tax rate in case of comapany whose all share holders

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CA Rahul Patil (Querist)

29 August 2009 What wil be tax rate in case of comapany whose all share holders are foreign comapnies. Whether such indian company is Domestic Comaony as per I.Tax Act. In my view it is Non domestic co and will be taxed @ 40%.
Pl let me know whether I am right or wrong

CP Ram

CP Ram (Expert)

30 August 2009 As per section 2(23A) of the Income Tax Act, 1961, a foreign company means a company which is not a domestic company.

And according to section 2(22A) of the Income Tax Act, 1961, a domestic company means 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, within India, of the dividends (including dividends on preference shares) payable out of such income.

Further, as per section 2(26) of the Income Tax Act, 1961, an Indian company means a company formed and registered under the Companies Act, 1956 (1 of 1956), and includes
(i) a company formed and registered under any law relating to companies formerly in force in any part of India (other than the State of Jammu and Kashmir36[and the Union territories specified in sub-clause (iii) of this clause]) ;
[(ia) a corporation established by or under a Central, State or Provincial Act ;
(ib) any institution, association or body which is declared by the Board to be a company under clause (17) ;]
(ii) in the case of the State of Jammu and Kashmir, a company formed and registered under any law for the time being in force in that State ;
[(iii) in the case of any of the Union territories of Dadra and Nagar Haveli, Goa, Daman and Diu, and Pondicherry, a company formed and registered under any law for the time being in force in that Union territory :]
Provided that the [registered or, as the case may be, principal office of the company, corporation, institution, association or body] in all cases is in India

Therefore, If your company is formed and registered under the Companies Act, 1956, then your company will be regarded as Indian company and consequently it will be considered as Domestic Company under the Income Tax Act.

Basic tax rate:
Domestic company = 30%
Foreign company = 40%.

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