Liability for deduction of tax at source under Assessment of Companies :

The principal officer of an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India, before making any payment in cash or before making distribution or payment to a shareholder falling within the definition of dividend in section 2(22) shall deduct from the amount of all such dividends, income tax at the rate or rates prescribed by the relevant Finance Act relating to the year in which the dividend was declared. The rates for deduction of tax at source have been specified in Part II of the First Schedule to the Finance Act. It may be noted dividend declared or distributed by a domestic company on which it has paid dividend distribution tax under section 115-O is exempt in the hands of the shareholder under section 10(34). However, dividend distribution tax is not attracted on deemed dividend under section 2(22)(e) .

Further, the liability of the company extends as well to the deduction of tax at source from salaries, interest on securities, interest other than interest on securities, payments to contractors or sub-contractors and other sums payable to non-residents in accordance with the provisions of the sections 192 to 206B.

Deductions available for certain expenses

1. Expenditure on scientific research (Section 35)

2. Expenditure for obtaining licence to operate telecommunication services (Section 35ABB)

3. Expenditure on eligible projects or schemes (Section 35AC)

4. Capital expenditure eligible for investment-linked tax deduction under section 35AD

5. Amortisation of certain preliminary expenses (Section 35D)

6. Amortisation of expenditure in case of amalgamation or demerger (Section 35DD)

7. Expenditure on prospecting, etc. for minerals (Section 35E)

8. Expenditure for promoting family planning among employees [Section 36(1)(ix)]

Tax incentives on certain incomes:

1. Profits and gains from industrial undertakings, etc. engaged in infrastructure development (Section 80-IA)

2. Profits and gains from industrial undertaking other than infrastructure development undertakings (Section 80-IB)

3. Profits and gains in respect of certain undertakings or enterprises in certain special category States (Section 80-IC)

4. Profits from business of collecting and processing of bio-degradable waste (Section 80JJA)

5. Deduction in respect of employment of new workmen (Section 80JJAA)