Foreign companies are taxed on income that is received, accrues or arises in India, or is deemed to do so. Relevant considerations include the existence of a business connection or permanent establishment, the significant economic presence provisions, the place of effective management test which can make a foreign company resident in India, and the relief available under the applicable Double Taxation Avoidance Agreement.

Companies compute income under the five heads, though for most operating companies the dominant head is profits and gains of business or profession, with capital gains and other sources arising alongside.

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Corporate Tax Rate Regimes

India currently operates several corporate rate structures, and the choice between them is one of the most consequential decisions a company makes.

Normal provisions. Domestic companies are taxed at the ordinary rate, with a lower rate applicable to companies whose turnover or gross receipts in the prescribed earlier year did not exceed the specified limit. All ordinary deductions, incentives and set-offs remain available, and minimum alternate tax applies.

Section 115BAA — concessional regime for domestic companies. A domestic company may opt for a lower rate, subject to forgoing specified deductions, incentives and additional depreciation, and to certain restrictions on set-off of losses attributable to those incentives. Minimum alternate tax does not apply to companies under this regime, and accumulated minimum alternate tax credit is not available once the option is exercised. The option is exercised in the prescribed form before the due date for filing the return, and once exercised it cannot be withdrawn in any subsequent year.

Section 115BAB — concessional regime for new manufacturing companies. A lower rate again, available to eligible new domestic manufacturing companies that satisfy conditions relating to incorporation date, commencement of manufacture within the prescribed period, and non-use of previously used plant and machinery or a previously used building beyond permitted limits. Income not derived from manufacturing is taxed at prescribed rates, and transactions with closely connected persons are subject to arm’s length scrutiny. This regime carries a commencement deadline, so eligibility depends on when manufacturing actually began.

Foreign companies are taxed at the rate applicable to them under the Act, subject to any lower rate available under a treaty for specified categories of income such as royalty, fees for technical services, interest and dividends.

Surcharge and cess apply on the base tax, at rates varying with the regime and income level, and the health and education cess applies on tax plus surcharge.

Rates, surcharge slabs, eligibility conditions and sunset dates are amended by the Finance Act. The position applicable to the relevant assessment year must be confirmed before an option is exercised, since most of these elections are irreversible.

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Minimum Alternate Tax

Minimum alternate tax under Section 115JB applies where the tax payable under the normal provisions is less than the prescribed percentage of book profit computed from the financial statements after specified adjustments. The excess paid is available as minimum alternate tax credit, which can be carried forward for the prescribed number of years and set off against future liability under the normal provisions to the extent of the difference.

Key points in practice:

• Minimum alternate tax does not apply to companies opting for the concessional regimes under Sections 115BAA and 115BAB
• Accumulated credit lapses when a company moves to the concessional regime, which is a central factor in the decision
• A report from a chartered accountant in the prescribed form is required
• Companies in special economic zones, loss-making companies with book profits, and companies claiming large incentives are the ones most frequently affected

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Computing Taxable Income: Where the Adjustments Arise

Book profit is the starting point; taxable income is what emerges after a long list of statutory adjustments.

Depreciation. Computed under the Income Tax Act on the written-down value method by block of assets, at prescribed rates that differ from those used in the books. Additional depreciation, where available, depends on the regime chosen.

Section 43B — payment-based deductions. Statutory dues, employer contributions to specified funds, interest on borrowings from banks and specified financial institutions, leave encashment and certain other items are deductible only on actual payment, subject to the relaxation where payment is made before the due date for filing the return. Payments to micro and small enterprises are governed by a separate clause with its own timeline, and delayed payment there is not saved by paying before the return is filed.

Section 40(a) — non-deduction of tax at source. A portion of resident payments and the entirety of non-resident payments are disallowed where tax was not deducted or not deposited within the prescribed period. Deduction is allowed in the year the tax is eventually paid.

Section 40A(2) — related-party payments. Expenditure to specified persons may be disallowed to the extent considered excessive or unreasonable having regard to fair market value.

Section 40A(3) — cash payments. Payments above the prescribed limit otherwise than through permitted banking channels are disallowed, subject to specified exceptions.

Section 14A — expenditure relating to exempt income. Disallowance computed under the prescribed method, an area of frequent litigation.

Section 94B — interest limitation. Restriction on deduction of interest paid to a non-resident associated enterprise beyond the prescribed proportion of earnings, with carry forward of the disallowed amount.

Other common adjustments. Provisions for unascertained liabilities, capital expenditure charged to revenue, penalties and fines, corporate social responsibility expenditure to the extent not allowable, employee contributions to welfare funds deposited late, and adjustments under the Income Computation and Disclosure Standards.

