Companies for the purpose of Income Tax include Indian companies, body corporates incorporated under the laws of a countries outside India, body corporates / institutions being assessed as companies as per the earlier laws in force, body corporates - Indian or not, incorporated or not, declared as a company by general or special order of the Board, for the period specified in such declaration/ order.
Further, Companies that are not domestic companies, are termed as foreign companies for Income Tax purposes.
As we are aware, Companies, having separate legal identity being an artificial person created by law, are also included in the definition of a ‘person’ for Income Tax purposes. Such that, any provisions which is applicable to a person would be applicable to a company as well unless specifically excluded.
Some of the noteworthy benefits available to companies are discussed as under:
1. Tax rate reduced to 25% from 30%:
With effect from financial year [“FY”] 2018-19, the income tax rate stands reduced to 25% (plus applicable surcharge and cess) for domestic companies with total turnover or gross receipts not exceeding Rs. 250 crores for the year ended 31 March 2017.
2. Provisions of Minimum Alternate Tax [“MAT”] are made inapplicable to certain foreign companies:
The provisions of MAT are made inapplicable to foreign companies that have opted for presumptive taxation. Foreign companies that are engaged in the business of shipping, air transport, oil exploration, and turnkey construction projects are benefited by this.
3. Transfer of certain capital assets not treated as transfer for income tax purposes:
For the purpose of Income Tax, sale, relinquishment or extinguishment of rights in assets would be considered as transfer of assets. Further, any gains arising out of such transfers to a person who is transferring such capital assets, is offered to tax as capital gains. However, in order to facilitate merger of uneconomic units with financially sound Indian Companies, in the interest of increased efficiency and productivity, certain transfers are specified that are not to be treated as transfer for income tax purposes. Some of the significant transactions specified in this regard are discussed as under:
- Transfer of capital asset by a parent company to its wholly owned Indian subsidiary
- Transfer of capital asset by a wholly owned subsidiary company to its Indian holding company. Provided, conditions prescribed in this regard are satisfied.
- Transfer of capital asset in a scheme of amalgamation by amalgamating company to Indian amalgamated company.
- Transfer of capital asset in a scheme of merger by demerged company to Indian resulting company
- Allotment of shares of Indian amalgamated company to the shareholders in the amalgamating company in lieu of their amalgamation
- Transfer of capital assets by a private limited company or unlisted public company to a limited liability partnership [“LLP”] in course of conversion of company into LLP. However, the same would be subject to satisfaction of certain conditions prescribed in this regard.
4. Deduction on expense incurred in relation to setting up/ extension of a business:
Any expenditure incurred by a Company for setting up of a business or for extension, is eligible to be amortised and claimed as an expense over a period of five consecutive years beginning from the year in which the business commenced/ expansion of business is completed.
This enables a Company to defer the claim of expenditures incurred towards preparation of project report, feasibility report, legal charges for drafting agreements, incorporation fee etc. over a period of 5 years. However, such claim shall be restricted to 5% of capital employed by the Company.
Further, any expenditure incurred by a Company in course of amalgamation or demerger could also be amortised and claimed over a period of five consecutive years.
5. Deduction specific to the nature of the business of the Company:
Tax incentives are generally introduced to encourage businesses to venture into certain sectors that are significant for the economic development of the nation. Any company engaged in such specified business, would be eligible for tax holiday or deduction with respect to the profits earned from such business for a period prescribed in this regard. However, it is important to note that many of such incentives introduced earlier are now in their sunset period.
Indian Companies engaged in developing, maintaining and operating infrastructure facility, conducting scientific and industrial research and development etc. are some of the Companies that are benefited by this.
6. Deduction specific to contributions made:
100% of amount contributed, by medium other than cash, to any political party or electoral trust is allowed as a deduction to a Company for tax purposes.
7. Reduced rate of tax on dividends received from certain companies.
Dividends received from a foreign company wherein the Company holds 26% or more shares are subject to tax at a reduced rate of 15%.
Further, the dividends received from such companies are to be reduced from dividends distributed/ payable in computation of Dividend Distribution Tax [“DDT”], which in turn reduces the DDT liability.
8. Insolvency resolution:
Loss making companies under insolvency may carry forward and set off their losses even if there is a change in shareholding by more than 49%.