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CS Professional · Advanced Direct Tax Laws and Practice

Computation of Total Income, Tax Liability and Filing of Return of Companies

This chapter teaches you to take a company's accounts, compute its total income, test it against minimum alternate tax on book profit, apply the right tax rate, account for advance tax, TDS and self-assessment tax, and file the return. In the exam you present it as provision, facts, working and conclusion.

What this chapter covers

This chapter is the company-specific application of the Income-tax Act, 2025. You start from the statement of profit and loss, compute total income under the heads of income, set off losses and claim deductions. Then you compute the tax payable, compare it with the minimum alternate tax, and settle it through advance tax, TDS and self-assessment tax. Finally you file the return.

The central idea is a two-track computation. Track one is normal total income taxed at the applicable company rate. Track two is book profit taxed under the special MAT provision in section 206. A company pays whichever is higher. Under section 206(1)(a), where tax on total income is less than the MAT, the book profit is deemed to be total income and the company pays tax equal to MAT. For a company other than an IFSC unit earning solely in convertible foreign exchange, the rate in the text supplied is 14% of book profit. For such an IFSC unit it is 9%.

This chapter links to the rest of the paper. Income computation and deductions you learn elsewhere feed into it. Restructuring, tax planning and assessment questions often assume you can compute a company's tax liability quickly. Treat it as a base chapter. Be ready for numerical problems with a conclusion and for short compliance questions on due dates and certificates.

Written case-based papers reward a clean computation with a clear conclusion. This chapter gives you numbers-based questions where every step can earn marks, and where a single wrong adjustment to book profit can change the answer. It also tests compliance points such as the accountant's report on book profit and return filing. If you master the MAT working and the tax credit rules, you can handle a large share of company tax questions with confidence.

Computation of Total Income, Tax Liability and Filing of Return of Companies: topics in the order to study them

  1. 1Computation of Total Income of CompaniesEverything else starts from total income, so learn the format, adjustments to accounts profit, set-off of losses and deductions first.
  2. 2Book Profit and Minimum Alternate TaxOnce you can compute total income, learn the parallel book profit computation and the comparison that decides which tax applies.
  3. 3Tax Rates and Tax Liability of CompaniesYou need the rates and the concessional regimes to compute the tax on total income that is compared with MAT.
  4. 4Tax on Accreted IncomeThis is a specific levy with its own trigger and computation, so study it after the main liability framework is clear.
  5. 5Advance Tax, TDS and Self-Assessment TaxPayment of tax follows the liability: you must know the final tax before working out instalments, credits and balance payable.
  6. 6Filing of Return of Income by CompaniesReturn filing is the last step, pulling together the computation, tax paid, the accountant's report and due dates.

How to prepare Computation of Total Income, Tax Liability and Filing of Return of Companies

Prepare this chapter by practising full computations, not by reading alone. Examiners expect a structured answer with working notes.

  1. Learn the standard layout for a company's computation: accounts profit, additions, deductions, heads of income, set-off, deductions, total income.
  2. Read section 206 line by line. List the additions to book profit in clause (c) and the reductions, and note the further adjustments in clause (d).
  3. Solve at least five book profit problems. In each, compute tax on total income, compute MAT on book profit, compare, and state the conclusion in one sentence.
  4. Learn how MAT credit works now. Clauses (m) to (p) of section 206(1) were omitted with effect from 1 April 2026, so tax paid under section 206(1) no longer creates fresh credit. Only credit under section 115JAA of the 1961 Act brought forward as on 31 March 2026 can be used, under sub-sections (3) and (4), within the 15-year limit.
  5. Make a one-page table of the rates for domestic companies, foreign companies and IFSC units, and note the conditions for each option.
  6. Practise the payment chain: advance tax instalments, TDS credit, interest and self-assessment tax, then the return and accountant's report due dates.
  7. Write short answers on compliance points, such as who must furnish the accountant's report and by when, in your own words.

Common mistakes in Computation of Total Income, Tax Liability and Filing of Return of Companies

  • Starting book profit from taxable income instead of the statement of profit and loss.

    Fix: Begin the MAT working from the accounts profit as per Schedule III, then apply the additions and reductions listed in section 206.

  • Forgetting to compare tax on total income with MAT and just paying one of them.

    Fix: Write a final line: tax on total income is ₹X, MAT is ₹Y, so tax payable is the higher figure under section 206(1)(a).

  • Using the old 15% MAT rate.

    Fix: Use 14% for companies in general for tax years from 1 April 2026, as in the section text, and 9% for qualifying IFSC units.

  • Deducting full brought forward loss from book profit.