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Losses, Depreciation and Shareholding Changes

• Business losses may be carried forward for the prescribed number of assessment years and set off against business income, provided the return was filed within the due date
• Unabsorbed depreciation may be carried forward indefinitely and set off against any head of income, and is not dependent on timely filing
• Capital losses are set off only against capital gains, with short-term and long-term rules, and carried forward for the prescribed period
• Section 79 — closely held companies. Carry forward and set off of losses is denied where the beneficial shareholding changes beyond the prescribed extent, subject to specified exceptions including a relaxation for eligible startups and for changes arising from insolvency resolution, amalgamation and specified reorganisations

The Section 79 restriction is frequently overlooked during funding rounds and internal restructurings, and its effect — the permanent loss of accumulated tax losses — is discovered only when set-off is attempted.

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Dividends, Buybacks and Shareholder-Level Consequences

Dividend distribution tax has been abolished; dividends are taxable in the hands of shareholders, with the company obliged to deduct tax at source at the prescribed rate on payment to residents, and at the applicable rate or treaty rate for non-residents supported by a tax residency certificate and Form 10F. A deduction for interest expenditure against dividend income is available to the shareholder within prescribed limits.

The taxation of share buybacks has been restructured, with the amount received by the shareholder treated as deemed dividend in their hands under the current framework rather than being taxed at the company level as previously. Because this position changed recently, the treatment applicable on the date of the transaction should be confirmed before a buyback is approved.

Other shareholder-level provisions that companies encounter include those relating to issue of shares above fair market value, transfer of unquoted shares below fair market value, and deemed dividend on advances or loans to specified shareholders and concerns.

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Transfer Pricing and Related-Party Transactions

International transactions between associated enterprises must be at arm’s length, determined by one of the prescribed methods. Compliance obligations include maintenance of prescribed documentation, an accountant’s report in Form 3CEB filed by the notified date, and — for groups above prescribed thresholds — master file and country-by-country reporting requirements.

Specified domestic transactions above the prescribed threshold, in the categories notified, are subject to similar arm’s length requirements.

Related considerations

• Advance pricing agreements and the safe harbour rules, as mechanisms to obtain certainty
• Secondary adjustment provisions, where a primary adjustment exceeds the prescribed limit
• General anti-avoidance rules, applicable to arrangements whose main purpose is to obtain a tax benefit
• Intra-group service charges, management fees and cost allocations, which require evidence of benefit received, not merely an agreement and an invoice

For Indian subsidiaries of foreign groups, transfer pricing is usually the single largest area of tax exposure, and documentation prepared contemporaneously is worth considerably more than documentation assembled after a notice.

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Incentives and Special Regimes

• Section 80-IAC — deduction for eligible startups recognised by the competent authority, for a specified number of years within the eligibility window
• Section 10AA — deduction for units in special economic zones, subject to conditions and the applicable sunset
• Section 35 and allied provisions — deduction for scientific research expenditure, at the rates currently in force
• Section 80JJAA — deduction in respect of additional employee cost, subject to conditions
• Presumptive and special regimes for shipping, aviation, oil services and specified non-resident businesses
• Tonnage tax scheme for qualifying shipping companies

Availability of most incentives depends on the rate regime chosen, since the concessional regimes require them to be forgone. Comparing the regimes is therefore an exercise in modelling, not a matter of comparing headline rates.

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Compliance Obligations

Annual

• Tax audit under Section 44AB, where applicable, with the report filed ahead of the return
• Filing of the return in ITR-6, by the due date applicable to audit or transfer pricing cases
• Form 3CEB for international and specified domestic transactions
• Form 29B for minimum alternate tax computation, where applicable
• Master file and country-by-country reporting forms, where thresholds are met
• Form 67 for foreign tax credit claims, filed within the prescribed time
• Election forms for the concessional regimes, filed before the return due date in the first year of exercise

Quarterly and periodic

• Advance tax instalments on the notified dates, with interest under Sections 234B and 234C for shortfall and deferment
• TDS and TCS deduction, deposit, quarterly statements and certificates
• Form 15CA and 15CB for foreign remittances
• Equalisation levy compliance to the extent the levy continues to apply, which should be verified as the scope has been narrowed

Ongoing

• Maintenance of books, transfer pricing documentation and evidence supporting deductions claimed
• Monitoring of the e-filing portal and registered email for notices and proceedings

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Assessments, Appeals and Dispute Resolution

