:

1. Laid out or expended wholly and exclusively for the purpose of the business or profession.
2. Not capital expenditure (capital expenditure goes to depreciation or Section 35AD).
3. Not a deferred revenue expenditure (which must be amortized).
4. Not covered by Sections 30 to 36 (specific deductions).

Example of Allowable Expenses:

• Salaries and wages
• Rent paid for business premises
• Electricity charges
• Communication expenses
• Travelling expenses (for business purposes)
• Professional fees (legal, accounting, consultancy)
• Advertisement and marketing expenses
• Repairs and maintenance (not capitalized)
• Insurance premium (for business assets)
• Bad debts (written off)

Example of Non-Allowable Expenses:

• Personal expenses of directors/shareholders
• Expenses for exempt income (e.g., dividend income — which is exempt)
• Capital expenditure (e.g., purchase of land)
• Interest on own capital (not borrowed capital)
• Penalty and fine paid to government (not for breach of law)
• Expenses for entertainment (over specified limits)

3.4 Section 40(a) — Disallowances

Section 40(a) specifically disallows certain expenses:

Sub-Section	Disallowance
Section 40(a)(i)	Amount paid to non-residents — if TDS not deducted or remitted
Section 40(a)(ia)	Amount paid to residents — if TDS not deducted or remitted
Section 40(a)(ii)	Wealth-tax
Section 40(a)(iii)	Payment to employee — if EPF contribution not paid before due date
Section 40(a)(iv)	Tax on non-monetary perks
Section 40(a)(v)	Fringe benefit tax (abolished but provisions exist)

TDS Non-Deduction Disallowance [Section 40(a)(ia)]:

• If a company pays professional fees, rent, commission, brokerage, or contract to a resident and fails to deduct TDS or fails to deposit TDS to the government
• The entire expense is disallowed as a deduction
• However, the payee will still include the income in their return
• The payer can claim credit of TDS when the payee’s PAN is quoted

Example: Company pays Rs. 10 lakhs as professional fees to a resident CA firm but fails to deduct TDS. The entire Rs. 10 lakhs is disallowed under Section 40(a)(ia) — no deduction allowed.

⚡ Exam tip: The disallowance under Section 40(a)(ia) is one of the most frequently tested provisions in company taxation. The entire expense is disallowed if TDS is not deducted — this is a severe penalty designed to enforce TDS compliance.

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4. Specific Deductions — Detailed Analysis

4.1 Rent, Repairs, and Insurance [Sections 30 and 31]

Section 30 — Premises: Deduction is allowed for:

• Rent paid for business premises (actual rent paid or 1/6 of salary of employee occupying premises — whichever is less)
• Rates and taxes paid to local authority (property tax, municipal tax)
• Repairs — annual repairs (not capital improvements)

Capital vs. Revenue Repairs:

• Revenue repairs (repainting, fixing leakage, replacing parts) → Deductible under Section 30
• Capital repairs (adding a floor, major structural changes) → Capital expenditure → Depreciation under Section 32

Section 31 — Machinery, Plant, and Furniture: Deduction for:

• Current repairs — repairing and maintaining plant, machinery, equipment, furniture
• Insurance premium for plant, machinery, furniture

Insurance Premium Deduction:

• Insurance premium must be actually paid during the year (or due and payable)
• Premium for future years cannot be claimed upfront (premium paid in advance relates to future years)

4.2 Depreciation [Section 32]

Section 32 allows tax depreciation on tangible and intangible assets used in the business.

Types of Depreciation:

Type	Rate	Condition
Normal Depreciation	As per Income Tax Rules	On all eligible assets
Additional Depreciation	20% / 40%	On new plant/machinery acquired and installed

Block of Assets System: Under the Income Tax Act, depreciation is calculated on blocks of assets rather than individual assets:

• A block of assets is a group of assets with the same rate of depreciation
• If in a block: Opening WDV + Additions (at WDV) — Sales = Closing WDV
• Depreciation = Depreciation rate × WDV (after additions)

Normal Depreciation Rates (Selected):

Asset	Rate (SLM)
Buildings	5% / 10% (depending on type)
Furniture and fixtures	10%
Plant and machinery	15% (general)
Motor cars	15%
Computers	40%
Intangible assets	25%

Additional Depreciation [Section 32(1)(iia)]:

• Additional depreciation of 20% is allowed on new plant and machinery acquired and installed
• For computer software — additional depreciation of 40%
• Available in the year of acquisition and installation
• Only for domestic companies (from AY 2021-22, additional depreciation also available for certain businesses)

Depreciation on Car:

• 15% depreciation on motor cars
• Additional depreciation not available on cars (from AY 2020-21)
• No depreciation on motor cars used for personal purposes

Depreciation Calculation — Practical Example:

Particulars	Amount (Rs.)
Opening WDV of 15% block	1,00,000
New machinery purchased	50,000
Total	1,50,000
Less: Sale of old machinery	20,000
WDV for depreciation	1,30,000
Depreciation @ 15%	19,500
Closing WDV	1,10,500

4.3 Bad Debts [Section 36(1)(vii)]

Bad debts are amounts that have become irrecoverable in the course of business.

Conditions for Deduction:

1. The debt must be a trading debt (related to business operations).
2. The debt must have been written off as irrecoverable in the books of account.
3. The debt must have been taken into account in computing income in earlier years (i.e., it was previously offered to tax).
4. The creditor must have exhausted all legal remedies for recovery.

Treatment:

• Bad debt written off = Deduction from business income
• If later recovered → Income in the year of recovery

Banks and Financial Institutions:

• Banks and financial institutions can also claim provision for bad debts as a deduction (Section 36(1)(via)) — up to specified limits (as per RBI norms)
• This is a specific provision not available to regular companies

4.4 Interest on Borrowed Capital [Section 36(1)(iii)]

Interest on borrowed capital used for business purposes is deductible.

Key Conditions:

1. The capital must be borrowed (not own capital).
2. The interest must be actually paid (not merely accrued).
3. The loan must be used for business purposes.
4. Interest on overdraft accounts used for business is deductible.

Interest on Partner’s Capital:

• If a partner lends money to the firm (in case of partnership firm) → interest paid is deductible to the firm.
• For companies, interest on debentures, loans, overdrafts is deductible.

Interest on Unpaid Suppliers:

• Interest on unpaid amounts to suppliers (trade creditors) is deductible if it represents genuine business interest on delayed payment.

4.5 Thin Capitalization Rules [Section 94B]

Thin capitalization rules limit the interest deduction on loans from related parties (especially foreign parent companies) if the debt-to-equity ratio is too high.

When Applicable:

• If the company’s interest expense exceeds Rs. 1 crore per year (or proportionate limit in FCY)
• AND the debt-equity ratio exceeds 2:1 (for domestic companies) or 3:1 (for foreign companies making borrowings from non-resident related parties)

Disallowance:

• Excess interest (above the ratio limit) is disallowed
• The disallowed interest can be carried forward for up to 8 assessment years
• Can be set off against income from the same company in future years

Debt-Equity Ratio Calculation:

Debt-Equity Ratio = Total Borrowings / Equity

Where Equity = Paid-up share capital + Free reserves

Example: A company has equity of Rs. 100 crores and borrowings of Rs. 400 crores from a foreign parent. Debt-equity = 4:1 (exceeds 3:1). Interest on the excess debt (above 3:1) is disallowed.

🔴 High Priority: Thin capitalization rules are frequently examined in the context of foreign companies making borrowings in India. The disallowance of excess interest and carry-forward provisions are key examination points.

4.6 Donations to Charitable Trusts — Section 80G

Section 80G provides deduction for donations made to approved charitable institutions and funds.

Key Features:

Aspect	Provision
Deduction Amount	50% of the donation amount (of the approved amount)
Qualifying Donations	Donations to approved institutions (specified in the Income Tax Rules)
Limits	Donation must not exceed 10% of Gross Total Income (GTI)
Approved Donees	PM’s National Relief Fund, National Defence Fund, certain universities, charitable hospitals, etc.

