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Unit 11: Computation of Taxable Income of Companies

Domestic Company: It is a company formed and registered under the Companies Act, 1956 or Notes
any other company which, in respect of its income liable to tax, under the Income Tax Act, has
made the prescribed arrangement for declaration and payments within India, of the dividends
payable out of such income.
Employees Stock Option Plan: It is a plan through which a company awards Stock Options to the
employees based on their performance.
Foreign Company: It is a company whose control and management are situated wholly outside
India, and which has not made the prescribed arrangements for declaration and payment of
dividends within India.
Fringe Benefit Tax: It is a tax payable by companies against benefits that are seen by employees
but cannot be attributed to them individually.
Limited Liability Partnership: It is a partnership in which some or all partners depending on the
jurisdiction have limited liability.
VCU: It means a domestic unlisted company which is engaged in the business for providing
services, production or manufacture of article or things.

Venture Capital: It is a term coined for the capital required by an entrepreneur to venture into
something new, promising and unconventional.
Wealth Tax: It is a tax based on the market value of assets that are owned. These assets include,
but are not limited to, cash, bank deposits, shares, fixed assets, private cars, assessed value of real
property, pension plans, money funds, owner occupied housing and trusts.

Zero Tax Company: It is a business that shows a book profit and pays dividends to investors but
does not pay taxes.

11.7 Review Questions

1. How will you find the residential status of a company?
2. Explain the main sources of income of a company.
3. Mention in detail the expenses which are allowable as deductions while computing the
taxable income of a company.
4. Write a short note on important corporate taxes paid by companies in India.
5. Discuss the steps in computation of taxable income of companies.
6. Define MAT.
7. What are zero tax companies? Explain with help of an example.

8. When does a company need to pay MAT?
9. Write a note on calculation of Book profits.
10. Explain the tax on distributed profits of domestic companies in India.

11. Define a Venture Capital Company.
12. Elucidate the provisions for treatment of tax on income or dividends received from a
VCC.

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