• Processing under Section 143(1), with automated adjustments
• Scrutiny assessment under Section 143(2), conducted through the faceless framework
• Reassessment under Sections 148 and 148A, subject to the prescribed procedure and limitation periods
• Transfer pricing assessment by the Transfer Pricing Officer, followed where applicable by a draft order and reference to the Dispute Resolution Panel
• Appeals to the Commissioner (Appeals), the Income Tax Appellate Tribunal, and thereafter to the High Court and Supreme Court on questions of law
• Alternative routes — rectification, revision, advance rulings, advance pricing agreements, mutual agreement procedure under a treaty, and applications for stay of demand

Response windows in faceless proceedings are short and strictly applied. Adjournments are limited, submissions are made through the portal, and a request for personal hearing must be made in the prescribed manner. Cases are frequently lost not on merits but on incomplete documentation filed against a deadline.

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Documents and Information Required

• Audited financial statements, trial balance and general ledger
• Tax audit report and annexures
• Computation of income for prior years, with returns and acknowledgements
• Fixed asset register and depreciation working under both the Companies Act and the Income Tax Act
• Details of statutory dues paid and outstanding, with payment dates for Section 43B
• TDS returns, challans and reconciliation with expense ledgers
• Advance tax and self-assessment challans, and Form 26AS with the Annual Information Statement
• Related-party transaction schedules and inter-company agreements
• Transfer pricing study, benchmarking analysis and Form 3CEB for earlier years
• Loan agreements, interest computations and details of borrowings from associated enterprises
• Shareholding pattern and details of any change during the year
• Board and shareholder resolutions relating to dividends, buybacks and reorganisations
• Prior assessment orders, appellate orders, notices and pending proceedings

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Common Corporate Tax Mistakes

1. Opting into a concessional regime without modelling the loss of incentives, brought-forward allowances and minimum alternate tax credit
2. Missing the deadline for filing the election form, since the option must be exercised before the return due date
3. Filing the return late and losing the ability to carry forward business losses
4. Overlooking Section 79 during a funding round or restructuring, and forfeiting accumulated losses
5. Providing for statutory dues without paying them before the return due date, triggering disallowance under Section 43B
6. Ignoring the separate timeline for payments to micro and small enterprises, which cannot be cured by paying before filing
7. Treating intra-group charges as settled by an agreement, without evidence of services actually received
8. Preparing transfer pricing documentation only after a notice, rather than contemporaneously
9. Underestimating advance tax and absorbing avoidable interest under Sections 234B and 234C
10. Missing response deadlines in faceless proceedings because the portal and registered email were not monitored

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How Delhi Legal Company Can Help

Delhi Legal Company provides corporate tax compliance and advisory alongside accounting, audit coordination, GST, TDS and regulatory services, so that the tax position rests on records that support it.

• Tax computation and return filing. Preparation of the computation, adjustments, disclosures and filing in ITR-6, with reconciliation against the books, GST turnover and TDS credits.
• Regime evaluation. Modelling of the normal and concessional regimes, taking into account incentives, brought-forward losses, unabsorbed depreciation and minimum alternate tax credit, and filing of the election within time.
• Minimum alternate tax. Book profit computation, Form 29B coordination and tracking of credit utilisation.
• Advance tax management. Quarterly estimation, instalment planning and minimisation of interest exposure.
• Tax audit coordination. Preparation of schedules and annexures, resolution of auditor queries and timely filing ahead of the return.
• Transfer pricing. Benchmarking studies, contemporaneous documentation, Form 3CEB, master file and country-by-country reporting support, and advisory on intra-group charges, cost allocation and inter-company agreements.
• Cross-border advisory. Withholding on foreign payments, treaty analysis, permanent establishment and place of effective management exposure, foreign tax credit claims and Form 67, and Form 15CA and 15CB compliance.
• Transaction tax. Tax structuring for fundraising, share issues, buybacks, amalgamations, demergers, slump sales and group reorganisations, including valuation and shareholder-level implications.
• Assessment and litigation support. Drafting and filing responses in faceless assessment and reassessment, representation before the Transfer Pricing Officer and Dispute Resolution Panel, appeals before the Commissioner (Appeals) and the Tribunal, and stay of demand applications.
• Health check and exposure review. Review of prior computations, disallowance exposure, documentation gaps and open positions, with a plan for voluntary correction where the limitation periods allow.
• Incentive advisory. Evaluation and claim of startup, special economic zone, employment and research-related deductions, together with the compliance they require.
• Effective tax rate planning. Legitimate structuring of transactions, group arrangements and timing, supported by documentation designed to withstand examination.

