The Income Tax Act of 1961 and the Rules framed thereunder provide for different treatment of different types of companies based on their residential status. A company can be either a domestic or a foreign company in terms of taxation. However, there are a few other similar terms defined under the Income Tax, such as ‘Indian Company,’ ‘Company,’ ‘A Company in which the Public are Substantially Interested,’ and so on.
The term ‘Domestic Company’ must be distinguished from the term ‘Indian Company.’ Under Income Tax, all Indian companies are classified as ‘Domestic Companies.’ Even a ‘Foreign Company’ that makes prescribed arrangements for dividend payment in India will be treated as a Domestic Company.
Definition of Domestic Company: Section 2(22A) Income Tax
As per S. 2(22A) of the Income Tax Act, 1961, unless the context otherwise requires, the term “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.
Definition of Foreign Company: Section 2(23A) Income Tax
As per S. 2(23A) of the Income Tax Act, 1961, unless the context otherwise requires, the term “foreign company” means a company which is not a domestic company.