List of 100% Deducible Donations (without limit):

Institution	Deductible Amount
National Defence Fund set up by Central Government	100%
Prime Minister’s National Relief Fund	100%
Prime Minister’s Armenia Earthquake Relief Fund	100%
Africa (Contribution to certain African countries)	100%
National Sports Fund	100%
National Cultural Fund	100%
Chief Minister’s/State Distressed Relief Fund	100%

List of 50% Deducible Donations:

Institution	Deductible Amount
Jawaharlal Nehru Memorial Fund	50%
Indira Gandhi Memorial Fund	50%
Rajiv Gandhi National Foundation	50%
National Trust for Welfare of SC/ST, etc.	50%
Armed Forces Flag Day Fund	50%
Approved charitable trusts	50%

Conditions:

• Donation must be in cash (up to Rs. 2,000) or cheque/draft/electronic mode
• For cash donations > Rs. 2,000 — deduction only if donation is through crossed cheque/draft or electronic mode
• Total donation must not exceed 10% of Gross Total Income
• The institution must be approved by the Income Tax Department

⚡ Exam tip: Section 80G deduction is 50% of the donation amount (for most institutions) — not 100%. Always check whether the institution qualifies for 100% or 50% deduction. The 10% of GTI limit applies to all donations combined.

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5. Special Tax Rates for Companies

5.1 Section 115B — Tax Rates for Companies

Standard Company Tax Rates (Domestic Companies):

Total Income	Tax Rate (AY 2024-25)
Up to Rs. 250 lakhs	25%
Above Rs. 250 lakhs	30%

Surcharge on Tax:

Category	Total Income	Surcharge Rate
Domestic Company (regular)	Rs. 1 Cr to Rs. 10 Cr	7%
Domestic Company (regular)	Above Rs. 10 Cr	12%
Domestic Company (115BAA/115BAB)	Any	10%
Foreign Company	Rs. 1 Cr to Rs. 10 Cr	2%
Foreign Company	Above Rs. 10 Cr	5%

Health and Education Cess (HEC):

• 4% of income tax + surcharge

5.2 Section 115JB — Minimum Alternate Tax (MAT)

Concept: Many companies, especially companies with large accounting profits but zero or low taxable income (due to exemptions and deductions), were paying little or no tax. To address this, MAT was introduced requiring companies to pay a minimum tax based on book profits.

Section 115JB provides that if the tax payable by a domestic company under the normal provisions is less than 15% of its book profit, then the book profit shall be deemed to be the taxable income, and tax shall be calculated at 15% (plus surcharge and cess).

Book Profit Calculation:

Book Profit = Net Profit as per Profit & Loss Account (after tax)
+ Amounts transferred to reserves (as debited to P&L)
- Amounts withdrawn from reserves (as credited to P&L)
+ Specific disallowances (as added back to P&L)
- Specific deductions allowed

Additions to Book Profit (Disallowances to be Added Back):

Item	Addition to Book Profit
Income tax paid or payable	Full amount
Amount carried to reserve under Section 33AC (shipping)	Full amount
Expenditure related to exempt income	Full amount
Depreciation (as per books)	As per books (but if higher than IT rules, add back difference)
Deferred tax	Not added back (if recognized in P&L)
Loss on sale of equity shares (if indexation benefit claimed)	Full amount

Deductions from Book Profit:

Item	Deduction from Book Profit
Amount withdrawn from reserves	Full amount
Dividend (proposed/declared)	Full amount
Depreciation as per Income Tax Rules	Full amount
Unabsorbed depreciation	Full amount
Brought forward loss	Full amount

MAT Rate:

• 15% of Book Profit (plus surcharge and cess)
• For foreign companies: 15% (same rate)

MAT Credit:

• If MAT is paid (because book profit tax > normal tax), the excess paid is called MAT credit.
• MAT credit can be carried forward for 10 assessment years.
• MAT credit can be set off against future tax liabilities under normal provisions (when normal tax > MAT).

Applicability:

• MAT applies to all domestic companies (including companies under Section 115BAA or 115BAB — but these companies have a separate MAT of 15% of book profit which is lower than normal MAT provisions since they don’t get many exemptions).
• Does NOT apply to foreign companies.

5.3 Section 115BAA — Reduced Tax Rate for Domestic Companies

Section 115BAA (introduced from Assessment Year 2020-21) allows domestic companies to opt for a reduced tax rate of 22% (plus surcharge and cess) if they meet the specified conditions.