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Our Working Process

1. Assessment. We review the company’s structure, shareholding, operations, group relationships and current tax positions.
2. Health check. Prior returns, assessments and documentation are examined for exposure, unclaimed benefits and open proceedings.
3. Planning. Regime selection, advance tax strategy, transfer pricing approach and documentation requirements are agreed at the start of the year rather than at its close.
4. Ongoing compliance. Advance tax, withholding, remittance certifications and documentation are managed through the year, with quarterly review.
5. Year-end and filing. Computation, audit coordination, transfer pricing report and return filing, with the working shared for approval and the positions taken explained.
6. Post-filing. Review of the intimation, monitoring of the portal, and handling of any notice or proceeding through to closure.

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Who We Work With

• Private limited and public limited companies across sectors
• Indian subsidiaries, joint ventures and branch offices of foreign groups with cross-border and intra-group transactions
• Startups managing funding rounds, employee stock options, accumulated losses and eligible deductions
• Manufacturing companies evaluating the concessional regime for new units
• Companies undergoing amalgamation, demerger, buyback or other reorganisation
• Groups with related-party transactions requiring transfer pricing compliance
• Companies facing scrutiny, transfer pricing adjustment, reassessment or appellate proceedings

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Conclusion

Corporate tax rewards decisions taken early and documentation maintained contemporaneously. The regime a company elects, the way its group transactions are priced and evidenced, whether its statutory dues are actually paid, how its shareholding changes are structured, and whether it can produce support for what it claimed three years ago — these determine the effective tax rate far more than anything done in the weeks before the return is due.

Delhi Legal Company manages corporate tax compliance, advisory and dispute support as part of an integrated finance and regulatory function, so that the return, the books, the group documentation and the audit report all support the same, defensible position.

Get in touch: info@delhilegalcompany.com | +91-9599332456

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Frequently Asked Questions (FAQs)

1. What is the corporate tax rate for companies in India?

A. It depends on the regime. Domestic companies may be taxed under the normal provisions — with a lower ordinary rate for companies within the prescribed turnover limit — or under the concessional regimes in Sections 115BAA and 115BAB, each with lower rates but requiring specified deductions and incentives to be forgone. Foreign companies have their own rate, subject to treaty relief for specified income. Surcharge and cess apply on top. The rate for the relevant assessment year should be confirmed, as it is revised by the Finance Act.

2. What is Section 115BAA and should we opt for it?

A. It offers a lower rate to domestic companies that forgo specified deductions, incentives and additional depreciation, with minimum alternate tax ceasing to apply and accumulated minimum alternate tax credit lapsing. Whether it is beneficial depends on the value of the incentives and credit being given up. Because the election is irreversible, it should follow a proper multi-year comparison rather than a headline-rate view.

3. Can we switch back after opting for the concessional regime?

A. No. Once exercised, the option under Section 115BAA cannot be withdrawn in any subsequent year. This is precisely why the decision, and the timing of the election, deserve modelling before the form is filed.

4. What is Section 115BAB?

A. A concessional regime for eligible new domestic manufacturing companies, subject to conditions on date of incorporation, commencement of manufacture within the prescribed period, and restrictions on use of previously used plant, machinery and buildings. Non-manufacturing income is taxed at prescribed rates, and dealings with closely connected persons are examined on arm’s length principles. Eligibility depends on the commencement deadline in force.

5. What is minimum alternate tax?

A. Where tax under the normal provisions falls below a prescribed percentage of book profit computed from the financial statements after specified adjustments, tax is payable on that book profit under Section 115JB. The excess becomes credit that can be carried forward for the prescribed period and set off against future normal liability. It does not apply to companies under the concessional regimes.

6. What happens to accumulated MAT credit if we move to the concessional regime?

A. It lapses and cannot be utilised. For a company holding substantial credit, this is often the decisive factor against switching, and it should be quantified before the election is made.

7. Which return form applies to companies, and by when must it be filed?

A. ITR-6, other than companies claiming exemption for income from property held for charitable or religious purposes. The due date is the one applicable to audit cases, with a later date where a transfer pricing report is required. Both dates are subject to notified extensions.

8. Must a company file a return even if it has no income or is dormant?

A. Yes. Every company must file a return regardless of income, profit or loss, and dormant status does not remove the obligation. Non-filing also affects carry forward of losses and creates avoidable defaults.

9. How long can business losses be carried forward?

A. Business losses may be carried forward for the prescribed number of assessment years and set off against business income, provided the return for the loss year was filed within the due date. Unabsorbed depreciation carries forward indefinitely, may be set off against any head, and is not conditional on timely filing.

