Assessment of Various Entities, Corporate Tax Regimes & Minimum Alternate Tax (MAT / AMT)

Under the Income-tax Act, 2025, every taxpayer is classified into distinct categories of 'Persons' defined under Section 2(77) [legacy Section 2(31)]. The computation of total income, admissible business deductions, applicability of minimum alternative taxes, surcharge schedules, and concessional tax regimes vary fundamentally across different taxable entities:

Under the Income-tax Act, 2025, the statutory definition of a ‘Company’ is broader than under the Companies Act, 2013:

• Indian Company [Section 2(53)]: A company formed and registered under the Companies Act, 2013 or any earlier law, having its registered office in India.
• Domestic Company [Section 2(42)]: An Indian company, OR any other company which, in respect of its income liable to tax under this Act, has made the prescribed arrangements for the declaration and payment of dividends within India.
• Foreign Company [Section 2(46)]: A company which is not a domestic company.
• CBDT Declared Company: Any institution, association or body (whether Indian or non-Indian, incorporated or not) declared by general or special order of the CBDT to be a company for specified tax year(s).

• Where Total Income exceeds ₹1 Crore but ≤ ₹10 Crore:
  The total tax payable (tax + 7% / 2% surcharge) shall not exceed the tax payable on ₹1 Crore plus the amount of income exceeding ₹1 Crore.
• Where Total Income exceeds ₹10 Crore:
  The total tax payable (tax + 12% / 5% surcharge) shall not exceed the tax payable on ₹10 Crore (with 7% / 2% surcharge) plus the amount of income exceeding ₹10 Crore.

Any payment by a company, other than a company in which the public are substantially interested (closely held private/unlisted company), of any sum by way of advance or loan to:

1. A shareholder who is the beneficial owner of shares holding ≥ 10% of the voting power; OR
2. Any concern (firm, LLP, HUF, company, AOP/BOI) in which such shareholder is a partner/member and has a substantial interest (≥ 20% share of profits/voting power); OR
3. Any payment by such company on behalf of, or for the individual benefit of, any such shareholder,

is deemed to be a dividend in the hands of the recipient, to the extent to which the company possesses accumulated profits (whether capitalized or not) up to the date of payment.

Under the statutory amendments enacted by the Finance Act, the taxation regime for buy-back of shares by domestic companies has been fundamentally overhauled:

Section 200 provides an elective, non-revertible statutory tax regime conferring a flat base tax rate of 22% for ANY domestic company, subject to statutory conditions under Section 205:

• Effective Tax Rate: 22% + 10% flat surcharge + 4% HEC = 25.168% (~25.17%). Surcharge is strictly 10% irrespective of whether total income is ₹10 Lakhs or ₹100 Crores!
• Exemption from MAT: Provisions of Section 206 (Minimum Alternate Tax) DO NOT APPLY to a company opting for Section 200 [Section 206(6)].
• MAT Credit Lapse: The company CANNOT set off unabsorbed MAT credit brought forward from earlier years against tax payable under Section 200. Any accumulated MAT credit effectively lapses upon exercising the option!
• Filing Requirement: Option must be exercised electronically in Form No. 10-IC on or before the due date specified under Section 263(1) [legacy 139(1)] for furnishing the return of income. Once exercised for any tax year, it cannot be withdrawn for that or any subsequent year!

Section 201 offers a globally competitive base tax rate of 15% for newly incorporated domestic manufacturing companies:

• Incorporation & Commencement Window: Must be set up and registered on or after 01.10.2019 and commenced manufacture or production of any article or thing on or before 31.03.2024.
• Effective Tax Rate: 15% + 10% flat surcharge + 4% HEC = 17.16%.
• Strict Anti-Splitting Conditions:
  • Not formed by the splitting up, or reconstruction, of a business already in existence.
  • Does not use any machinery or plant previously used for any purpose. Exception: Old machinery up to 20% of the total value of plant and machinery is permitted. Second-hand imported machinery previously used outside India and never depreciated under the Indian Income-tax Act is treated as brand new.
  • Does not engage in any business other than manufacture or production, and research/distribution related thereto.
• Non-Manufacturing Income Taxation:
  • Incidental short-term capital gains on non-depreciable assets: Taxed @ 22% (+ surcharge + HEC = 25.17%).
  • Profits from closely connected transactions exceeding arm's length (transfer pricing adjustment): Taxed @ 30% (+ surcharge + HEC).
• Procedural Mandate: Form No. 10-ID must be furnished on or before Section 263(1) return filing due date.