Conditions to Opt for Section 115BAA:

Condition	Requirement
Type of Company	Must be a domestic company
Total Income	Must have total income computed without claiming specified exemptions/deductions
Exemptions Not Claimed	Cannot claim Section 10AA (SEZ), 32(1)(iia) [additional depreciation], 33AB, 33ABA, 35(1), 35AD, 80C to 80U (except 80M, 80P)
Book Profits	Cannot claim MAT credit
Furnishing of Return	Return must be filed on or before the due date

Tax Rate Under Section 115BAA:

• 22% flat (no slab — flat rate)
• No surcharge exemption — surcharge applies at 10% flat (not the higher slabs applicable to regular companies)
• 4% HEC applies

Implications of Opting for 115BAA:

• Effective tax rate = ~25.168% (22% + 10% surcharge + 4% cess)
• Company cannot claim most exemptions and deductions
• MAT provisions do not apply (no MAT credit available)
• Section 80C to 80U deductions are not available (except 80M — dividends received)
• This is a simplified compliance route for companies willing to forgo exemptions

5.4 Section 115BAB — New Domestic Manufacturing Companies

Section 115BAB (also from AY 2020-21) provides an even more attractive 15% tax rate for new domestic manufacturing companies.

Conditions for Section 115BAB:

Condition	Requirement
Type	Domestic company
New Company	Must be a new company — registered after 1st October 2019
Manufacturing	Must be engaged only in manufacturing or production of articles or things
Not Existing	Must not have been formed by splitting an existing business
Not from Transfer	Must not have acquired an existing business (except as stock-in-trade)
Not Claiming Exemptions	Cannot claim Section 10AA, 32(1)(iia), 33AB, 33ABA, 35(1), 35AD, 80C to 80U
Return Filed on Time	Return must be filed by due date

Tax Rate Under Section 115BAB:

• 15% flat
• No surcharge exemption — surcharge at 10% flat
• 4% HEC applies

Effective Tax Rate:

• ~17.16% (15% + 10% surcharge + 4% cess)

Benefit Over 115BAA:

• 15% vs 22% — approximately 7 percentage points lower
• This is the lowest tax rate for domestic companies in India
• Applicable only for new manufacturing companies set up after 1st October 2019

⚡ Exam tip: The comparison between Section 115JB (MAT at 15% on book profit), Section 115BAA (22% reduced rate), and Section 115BAB (15% for new manufacturing) is a highly examinable topic. The key distinctions are:

• 115JB: Minimum tax — always applies if book profit tax > normal tax
• 115BAA: Opted voluntarily — forgo exemptions, pay 22% flat
• 115BAB: Opted voluntarily for new manufacturing — 15% flat (lowest rate)

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6. Dividend Taxation

6.1 Section 115-O — Dividend Distribution Tax (Repealed)

Section 115-O mandated that every domestic company pay Dividend Distribution Tax (DDT) on the dividend declared or distributed by it.

DDT Rate Structure:

Period	DDT Rate
Up to AY 2020-21	15% + surcharge + cess
AY 2020-21 (interim)	15% + surcharge + cess
Post repeal	N/A — DDT abolished from 01-04-2020

Section 115-O Effective Rate:

• Basic DDT: 15%
• Surcharge: As applicable
• Health and Education Cess: 4%
• Effective DDT rate: Approximately 17.65% (including surcharge and cess)

DDT Calculation:

Dividend → Grossing up → Tax @ 15% → Add surcharge → Add cess → Total DDT

Example (Pre-Repeal): Company declares dividend of Rs. 100 lakhs.

• Gross dividend for DDT = Rs. 100 × (100/85) = Rs. 117.65 lakhs (approx)
• DDT @ 15% = Rs. 17.65 lakhs
• Effective DDT rate ≈ 17.65% of dividend

6.2 Abolition of DDT — Section 115-O Repealed

The DDT regime was repealed with effect from 1st April 2020 (Finance Act, 2020). This was a major change in dividend taxation.

From AY 2021-22 onwards:

• Companies do not pay DDT on dividends.
• Dividends are now taxable in the hands of shareholders at applicable rates.
• The company must deduct TDS on dividends at the rates specified in Section 194.

Section 194 — TDS on Dividends:

Shareholder Type	TDS Rate
Individual (resident)	10% (if PAN provided, otherwise 20%)
Domestic company	10%
Foreign company	10% (under Section 115A)
Partnership firm	10%

Exemption from TDS for Small Shareholders:

• If dividend is paid to a resident individual and the total dividend paid by the company in a year is less than Rs. 5,000 — No TDS.
• If the shareholder provides Form 15G/15H (declaration of no tax liability) — No TDS.

6.3 Dividend Income in Shareholder’s Hands — Section 10(34)

Section 10(34) provides exemption from income tax for dividends received from a domestic company (prior to AY 2021-22 — this exemption was available in the hands of shareholders, and DDT was paid by the company).

