Assessment of Companies under the Income-tax Act, 2025 (CA Final Direct Tax)

Understand Assessment of Companies

Key rules to remember

Domestic company, regular regime

Tax = 30% × Total income (base rate); a lower 25% rate applies only where the company meets the turnover condition the Act sets for the year

No surcharge if income is ₹1 crore or less. Surcharge is 7% of tax for income above ₹1 crore up to ₹10 crore and 12% above ₹10 crore. Then add 4% cess. Use 25% only if the question says the turnover condition is met or gives the rate. Otherwise use 30%.

Domestic company, concessional regime

Tax = 22% × Total income; surcharge 10% of tax; cess 4% of (tax + surcharge); effective rate 25.168%

Surcharge is a flat 10% at every income level in this regime. Most incentive deductions are not available. Brought-forward losses and unabsorbed depreciation linked to the barred deductions (including additional depreciation) cannot be carried forward or set off. Brought-forward MAT credit cannot be set off. MAT does not apply. By contrast, the regular regime attracts no surcharge only when income is ₹1 crore or less.

Foreign company

Tax = 35% × Taxable income in India; plus surcharge (2% if income above ₹1 crore up to ₹10 crore, 5% above ₹10 crore); plus 4% cess

Special rates for royalty, fees for technical services and similar income apply separately; follow the question. MAT applies to a foreign company that has a place of business in India or must register under the Companies Act. It is outside MAT where it has no place of business in India and need not register, or where a treaty bars MAT, as the provision for the year states.

Book profit (MAT)

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

Additions include income-tax provision, reserves, provisions for unascertained liabilities, diminution in asset value, deferred tax and dividend provisions. Deductions include exempt income credited and the lower of (i) brought-forward loss (excluding unabsorbed depreciation) and (ii) unabsorbed depreciation, both as per books. If either is nil, nothing is deducted.

MAT payable

MAT = Rate × Book profit (use the rate given in the question), then surcharge and 4% cess

Confirm the MAT rate in the question or the Finance Act, 2026 text. The worked example uses 15% only as a hypothetical illustration. Pay the higher of regular tax and MAT.

MAT credit

MAT credit = MAT − Regular tax (before cess), in the MAT year

Carry forward for the period the Act allows for the year. Set-off = lower of available credit and (regular tax − MAT) in a later year.

How to solve Assessment of Companies questions

1. 1Identify the company type: domestic or foreign, and Ind AS or not. Note any rate condition in the facts and any option for the concessional regime.
2. 2Compute income under each head. Apply set-off and carry-forward of losses and depreciation exactly as the Act allows.
3. 3Deduct the allowed deductions. Under the concessional regime, drop the deductions that are not permitted.
4. 4Arrive at total income and apply the correct rate. Add surcharge (check the income limit) and 4% cess.
5. 5If MAT applies to the company, compute book profit from the net profit, with each addition and deduction listed separately.
6. 6Compute MAT on book profit with surcharge and cess. Compare with regular tax and take the higher.
7. 7Work out the MAT credit created, or the credit used and the balance carried forward, along with the years.
8. 8State the final tax liability. Where the question asks for advice, compare the two regimes and say which saves more tax.

Quickest way: Rate-first, then MAT check

Common mistakes in Assessment of Companies

• Applying MAT to a company under the concessional regime.

  Students treat MAT as a universal minimum tax for all companies.

  Fix: Check the regime first. A company that has opted for the 22% regime is outside MAT, so no book profit computation is needed.

• Applying 30% or 25% without checking the turnover condition.

  Students either forget the turnover test or apply the lower rate from memory without the facts.

  Fix: Use 30% as the base rate. Use 25% only where the company meets the turnover condition the Act sets for the year, or where the question states the rate. Write the condition in your answer.

• Treating MAT as a domestic-company-only rule.

  MAT is taught mostly with domestic company examples.

  Fix: For a foreign company, check whether it has a place of business in India or must register under the Companies Act. If so, compute book profit and MAT unless a treaty bars it. If it has no place of business and need not register, MAT does not apply.

• Starting book profit from profit before tax or taxable income.

  Students mix the starting point of the Companies Act account with the tax computation.

  Fix: Start from net profit as per the statement of profit and loss. Add back the income-tax provision as an addition, not as a starting adjustment.

• Deducting the full brought-forward loss from book profit.

  The tax rule (carry forward of loss) is confused with the book profit rule.

  Fix: Deduct the lower of (i) the brought-forward loss as per books, excluding unabsorbed depreciation, and (ii) the unabsorbed depreciation as per books. If either is nil, deduct nothing.

• Computing MAT credit including cess or using the wrong comparison.

  Students compare final tax figures instead of the basic tax amounts.

  Fix: Compute credit as MAT less regular tax, both before cess. Add cess only on the tax payable for the year.

• Forgetting to withdraw incentive deductions when comparing regimes.

  Students compare rates alone and keep the same total income under both.

  Fix: Recompute total income under the concessional regime without the barred deductions, then compare the final tax.

Worked examples