To avail the 22% (Sec 200) or 15% (Sec 201) rates, total income must be computed without claiming any of the following statutory deductions:

Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income computed under this Act in respect of any tax year is less than 15% of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of 15%:

Starting Point: Net Profit as per Statement of Profit & Loss prepared in accordance with Schedule III to the Companies Act, 2013 (or regulatory Act for banking/insurance/power). The Assessing Officer has no power to reopen or rewrite accounts audited by statutory auditors unless they do not conform to Schedule III (*Apollo Tyres Ltd. v. CIT (SC)*).

For companies preparing financial statements under Indian Accounting Standards (Ind AS), Book Profit is adjusted for Other Comprehensive Income (OCI) and the Transition Amount:

1. OCI Items that will NEVER be reclassified to P&L:
   • Remeasurement of Defined Benefit Plans: Included in book profit in the tax year in which it is recognized.
   • Equity Investments measured at FVTOCI: Cumulative gain or loss is included in book profit in the tax year in which the asset is retired, disposed of, or realized.
2. Transition Amount Adjustments (Convergence to Ind AS):
   • Transition amount represents the aggregate of amounts adjusted in other equity (excluding capital reserve and revaluation reserve) on the convergence date.
   • One-fifth (20%) of the transition amount is included or deducted from book profit in each of the 5 consecutive tax years beginning from the convergence year.

Rules of Carry Forward & Set-Off under Section 207:

• 15-Year Carry Forward: MAT credit can be carried forward for a maximum period of 15 Assessment Years (Tax Years) immediately succeeding the tax year in which such credit is generated.
• Condition for Set-Off: Set-off is permitted ONLY in a subsequent tax year where Regular Tax > MAT Payable.
• Quantum of Set-Off: The maximum allowable set-off in any tax year is restricted to:
  Max Set-off = Regular Tax Payable − MAT Payable of that Tax Year
• No Interest on Refund: No interest is payable to the assessee by the Income-tax department in respect of any MAT credit.

The Tonnage Tax Scheme is an elective regime substituting presumptive tonnage income for normal business profits of eligible shipping companies:

• Qualifying Ship: A sea-going ship or vessel of ≥ 15 net tonnage registered under the Merchant Shipping Act, 1958 with a valid certificate. Excludes fishing vessels, factory ships, pleasure crafts, and river ferries.
• Tonnage Income Computation: Calculated per qualifying ship on a daily slab rate based on its net tonnage, multiplied by the number of days operated in the tax year:

Where the regular income-tax payable for a tax year by a person other than a company is less than the Alternate Minimum Tax (AMT), the Adjusted Total Income (ATI) shall be deemed to be the total income of that person, and he shall be liable to pay tax at the rate of 18.5%:

Statutory Rules of Set-Off & Carry Forward:

• 15-Year Carry Forward: AMT credit is carried forward for up to 15 Assessment Years (Tax Years).
• Permitted Set-Off: Allowed in a subsequent year only when Regular Tax > AMT. Maximum set-off is restricted to the excess of regular tax over AMT for that year.
• Interaction with Section 202(1) Default Tax Regime: Where an assessee opts for the default regime u/s 202(1) in a future tax year, brought forward AMT credit cannot be set off against tax payable under Section 202(1). However, the credit does not perish — it remains alive and can be utilized in any subsequent year (within the 15-year window) if the assessee opts back into the normal tax regime!

Under the Income-tax Act, 2025, a partnership firm (including a Limited Liability Partnership — LLP) is assessed as a distinct taxable entity separate from its partners:

• Tax Rates: Income of the firm is charged at a flat rate of 30%.
• Surcharge: Surcharge is levied @ 12% if total income exceeds ₹1 Crore (subject to statutory marginal relief).
• Health & Education Cess: 4% on tax plus surcharge.
• Effective Tax Rate: 31.20% (income ≤ ₹1 Cr) or 34.944% (income > ₹1 Cr).
• Exemption of Partner's Share of Profit [Section 11(2) / Legacy 10(2A)]: The share of profit received by a partner from the total income of the firm is completely exempt from tax in the hands of the partner, preventing double taxation of corporate/firm profits.

Remuneration (salary, bonus, commission) and interest paid by a firm to its partners are deductible in computing business profits ONLY IF all five statutory conditions under Section 35(e) are fulfilled:

Steps to Compute ‘Book Profit’ for Section 35(e):

1. Start with Net Profit as per Statement of Profit and Loss.
2. Exclude non-business incomes: Deduct Capital Gains, Income from House Property, and Income from Other Sources (Interest on refund, dividend).
3. Add back disallowed interest: Add partner interest in excess of 12% p.a. or interest not authorized by deed.
4. Add back partners' remuneration: Add back all salary, bonus, commission paid to partners debited to P&L.
5. Depreciation: Allow current year depreciation and unabsorbed depreciation under Section 33.
6. Brought forward loss restriction: Do NOT deduct brought forward business loss!
7. Chapter VIII restriction: Do NOT deduct Chapter VIII deductions.