Current Position (Post AY 2021-22):

• Section 10(34) exemption is still available for dividend income received from a domestic company.
• However, the first Rs. 10 lakhs of dividend income from domestic companies is exempt under Section 10(34) read with Section 115BBDA.
• Dividend exceeding Rs. 10 lakhs is taxable at 10% for resident individuals/HUFs (Section 115BBDA).

Note: The Rs. 10 lakh limit was introduced in Finance Act, 2016 and applies only to individuals and HUFs receiving dividend from domestic companies.

Taxation of Dividend (Post DDT Repeal):

Recipient	Rate	Provision
Individual/HUF (up to Rs. 10L)	Exempt	Section 10(34)
Individual/HUF (above Rs. 10L)	10%	Section 115BBDA
Domestic Company	10% (if conditions met)	Section 115A
Foreign Company	10% or 15%	Section 115A
Partnership Firm	30% (slab)	Normal rates

🔴 High Priority: The repeal of DDT (Section 115-O) is one of the most significant recent changes. The dividend is now taxable in shareholders’ hands with TDS deducted by the company at source. The Rs. 10 lakh exemption under Section 10(34) read with Section 115BBDA and the 10% rate above Rs. 10 lakhs are key examination points.

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7. Advance Tax

7.1 Advance Tax — Sections 207 to 210

Advance tax is the tax that a company must pay in advance during the financial year (rather than paying the entire tax at the end of the year as self-assessment tax).

Legal Framework:

Section	Provision
Section 207	Liability to pay advance tax
Section 208	Amount of advance tax payable
Section 209	Computation of advance tax
Section 210	Procedure for payment of advance tax
Section 211	Interest payable on shortfall
Section 234B	Interest for default in payment of advance tax
Section 234C	Interest for deferment of advance tax

7.2 Who Must Pay Advance Tax

Companies are mandatorily required to pay advance tax — there is no threshold exemption for companies.

Due Dates for Advance Tax — Companies:

Installment	Due Date	Amount Payable
1st Installment	15th June	15% of advance tax liability
2nd Installment	15th September	45% of advance tax liability
3rd Installment	15th December	75% of advance tax liability
4th Installment	15th March	100% of advance tax liability

Important: For companies, advance tax must be paid in four equal installments by the above due dates. If any installment is not paid, interest under Section 234B and 234C applies.

7.3 Computation of Advance Tax

Advance Tax Calculation:

Step 1: Estimate total income for the year
Step 2: Calculate gross tax liability (at applicable rates)
Step 3: Deduct: TDS, MAT credit (if any), foreign tax credit
Step 4: Net advance tax liability = Gross tax − Credits
Step 5: Pay in four installments (15%, 45%, 75%, 100%)

7.4 Interest on Shortfall — Section 234B

Section 234B applies if:

• The company fails to pay advance tax equal to 90% of the assessed tax.
• Or the company pays no advance tax.

Interest Rate:

• 12% per annum (simple interest)
• Calculated from 1st April of the next financial year till the date of tax payment

Section 234C — Deferment Interest:

• If the company pays less than the specified percentage in any installment
• Interest at 12% per annum on the shortfall from the due date of that installment till the date of filing return

Due Dates and Percentages (for Companies):

Due Date	Percentage of Total Advance Tax
15th June	15%
15th September	45%
15th December	75%
15th March	100%

Example: A company’s total advance tax liability is Rs. 100 lakhs. It pays:

• June 15: Rs. 10 lakhs (should be 15, shortfall = 5) → Interest from June 15
• September 15: Rs. 30 lakhs (should be 45, shortfall = 5) → Interest from September 15
• December 15: Rs. 40 lakhs (should be 75, shortfall = 35) → Interest from December 15
• March 15: Rs. 25 lakhs (should be 100, shortfall = 60) → Interest + Section 234B may apply

⚡ Exam tip: The four-installment schedule (15th June, 15th September, 15th December, 15th March) is mandatory for companies. Interest under Section 234B applies if less than 90% is paid by the due date of the last installment (15th March). Interest under Section 234C applies for each installment shortfall.

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8. Tax Audit — Section 44AB

8.1 Requirement for Tax Audit

Section 44AB mandates that certain taxpayers must get their accounts audited by a Chartered Accountant.

