# Classification of Companies under the Income-tax Act

The term "Company" under the Act [Section 2(17)] is wider than under the Companies Act, 2013. It includes:

Indian companies [Section 2(26)]
Foreign companies — any body corporate incorporated outside India
Institutions/associations assessed as companies under the 1922 Act or the present Act before 1 April 1970
Entities declared as companies by the CBDT

## Residence-based classification

### Domestic Company [Section 2(22A)]

Either:

an Indian company, or
any other company that arranges to declare and pay dividends in India out of income taxable in India.

### Indian Company [Section 2(26)]

Must satisfy both:

1. Formed and registered under the Companies Act, 1956 / 2013, and

2. Registered/principal office located in India.

Also includes (if office is in India): corporations under Central/State/Provincial Acts (e.g. Financial Corporations, State Road Transport Corporations), CBDT-declared bodies, and companies formed under any law in force in India (incl. J&K, UTs like Dadra & Nagar Haveli, Puducherry, Goa, Daman & Diu).

### Foreign Company [Section 2(23A)]

A company that is not a domestic company.

## Public-interest classification [Section 2(18)]

### Widely Held Company (public substantially interested)

Qualifies if it meets any one of these:

(a) Government / RBI: owned by Central/State Govt or RBI, or ≥ 40% of shares held by Govt/RBI/an RBI-owned corporation.
(b) Section 8 company (Companies Act, 2013): formed for social/cultural/charitable causes, not distributing dividends.
(c) No share capital + CBDT-declared to have substantial public interest for specified AYs.
(d) Nidhi / Mutual Benefit Society declared under Section 620A of the Companies Act, 1956.
(e) Cooperative society ownership: ≥ 50% of voting shares unconditionally held throughout the year by one or more cooperative societies.
(f) Public limited company (not a private company) that either has its equity shares listed on a recognised Indian stock exchange on the last day of the year, or has ≥ 50% (40% for certain Indian companies) of voting equity unconditionally held by Government / a statutory corporation / a widely held company / a wholly owned subsidiary of a widely held company.

### Closely Held Company

Any company that does not meet the widely-held criteria. All private limited companies are closely held (public does not hold substantial interest).

Worked example

### Example 1

Domestic vs Foreign: A company incorporated in Singapore that arranges to declare and pay dividends in India out of its India-taxable income is treated as a Domestic Company under Section 2(22A) — even though it is not an Indian company.

### Example 2

Widely held test (a): A company in which the Central Government holds 42% of the shares qualifies as widely held under the ≥40% Government-holding criterion.

⚠️ Common exam mistakes

Assuming every company registered in India is automatically 'domestic' — a foreign company also becomes domestic if it arranges to declare and pay dividends in India.
Mixing the percentage thresholds — Government/RBI holding ≥40%, cooperative society holding ≥50%, and public-company entity-holding 50% (or 40% for certain Indian companies).
Forgetting that ALL private limited companies are closely held regardless of size.

Reference: Section 2(17), 2(18), 2(22A), 2(23A), 2(26)

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Classification of Companies (Domestic/Indian/Foreign, Widely vs Closely Held)

Worked example

⚠️ Common exam mistakes