10. Can a change in shareholding affect our accumulated losses?

A. Yes. Under Section 79, closely held companies lose the right to carry forward and set off losses where beneficial shareholding changes beyond the prescribed extent, subject to specified exceptions including a relaxation for eligible startups and for changes under insolvency, amalgamation and specified reorganisations. This is routinely overlooked in funding rounds and internal restructurings.

11. What is Section 43B and why does it matter?

A. Specified expenses — statutory dues, employer fund contributions, interest to banks and specified institutions, leave encashment and others — are deductible only when actually paid, though payment before the due date for filing the return generally preserves the deduction for that year. Payments to micro and small enterprises are governed by a separate clause with its own timeline, where paying before the return date does not save the deduction.

12. What happens if we did not deduct TDS on an expense?

A. A portion of resident payments and the entirety of non-resident payments are disallowed under Section 40(a), with deduction allowed in the year the tax is eventually deposited. In assessments this is frequently the largest single adjustment, which is why TDS review is part of tax computation rather than a separate exercise.

13. How are dividends taxed now?

A. Dividend distribution tax has been abolished. Dividends are taxable in the shareholder’s hands, with the company deducting tax at source at the prescribed rate for residents and at the applicable or treaty rate for non-residents, supported by a tax residency certificate and Form 10F. Shareholders may claim interest expenditure against dividend income within prescribed limits.

14. How is a share buyback taxed?

A. The framework has been restructured, and the amount received by the shareholder is treated as deemed dividend in their hands under the current position, rather than being taxed at the company level as it was previously. Because this changed recently, the treatment applicable on the date of the transaction should be confirmed before a buyback is approved.

15. When do transfer pricing provisions apply to us?

A. Where the company has international transactions with associated enterprises, and where specified domestic transactions exceed the prescribed threshold. Obligations include arm’s length pricing, prescribed documentation, and an accountant’s report in Form 3CEB by the notified date, with master file and country-by-country reporting for groups above the applicable thresholds.

16. What documentation does transfer pricing require?

A. Entity and group information, a functional analysis covering functions performed, assets employed and risks assumed, an economic analysis with method selection and benchmarking, inter-company agreements, and evidence that services charged were actually rendered and benefited the Indian entity. Documentation prepared contemporaneously carries far more weight than documentation assembled after a notice.

17. Are management fees and intra-group charges deductible?

A. They can be, but they attract close examination. The company must be able to demonstrate that the services were actually received, that they provided a benefit to the Indian entity, that the charge is at arm’s length, that the allocation basis is rational, and that tax was withheld where required. An agreement and an invoice alone rarely survive scrutiny.

18. Can a foreign company become a tax resident of India?

A. Yes, under the place of effective management test, where key management and commercial decisions necessary for the conduct of the business as a whole are in substance made in India. Residence brings taxation of global income, so board composition, meeting location, decision-making practice and documentation matter in substance and not merely in form.

19. What is a permanent establishment and why does it matter?

A. A permanent establishment is a fixed place of business, or a dependent agent or service presence as defined in the applicable treaty, through which a foreign enterprise carries on business in India. Its existence gives India the right to tax the profits attributable to it. Employee secondments, project offices and dependent agents are the common triggers.

20. What is Form 3CEB and when is it due?

A. An accountant’s report on international transactions and specified domestic transactions, required to be filed by the notified date preceding the return due date for transfer pricing cases. Failure to furnish it carries a separate penalty, independent of any adjustment to income.

21. How does the faceless assessment process work?

A. Notices are issued and responses filed electronically through the portal, without physical interface with a specific officer. Response windows are short, adjournments limited, and a personal hearing must be requested in the prescribed manner. Monitoring the portal and the registered email is essential — there is no officer who will follow up by telephone.

22. What is the Dispute Resolution Panel?

A. In eligible cases, including those involving transfer pricing adjustments and certain foreign companies, the Assessing Officer issues a draft order. The taxpayer may object before the Dispute Resolution Panel, which issues binding directions within a prescribed period, after which the final order is passed — an alternative to the ordinary appellate route.

23. Can you review our past corporate tax positions?

A. Yes. A tax health check reviews prior computations, disallowance exposure, transfer pricing documentation, regime elections, loss carry-forward eligibility and open proceedings — identifying both exposures worth addressing and benefits not claimed, while limitation periods remain open.

24. How do I get started?

A. Write to info@delhilegalcompany.com or call +91-9599332456. We will review your company’s structure, filings and open positions, and share a clear scope and quotation before any work begins.