Assessment of Companies: formula sheet

Key formulas

Residence of a company

Resident in India = Indian company OR place of effective management in India (in that tax year)

Section 6(10)(a). Either condition is enough. Both are tested for the tax year in question.

Place of effective management

POEM = place where key management and commercial decisions for the business as a whole are, in substance, made

Section 6(10)(b). The test is substance, not the place of registration or the place of board meetings alone.

Single residential status for all sources

Resident for any one source ⇒ resident for every other source in that tax year

Section 6(12). A person cannot be resident for some sources and non-resident for others.

Other persons (non-company)

HUF, firm, AOP, other persons: resident unless control and management is wholly outside India

Section 6(9) and 6(11). Do not apply this 'wholly outside India' test to a company, which uses section 6(10).

No NOR status for companies

Not ordinarily resident applies to individuals and HUFs only

Section 6(13). A company is either resident or non-resident.

Tax rates on specified foreign company income

Dividend 20%; royalty and fees for technical services (approved agreements) 20%; other income at rates in force

Section 207 applies to non-residents (not being companies) and foreign companies. Dividend from an IFSC unit is 10%. No expense deduction is allowed against these incomes.

Business income (starting point)

Business income = Net profit per books + Disallowed items − Allowed items not debited − Exempt / separately taxed income

Always reconcile from the books. Remove items taxed under another head.

Speculation loss set-off (s.113(1))

Speculation loss is set off only against profits of another speculation business

It cannot be set off against normal business income or other heads.

Speculation loss carry forward (s.113(2)-(3))

Carry forward to following tax year; maximum four tax years immediately succeeding the loss year

Set off only against speculation profits of those years.

Specified business loss (s.114)

Loss of specified business (s.46) is set off only against profits of another specified business; unabsorbed loss is carried forward

Do not mix it with normal business profits.

Deemed speculation for companies (s.113(5)-(6))

Share trading part of business = speculation business, unless s.113(6) exception applies

Exception: GTI mainly from house property, capital gains or other sources; or principal business is share trading, banking or lending.

Eligible assessee (section 136)

Assessee = Indian company

Foreign companies are not covered by section 136.

Eligible recipient

Political party registered under section 29A of the Representation of the People Act, 1951, or an electoral trust

An unregistered party does not qualify.

Mode of payment

Contribution made other than by way of cash

Cheque, draft, electronic transfer and similar non-cash modes qualify. Cash does not.

Deduction amount

Deduction = amount contributed (non-cash) during the tax year

Section 136(1) states no percentage or monetary cap.

Meaning of contribute

As in section 182 of the Companies Act, 2013

Given by section 136(2).

Other assessees

Section 137: any assessee except a local authority and an artificial juridical person wholly or partly funded by the Government

Same non-cash condition.

Who may inspect (section 255)

AO, assessment unit, verification unit, JC, JC(Appeals), CIT(Appeals) + subordinates authorised in writing

A subordinate without written authorisation has no power to inspect.

What may be inspected

Register of members, debenture holders or mortgagees of any company, or any entry in it

Applies to any company, not only the company being assessed.

Extent of power

Inspect + (if necessary) take copies or cause copies to be taken

Copying is allowed only if necessary.

Penalty for refusal (section 465(2)(d))

₹500 per day while the failure continues

Covers failure to allow inspection or copying of the register or an entry.

Penalty-imposing authority (section 465(4))

Joint Director or Joint Commissioner (general case)

If the default occurs in a proceeding before an authority not below Joint Director or Joint Commissioner, that authority imposes it.

Faceless scheme (section 260)

Central Government notification; laid before each House of Parliament

Can notify that provisions apply with modifications for the scheme.

Time limit for modified return (s. 314(1))

Due date = end of the month in which the order was issued + 6 months

Applies only if a return was already furnished for a tax year to which the order applies. The return must be in the prescribed form and manner.

Who files

Successor = all resulting companies (s. 314(4)(c))

Includes a resulting company that did not exist before the reorganisation.

Order covered

Order of High Court, tribunal or Adjudicating Authority under s. 5(1) of the IBC, 2016

Only these orders trigger section 314.

Assessment already complete

AO passes order modifying total income (s. 314(2)(a))

Based on the order and the modified return.

Assessment pending

AO assesses or reassesses total income per the order (s. 314(2)(b))

Modified return is taken into account.

Rate of tax

Rates applicable to the relevant tax year (s. 314(3))

Not the rates of the year of the order.

Amalgamation loss conditions (s. 116(4))

Amalgamating co: business ≥ 3 years; holds ≥ 3/4 of book value of fixed assets held 2 years before. Amalgamated co: holds ≥ 3/4 of that book value for 5 years; continues business 5 years; meets prescribed conditions

Failing any condition means loss or depreciation set off is deemed income in the year of non-compliance (s. 116(5)).

Eligible amalgamations (s. 116(1))

Industrial undertaking, ship or hotel company; banking company with a specified bank; public sector companies; certain erstwhile public sector companies

Loss and unabsorbed depreciation of the amalgamating company are deemed to be those of the amalgamated company for the tax year of amalgamation.

