Section 2(32) Income Tax: Meaning of Substantial Interest of a Person in Company

As per Section 2(32) of the Income Tax Act, 1961, unless the context otherwise requires, the term “person who has a substantial interest in the company”, in relation to a company, means a person who is the beneficial owner of shares, not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits, carrying not less than twenty per cent (20%) of the voting power.

This definition is important to understand the likely repercussions of certain disallowances u/s 40A of the Income Tax Act, 1961, due to payments of expenses to persons having such interest in the business of the assessee.

Different Definitions under Income Tax relating to Companies:

Section 2(17): Company

Section 2(18): Substantial Interest of Public in Company

Section 2(22A)/ 2(23A) Income Tax: Domestic/ Foreign Company – Meaning

Section 2(26): Indian Company

Section 2(32): Substantial Interest of Person in Company

Section 2(36A): Public Sector Company

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