The Income Tax Act, 1961 lays down clear rules for taxation in India. One important term is “Indian company”, defined under Section 2(26). This definition is crucial because it helps determine:
- Tax residency under Section 6
- Applicability of domestic tax rates
- Eligibility for exemptions and compliance obligations
Understanding this term is essential for businesses and tax professionals.
Definition u/s 2(26) of the Income Tax Act, 1961
As per Section 2(26) of the Income Tax Act, 1961, unless the context otherwise requires, the term “Indian company” means a company formed and registered under the Companies Act, 1956 (1 of 1956), and includes- [currently the Companies Act, 2013]
(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 Kashmir 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); [i.e. Section 2(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 [currently a State], 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.
This definition remains unchanged after the Finance (No. 2) Act, 2024. References to the Companies Act, 1956 now include the Companies Act, 2013 as per Section 465 of that Act.
Key Components and Historical Context
- The main requirement is formation and registration under the Companies Act, 1956 or 2013.
- It also covers companies under older laws, statutory corporations, and entities declared as companies by CBDT.
- Special provisions apply for Jammu and Kashmir and certain Union Territories. After the Jammu and Kashmir Reorganisation Act, 2019, these references now apply to the Union Territories of Jammu & Kashmir and Ladakh.
Territorial Requirement
The proviso ensures that the company’s registered or principal office is located in India. This condition establishes a strong territorial link, which affects tax residency and liability.
Practical Implications
- This definition connects with other sections like Section 2(22A) (domestic company) and rules on dividend taxation.
- It impacts global income taxation for residents and matters like corporate restructuring.
- Always check the latest version of the Income Tax Act for updates before applying these rules.
Different Definitions under Income Tax relating to Companies:
Section 2(18): Substantial Interest of Public in Company
Section 2(22A)/ 2(23A) Income Tax: Domestic/ Foreign Company – Meaning
Is a company registered under sikkim company act comes under the purview of Indian company and liable to tax ?
Needless to say that section 465 included in companies act 1956 as I know regard to sikkim companies not yet enforced. Further if taxable than from which assessment year?