Carry forward limit (s. 116(12))

Amalgamation or reorganisation on or after 1 April 2025: carry forward ≤ 8 tax years after the year the loss was first computed for the original predecessor entity

Applies to the loss portion forming part of accumulated loss.

Demerger losses (s. 116(6))

Directly relatable to transferred undertakings → resulting company. Otherwise → apportioned in the ratio of assets retained by demerged company to assets transferred

Unabsorbed depreciation follows the same rule.

MAT trigger

If regular tax < MAT, then tax payable = MAT

Regular tax is on total income computed under the Act. Compare the tax amounts, not the incomes.

MAT rate for companies

MAT = 14% × book profit

Rate is 9% for an IFSC unit deriving income solely in convertible foreign exchange. Surcharge and cess are extra where applicable.

Book profit

Book profit = Net profit per statement of profit and loss + additions − deductions

Additions include income-tax and provision for it, reserves carried, unascertained provisions, dividends, depreciation, deferred tax debited, provision for diminution in asset value. Deductions include withdrawals from reserves already added, section 11 income, depreciation (excluding revaluation depreciation), deferred tax credited, and lower of brought-forward loss or unabsorbed depreciation as per books.

Brought-forward loss deduction

Deduction = lower of (loss b/f excluding depreciation, unabsorbed depreciation), as per books

If either figure is nil, the deduction is nil. Both figures are as per books of account, not as per tax computation.

Domestic company credit set-off (section 206(3))

Set-off ≤ 25% × tax payable on total income

Only for a domestic company that has exercised the option under section 200(5) or 201(2), and only for credit brought forward as on 31 March 2026.

Foreign company credit set-off (section 206(4))

Set-off ≤ regular tax − MAT

Only brought-forward credit as on 31 March 2026. Allowed only when regular tax exceeds MAT.

Alternate minimum tax (non-company)

AMT = 18.5% × adjusted total income

Rate is 9% for an IFSC unit and 15% for a co-operative society. Excluded for an individual, HUF, AOP or BOI whose adjusted total income does not exceed ₹20 lakh. Credit equals AMT minus regular tax, carried forward up to the fifteenth succeeding tax year.

Quick revision

• Fix the type of company and its residential status before computing anything.
• Compute total income head by head, then apply set-off and carry forward of losses.
• Do not mix up book profit with total income; they are different bases.
• For MAT, compare normal tax with tax on book profit and pay the higher.
• In a business reorganisation, the successor means all resulting companies, whether or not they existed earlier.
• The successor files a modified return within six months from the end of the month in which the order was issued.
• The modified return is in accordance with and limited to the order.
• If assessment is complete, the Assessing Officer passes an order modifying total income.
• If assessment is pending, the Assessing Officer assesses or reassesses as per the order and the modified return.
• Tax is charged at the rates applicable to the tax year being assessed.
• An order in respect of business reorganisation can come from a High Court, a tribunal or an Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016.
• Use Income-tax Act, 2025 section numbers, not those of the 1961 Act.

Common mistakes

• Saying a foreign company is non-resident without testing POEM. Fix: Treat classification and residence as two tests. A foreign company is resident if its place of effective management is in India in that tax year.
• Calling a company 'resident but not ordinarily resident'. Fix: Under section 6(13), NOR status is for individuals and HUFs. A company is only resident or non-resident.
• Setting off a speculation loss against normal business profit. Fix: Remember s.113(1): speculation loss is set off only against profits of another speculation business.
• Carrying forward a speculation loss for more than four years. Fix: Use s.113(3): no carry forward beyond four tax years immediately succeeding the loss year.
• Allowing a deduction for a cash contribution. Fix: Remember the words "other than by way of cash". Cash contributions get nothing under section 136.
• Applying a percentage cap such as a share of profits. Fix: Section 136(1) gives a deduction for the amount contributed. Do not invent a ceiling.
• Saying any tax official can inspect the registers. Fix: Remember that subordinates need written authorisation from the officer or authority listed in the section.
• Applying section 255 to all company records such as books of account. Fix: Limit it to registers of members, debenture holders and mortgagees, or entries in them.
• Counting six months from the date of the order itself. Fix: Count from the end of the month in which the order was issued. An order on 10 March gives 30 September.
• Applying section 314 when no return was filed earlier. Fix: Section 314(1) applies only where a return was already furnished for a tax year to which the order applies.

Exam tips

• Write the section 6(10) test in one line at the start of any company residence answer. It earns marks for the rule itself.
• In case-based MCQs, look for the words 'Indian company'. If present, the answer is resident regardless of where the directors sit.
• For POEM questions, quote the 'in substance' wording and tie it to a fact in the case, such as who signs key contracts.
• Show the domestic/foreign classification separately when the question also asks about the rate of tax, and link foreign companies to section 207 where income is dividend, royalty or fees for technical services.
• Check the tax year in the question. Status is decided for each tax year, so say 'for the tax year 2026-27', not 'always'.
• In the written part, show each loss bucket separately. Examiners award marks for the ring-fencing step.
• State the section when you apply a loss rule. Cite s.113 for speculation and s.114 for specified business.
• For carry forward, always write the number of years left. A missing time limit costs marks.