Statutory Requirement: Every person carrying on business or profession must get his accounts audited if:

Category	Threshold
Business (general)	Total sales, turnover, or gross receipts > Rs. 1 crore in the previous year
Business (turnover > Rs. 1 Cr but < Rs. 10 Cr)	If cash transactions are less than 5% of total receipts/payments — mandatory audit
Business (turnover > Rs. 1 Cr)	If aggregate of all receipts/payments in cash exceeds 5% of such total — mandatory audit
Profession	Gross receipts > Rs. 75 lakhs in the previous year
Company	Always (Companies Act mandates statutory audit — this satisfies tax audit requirement)

For Companies — Important Point:

• Every company is required to have a statutory audit under the Companies Act, 2013.
• This statutory audit also satisfies the requirement of tax audit under Section 44AB — no separate tax audit report is required.
• The tax auditor’s report (Form 3CA/3CB/3CD) is prepared based on the statutory audit.

8.2 Tax Audit Forms

Form 3CA:

• Used when the taxpayer is a company (which is already subject to statutory audit under any other law).
• The tax audit is in addition to the statutory audit — Form 3CA is the compliance form.

Form 3CB:

• Used when the taxpayer is a non-company person whose accounts are required to be audited under any other law.

Form 3CD:

• The detailed statement that forms part of the tax audit report.
• Contains 30+ clauses specifying all items that must be reported by the tax auditor.
• Must be filed electronically with the Income Tax Department.

8.3 Form 3CD — Key Clauses

Form 3CD is the detailed statement of particulars that must be furnished by the tax auditor. Key clauses include:

Clause	Particulars
Clause 1	PAN and Aadhaar
Clause 2	GST registration numbers
Clause 3	Nature of business/profession
Clause 4	Description of business/activity codes
Clause 5	Check if books are maintained
Clause 6	Reporting of books examined
Clause 7	Gross receipts/turnover
Clause 8	Profits and gains from business/profession
Clause 9	Method of accounting (cash/mercantile)
Clause 10	Method of valuation of closing stock
Clause 11	Particulars of depreciation admissible
Clause 12	TDS/TCS compliance
Clause 13	Transactions with non-residents
Clause 14	Transfer pricing documentation (if applicable)
Clause 15	Section 80G donations
Clause 16	Details of exempt income
Clause 17	Audit fees and expenses
Clause 18	Deferred tax
Clause 19	Provisions for bad debts
Clause 20	Guaranteed debts (interest deduction)

8.4 Due Date for Tax Audit Report

Assessee Type	Due Date
Company (audit under Section 44AB)	30th September of the assessment year
Non-company (with transfer pricing)	30th November
Non-company (without transfer pricing)	31st October

Consequences of Non-Filing:

• Penalty under Section 271B: Rs. 1.5 lakhs or 0.5% of turnover (whichever is less)
• Interest under Section 234B for shortfall in advance tax

⚡ Exam tip: Companies are always subject to tax audit (because of statutory audit under Companies Act). The tax auditor’s report (Form 3CA + Form 3CD) must be filed by 30th September. The Form 3CD clauses are frequently examined in the CS Executive examination — be familiar with the key clauses.

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9. Transfer Pricing (Brief Overview)

9.1 Transfer Pricing Provisions

Section 92 to Section 92F deal with Transfer Pricing — the pricing of transactions between associated enterprises.

Key Concepts:

Term	Meaning
Associated Enterprise	Two enterprises where one directly/indirectly participates in management/control/capital of the other
International Transaction	Transaction between associated enterprises involving property, money, or services
Specified Domestic Transaction	Transaction between two domestic related parties (from AY 2017-18 — Section 92BA)

Transfer Pricing Methods:

Method	Description
Comparable Uncontrolled Price (CUP)	Price charged in comparable uncontrolled transaction
Resale Price Method	Resale price minus normal margin
Cost Plus Method	Cost plus normal profit markup
Profit Split Method	Split profits based on contributions
Transactional Net Margin Method (TNMM)	Net margin compared to appropriate base

Threshold for Transfer Pricing:

• If the aggregate of all international transactions with associated enterprises exceeds Rs. 1 crore
• Or if the aggregate of all specified domestic transactions exceeds Rs. 2 crores
• Transfer pricing documentation must be maintained and a Accountant’s Report (Form 3CE) must be filed.