Under Section 2(32), a ‘co-operative society’ means a co-operative society registered under the Co-operative Societies Act, 1912, or under any other law for the time being in force in any State for the registration of co-operative societies. Under normal provisions, it is taxed on progressive slabs:

Under normal tax provisions, a co-operative society is entitled to 100% deduction of profits derived from eligible specified activities:

• 100% Eligible Activities [Section 149(2)(a)]:
  • Carrying on the business of banking or providing credit facilities to its members.
  • Cottage industry.
  • Marketing of agricultural produce grown by its members.
  • Purchase of agricultural implements, seeds, livestock for supply to members.
  • Fishing or allied activities.
  • Supply of milk, oilseeds, fruits or vegetables grown by members to federal co-operative or Government.
• Inter-Cooperative Investment Income [Section 149(2)(d)]: 100% deduction in respect of any income by way of interest or dividends derived by the co-operative society from its investments in ANY OTHER co-operative society!
• Warehousing Income [Section 149(2)(e)]: 100% deduction of income derived from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities.
• General Business Deduction: ₹50,000 for other co-operative societies (₹1,00,000 for consumer co-operative societies).

Under Section 202(1), the default tax regime applies automatically to Individuals, HUFs, AOPs, BOIs, and Artificial Juridical Persons, with progressive slab rates, capped 25% surcharge, Section 156 rebate up to ₹7 Lakhs / ₹12.75 Lakhs marginal relief, and disallowance of standard Chapter VIII deductions.

Hindu Undivided Family (HUF) & Section 311 Partition Rules:

• Section 311 [Legacy Section 171]: A Hindu family hitherto assessed as undivided shall be deemed for the purposes of this Act to continue to be a Hindu undivided family, except where and in so far as a finding of partition has been recorded under this section.
• Partial Partition Unrecognized: Any partial partition (whether as to persons or property) is completely UNRECOGNIZED for income-tax purposes! The HUF continues to be assessed on the entirety of income as if no partial partition took place.
• Total Partition Inquiry: Requires complete physical division of property by metes and bounds where feasible. The Assessing Officer must conduct an inquiry after giving notice to all coparceners, record a formal order under Section 311, and assess the members jointly and severally for pre-partition tax liabilities.

The determination of tax liability of an AOP or BOI depends upon whether the individual shares of its members are determinate or indeterminate:

Taxation of Member's Share in AOP & Section 157 Rebate [Legacy Section 86]:

• Where AOP is taxed at MMR / Corporate Rate: The member's share of profit is completely excluded from the member's total income under Section 11(3).
• Where AOP is taxed at Normal Slab Rates: The member's share of profit is included in the member's total income for rate purposes only. The member is entitled to a statutory rebate under Section 157 calculated at the average rate of tax:

The doctrine of mutuality is founded on the fundamental proposition that no person can trade with himself and generate a taxable profit out of himself. Three cumulative judicial tests must be satisfied:

1. Identity Test: Complete identity between the contributors to the common fund and the participators entitled to the surplus.
2. Mutual Mandate: The transactions must be in furtherance of the mutual objective of the association (not commercial trading with third parties).
3. Impossibility of Profits: The fund must be returned to the contributors or held for their mutual benefit upon dissolution.

Where a person carrying on any business or profession has been succeeded therein by any other person:

• Predecessor's Liability: The predecessor shall be assessed in respect of the income of the tax year up to the date of succession.
• Successor's Liability: The successor shall be assessed in respect of the income of the tax year after the date of succession.
• Recovery from Successor: If the predecessor cannot be found, or the tax assessed on the predecessor cannot be recovered from him, such tax shall be assessed upon and be recoverable from the successor.

• Firm Dissolution [Section 310 / Legacy 189]: Where any business or profession carried on by a firm has been discontinued or the firm is dissolved, the Assessing Officer shall make an assessment of the total income of the firm as if no discontinuance or dissolution had taken place. Every person who was at the time of such discontinuance or dissolution a partner of the firm, and the legal representative of any deceased partner, shall be jointly and severally liable for the tax payable.
• Liquidator's Duties [Section 322 / Legacy 178]: The liquidator of a company must notify the Assessing Officer within 30 days of appointment. The AO shall notify within 3 months the amount sufficient to provide for tax liability. The liquidator cannot part with assets until notified, and if he fails to comply, he is personally liable for the company's tax.
• Directors of Private Company [Section 323 / Legacy 179]: Where any tax due from a private company cannot be recovered, every person who was a director of the private company during the relevant tax year shall be jointly and severally liable for the payment of such tax, unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance, or breach of duty on his part.