    Fix: For a company other than one under clause (d)(vi) or (vii), reduce only the lower of brought forward loss (excluding depreciation) and unabsorbed depreciation, as per books, under clause (c)(xvi). Where either amount is nil, the lower figure is nil, so nothing is reduced under that clause. Where the Tribunal, on the Central Government's application under section 241 of the Companies Act, 2013, has suspended the Board and nominated new directors under section 242, or where CIRP has been admitted under section 7, 9 or 10 of the Insolvency and Bankruptcy Code, 2016, reduce the aggregate of unabsorbed depreciation and brought forward loss (excluding depreciation) under clause (d)(vi) or (vii) instead.

  • Allowing fresh MAT credit for tax paid under section 206(1), or applying the old credit rules without checking the company's position.

    Fix: Give no fresh credit for tax paid under section 206(1) from 1 April 2026. Use only section 115JAA credit brought forward as on 31 March 2026. Identify the type of company and option first, then apply the 25% cap under sub-section (3) for a domestic company that has exercised the option, or the excess-over-MAT rule under sub-section (4) for a foreign company. The 15-year limit applies to both.

  • Ignoring compliance points such as the accountant's report.

    Fix: Add a one-line compliance note to every computation answer: report certifying book profit is to be furnished before the specified date.

Last-day revision: Computation of Total Income, Tax Liability and Filing of Return of Companies

  • Section 206(1)(a): if tax on total income is less than MAT, book profit is deemed total income and tax equals MAT.
  • MAT rate on book profit is 14% for companies in general and 9% for an IFSC unit earning solely in convertible foreign exchange.
  • Book profit starts from the profit in the statement of profit and loss prepared under Schedule III to the Companies Act, 2013, or the governing enactment for banks, insurers and electricity companies.
  • Add back income-tax, reserves, unascertained provisions, dividends, depreciation and deferred tax debited to the statement of profit and loss.
  • Reduce by withdrawals from reserves already added back, depreciation excluding revaluation depreciation, and deferred tax credited.
  • Under clause (c)(xvi), for a company other than one covered by clause (d)(vi) or (vii), the reduction is the lower of brought forward loss (excluding depreciation) and unabsorbed depreciation, as per books. Where either amount is nil, the lower figure is nil, so nothing is reduced under clause (c)(xvi).
  • Clause (d)(vi) applies where the Tribunal, on an application by the Central Government under section 241 of the Companies Act, 2013, has suspended the Board and nominated new directors under section 242. Clause (d)(vii) applies to a company against which CIRP has been admitted under section 7, 9 or 10 of the Insolvency and Bankruptcy Code, 2016. In both cases, the aggregate of unabsorbed depreciation and brought forward loss (excluding depreciation) is reduced from book profit.
  • A company must furnish an accountant's report certifying book profit computed under section 206.
  • MAT does not apply to a company having income from life insurance business under section 194(1), or one that has exercised the option under section 200(5) or section 201(2). Clause (l) also excludes certain foreign companies, for example a resident of a treaty country that has no permanent establishment in India.
  • Alternate minimum tax of 18.5% applies to non-company persons claiming certain deductions; do not mix it up with MAT for companies.
  • Clauses (m) to (p) of section 206(1) were omitted with effect from 1 April 2026, so tax paid under section 206(1) creates no fresh MAT credit. Only credit under section 115JAA of the 1961 Act brought forward as on 31 March 2026 can be used, under sub-sections (3) and (4). For a domestic company that has exercised the option under section 200(5) or 201(2) for a tax year beginning on or after 1 April 2026, this credit can be set off up to 25% of the tax payable on total income in a year. No carry forward or set-off is allowed beyond the fifteenth tax year after the year in which the credit first became allowable under section 115JAA.
  • Foreign companies use the brought forward credit only to the extent that tax on total income exceeds MAT, up to the difference between the two, within the same 15-year limit.
  • Always end a computation with a clear conclusion on the tax payable.

Computation of Total Income, Tax Liability and Filing of Return of Companies practice questions

Computation of Total Income, Tax Liability and Filing of Return of Companies in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Computation of Total Income, Tax Liability and Filing of Return of Companies: frequently asked questions

What is the MAT rate for companies under the Income-tax Act, 2025?

Under section 206(1)(b), MAT is 14% of book profit for companies in general. For a unit in an International Financial Services Centre deriving income solely in convertible foreign exchange, the rate is 9%.

When does a company pay MAT?

A company pays MAT when the income-tax on its total income for the tax year is less than the minimum alternate tax on book profit. The book profit is then deemed to be its total income. If normal tax is higher, the company pays normal tax.

How is book profit different from total income?

Total income is computed under the heads of income with deductions and set-offs. Book profit starts from the profit in the statement of profit and loss and is adjusted by the additions, reductions and further adjustments listed in section 206.

Is this chapter relevant for the June 2027 session?

Yes. Elective 4.5 examines the Income-tax Act, 2025 as amended by the Finance Act, 2026 from the June 2027 session. Study the Act's section text, not the old 1961 Act numbering.