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10. TDS Returns and Statements

10.1 TDS on Company Payments

Companies are required to deduct TDS on various payments made by them:

Section	Payment Type	TDS Rate
Section 192	Salary	Slab rates
Section 193	Interest on securities	10%
Section 194	Dividends	10%
Section 194A	Interest (other than banks)	10%
Section 194C	Contractor payments	1% / 2%
Section 194H	Commission/brokerage	5%
Section 194I	Rent	2% / 10%
Section 194J	Professional fees/royalty	10%
Section 194C	Work contract	1%

10.2 TDS Returns (Quarterly)

Form	Description	Due Date
Form 24Q	TDS on salary	31st July / 31st October / 31st January / 31st May
Form 27Q	TDS on payments to non-residents	Same
Form 26Q	TDS on other payments (domestic)	Same

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11. Summary and Quick Recap

Key Points to Remember:

1. Company Definition [Section 2(17)]: Includes Indian company, foreign company, corporation, cooperative society, body corporate.

2. Residential Status [Section 6(3)]: Indian company = always resident. Foreign company = resident only if control and management wholly in India.

3. Computation of Taxable Income: Business income = Gross receipts − Allowable deductions (Sections 30-37) + Disallowances (Section 40).

4. Deductions: Section 30 (rent), Section 31 (repairs), Section 32 (depreciation), Section 36 (interest, bad debts, insurance), Section 37 (general expenses).

5. Section 80G: 50% deduction for donations to approved charitable institutions (capped at 10% of GTI).

6. Depreciation [Section 32]: Normal depreciation on block of assets + Additional depreciation on new plant/machinery.

7. Section 115JB (MAT): Minimum 15% tax on book profits if normal tax < 15% of book profit.

8. Section 115BAA: 22% reduced rate for domestic companies (with conditions — no exemptions/deductions).

9. Section 115BAB: 15% reduced rate for new domestic manufacturing companies (set up after 1st October 2019).

10. Section 115-O (DDT): Repealed w.e.f. 01-04-2020. Dividends now taxable in shareholders’ hands.

11. Advance Tax: Companies must pay in four installments — 15th June, September, December, March (each 15%, 30%, 60%, 100%).

12. Tax Audit [Section 44AB]: Companies always subject to tax audit (via statutory audit). Form 3CA + 3CD must be filed by 30th September.

🔴 High Priority for Exam: The most frequently examined areas in Company Taxation are:

• MAT vs 115BAA vs 115BAB — calculation and choice of tax regime
• Depreciation calculation on blocks of assets
• Advance tax installments and interest under Section 234B/234C
• DDT repeal and the new dividend taxation mechanism
• Section 40(a)(ia) disallowance for TDS non-deduction
• Thin capitalization under Section 94B

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Practice Questions

1. Define “company” under Section 2(17) of the Income Tax Act, 1961. Distinguish between a domestic company and a foreign company with reference to residential status under Section 6(3).

2. Explain the Minimum Alternate Tax (MAT) provisions under Section 115JB. How is book profit calculated? What happens if MAT is paid?

3. A company has opted for Section 115BAA. Explain the conditions, tax rate, and implications. How does it differ from Section 115BAB?

4. Compute the depreciation for a company with the following data:

   • Block of assets: Plant and Machinery @ 15%
   • Opening WDV: Rs. 1,00,000
   • Additions during the year: Rs. 80,000 (eligible for additional depreciation)
   • Sales during the year: Rs. 20,000

5. Explain the advance tax provisions for companies under Sections 207-210. What are the due dates and what happens if installments are not paid?

6. What is thin capitalization? Explain the provisions of Section 94B. How does it limit interest deduction?

7. Explain the provisions relating to dividend taxation before and after the repeal of Section 115-O. How is dividend income now taxed in the hands of shareholders?

8. What is tax audit under Section 44AB? Which companies are required to undergo tax audit? Explain Form 3CA and Form 3CD.

9. Discuss the deductions available under Sections 30, 31, 36, and 37 of the Income Tax Act, 1961 for a business enterprise.

10. Explain Section 80G donations. What is the deduction available and what are the limits?

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This guide covers Income Tax — Company Taxation for CS Executive Examination. The three modules together (taxati-002, taxati-003, and taxati-004) provide comprehensive coverage of the CS Executive Taxation syllabus — from GST Framework & Supply through ITC & Compliance to Income Tax Company Taxation.