The Government of India brought in multiple amendments to the Income Tax Act of 1961 through the Taxation (Amendment) Ordinance 2019. Through Section 115BAA of the Income Tax Act, the government introduced a tax-efficient way for companies to report their income in a bid to promote their growth and global competitiveness.
Section 115BAA of the Income Tax Act has been introduced to lower the corporate tax rate for Indian firms. The amendment has paved the way for domestic companies to pay tax at a rate of 22%, along with a surcharge of 10% and a cess of 4% instead of the standard corporate tax rate of 30% in India. This new corporate tax structure became applicable from FY 2019-2020. This blog provides a comprehensive rundown of Section 115BAA of Income Tax Act.
According to the new tax regime, all domestic companies can pay income tax with a 22% tax rate (with applicable cess and surcharge). However, companies need to forego the following deductions under the Income Tax Act:
Domestic companies have the option to pay income tax under the new tax rates as introduced through the Section 115BAA, provided they fulfil the following conditions:
|Conditions for Domestic Company||Income Tax Rate (excluding cess)|
|When the previous year’s turnover or gross revenue does not reach ₹400 crore||25%|
|The company has opted for section 115BA||25%|
|The company has opted for section 115BAA||22%|
|The company has opted for section 115BAB||15%|
|Other domestic company||30%|
The new tax rate for domestic companies under Section 115BAA will be 25.168%. Here is a detailed breakup of the new tax rate under this section:
|Base Tax Rate||Applicable Surcharge||Cess||Effective Tax Rate|
|Total Income||Effective Tax Rate (inclusive of surcharge and cess)||Effective Tax Rate (inclusive of surcharge and cess)|
|Co. opts for section 115BBA||Co. doesn’t opt for section 115BBA|
|Up to ₹1 crore||25.17%||26%|
|More than ₹1 crore but up to ₹10 crore||25.17%||27.82%|
|More than ₹10 crore||25.17%||29.12%|
Though the effective tax rate in case a company opts for Section 115BAA is slightly lower, such companies will not be able to claim other tax benefits available under the Income-tax Act. If a company does not opt for Section 115BBA can claim specified deductions, incentives, exemptions and additional depreciation available under the Income-tax Act.
|Section 10AA||Special provision for units established in Special Economic Zones (SEZ)|
|Section 32(1)(ii-a)||Additional depreciation in respect of new plant and machinery|
|Section 32AD||Deduction for investment in new plants and machinery in notified backward areas|
|Section 33AB||Deduction in case of tea, coffee, or rubber business|
|Section 33ABA||Deduction in respect of business consisting of prospecting or extraction or production of petroleum or natural gas in India|
|Section 35(1)(ii)||Deduction for donation made for scientific research to a university or other institutes which may or may not be related to business|
|Section 35(1)(iia)||Deduction for payment made to an Indian company for doing scientific research which may or may not be related to business|
|Section 35(1)(iii)||Deduction for donations made to a university, college or other institutes for doing research in the fields of social sciences or statistics|
|Section 35(2M)||Deduction for donation made to National Laboratory or IlTs, etc. for doing scientific research which may or may not be related to business|
|Section 35(2AB)||Deduction for capital expenditure (excluding the cost of land and building) on scientific research related to business of biotechnology or manufacturing of any article or thing|
Domestic companies looking to benefit from the reduced tax rates under Section 115BAA of the Income Tax Act need to fulfil certain requirements first. Existing companies can easily migrate to this new tax regime at any point in time. However, if a company chooses the new tax regime over the existing one, it won’t be able to take advantage of other tax benefits under the I-T Act. Companies wishing to opt for Section 115BAA of the Income Tax Act should fill out Form No. 10-IC and submit it online after logging into the e-filing portal.
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Ans: Yes, domestic companies who do not want to avail themselves of reduced tax rates under this section can choose to opt-out. However, they need to do it after the expiry of their tax holiday period. But, once a company opts for tax rates under this section, it cannot withdraw it subsequently.
Ans: Domestic companies that fulfil the above-mentioned eligibility criteria qualify for availing concessional tax rates u/s 115BAA. In other words, partnership firms, individuals, LLPs, foreign companies, BOI, and AOPs are not eligible to enjoy reduced tax rates under this section.
Ans: According to Rule 21AE of the Income Tax Act, a domestic company has to opt for Section 115BAA electronically. They can do so by providing details in Form 10-IC either with a digital signature or through electronic verification mode.
Ans: No, domestic companies choosing to pay tax at reduced rates under Section 115BAA cannot claim MAT credits for the tax they paid under MAT in the tax holiday period. Companies won’t be able to lower their tax liability through Section 115BAA if they claim MAT credits. CBDT will issue a clarification about MAT credit for companies that choose taxation u/s 115BAA.
Ans: No, even if a domestic company chooses to opt for taxation at concessional rates as per Section 115BAA, there would be no impact on capital gains tax. Similarly, there would be no impact on bringing forward losses under the ‘Capital Gains’ head.
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
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