The companies having business in India, paying income tax regardless of whether the company is a body corporate incorporated under the laws of India or not enjoys several tax benefits for doing business in India. The current government is especially introducing policies and drafting laws to enable business opportunities in Indian market, in order to develop the economy of the nation which have witnessed a decline in the aftermath of COVID 19 pandemic. 

For the purpose of income tax, companies are either domestic companies or foreign companies. The Companies Act of 2013 governs the companies in India. According to the Section 19 clause (1) sub clause (b) of the act, a company is a separate individual entity, having an independent legal identity from its stakeholders and investors. In addition to that, the Section 2 clause (31) of the Income Tax Act, 1961 includes a company in the definition of a “person”. Much like an individual a company is required to pay income tax after profit, however a “company” enjoys certain benefits, such as :–

01. Transfer of certain capital assets are not treated as “transfer” –

Transactions such as sale, relinquishment or extinguishment of rights in assets made by a company would be considered as transfer of assets and any gains so achieved out of such transfer is considered as “Capital Gains” for the purpose of income tax. However certain transactions are not treated as “transfers” and any gains arising out of such transaction is not treated as capital gains as provided in the Section 47 of the Income tax act, 1961, such as:

a)    Transfer of capital asset by a parent company to its wholly owned Indian subsidiary.

b)   Transfer of capital asset by a wholly owned subsidiary company to its Indian holding company. Provided, conditions prescribed in this regard are satisfied.

c)    Transfer of capital asset in a scheme of amalgamation by amalgamating company to Indian amalgamated company.

d)   Transfer of capital asset in a scheme of merger by demerged company to Indian resulting company.

e)    Allotment of shares of Indian amalgamated company to the shareholders in the amalgamating company in lieu of their amalgamation.

f)    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.

These however are subject to certain conditions which are provided in the act, only after satisfying those conditions can a company avail these benefits.

02. Certain deductions available on expenses incurred with respect to setting up or extension of a business –

The Section 35D was introduced in the Income Tax Act to provide benefits primarily for entrepreneurs setting up a business in India, this is extended to existing companies extending their business. The section empowers companies to claim deduction benefits on preliminary expenses incurred for setting up or incorporation of the company.

A company can deduct up to 5% of the total cost of the project or capital employed by the business including expenditures incurred in preparation of project report, feasibility report, legal charges for drafting agreements, incorporation fee etc. These benefits can be claimed by a company for five consecutive years from the year of commencement of business. Apart form this, any expenditure incurred by a company in the course of amalgamation or merger or demerger is also eligible for deductions.

03. Deduction of tax rate from 30% to 25% –

The central government from the Financial Year of 2018 –2019, introduced reduced income tax rates for domestic companies with turnover or total gross receipts not exceeding Rs. 250 crores from 30 per cent to 25 per cent. This is however exclusive of cess and surcharge applicable to them.

04. For certain foreign companies the provision of Minimum Alternate Tax (MAT) is made inapplicable –

According to the Section 115 JB of the Income Tax Act, 1961, it is provided that the income tax payable by a company can not be less than 18.5 % of the book profit that is the total income of such company. However, for foreign companies engaged in the business of shipping, air transport, oil exploration, and turnkey construction projects are exempted from the provision of minimum alternate tax.

05. Tax benefit in insolvency –

The companies making loss may carry forward and set off their losses under insolvency, even if there is a change in shareholding patter by more than 49 percent.

06. Deductions available on certain contributions made –

Any contribution made by a company to a political party or any electoral trust, the whole amount is eligible for deduction for the purpose of income tax. This deduction is available to all transaction except transactions made by cash.

07. Reduced rates of tax for dividends received from certain companies –

The dividends received from a foreign company which holds more than or equal to 26 per cent of shares are eligible for 15 per cent reduced taxes. Moreover, the dividends received from such a company are to be reduced from dividends distributed or payable in computation of Dividend Distribution Tax (DDT), this will result in reduced DDT liability.