Analysis of Section 115BAA under the Income Tax Law
NOVEMBER 13, 2020
By CA Shubham Agarwal
Overview:
THE government vide Taxation Laws (Amendment) Act, 2019 has inserted a new Section 115BAA in the Income Tax Act with effect from FY 2019-20, wherein the corporate tax rate for domestic companies is reduced to 22% subject to non-availment of specified tax exemptions/incentives and other conditions.
Applicability:
All the domestic companies have an option to pay tax at the rate of 22%, subject to the fulfillment of the following conditions: -
- The total income is computed without claiming prescribed deductions or set-off of loss [See below comparative analysis]. -
- The option needs to be exercised within the prescribed time for filing the return of income (ROI) under section 139(1) of the Act for assessment year (AY) 2020-21 or subsequent AYs.
- Once exercised, such option cannot be withdrawn for the same or subsequent AYs.
The Comparative Analysis between tax liability arising under normal provisions of Income Tax Laws and the tax liability arising under newly inserted Section 115BAA is given in the table below:
|
Category of Income
|
Tax Liability under Normal Provision
|
Tax Liability under new Tax Regime u/s 115BAA
|
|
Basic Tax Rate
|
25% (plus applicable surcharge and education cess)
|
22% (plus surcharge at 10% of fixed rate and education cess)
|
|
Deductions
|
Deductions and incentives are allowed
|
Following Specified Deductions and Incentives Not Allowed, inter alia:
-SEZ u/s. 10AA
-Additional depreciation allowance @ 20% u/s. 32(1)(iia)
-The investment allowance for new Plant & Machinery u/s. 32AC, 32AD
-Site Restoration Benefit u/s. 33ABA
-Scientific Research Benefit u/s. 35
-Accelerated capital deduction u/s. 35CCC
-Skill development project u/s. 35CCD
-Benefits available u/s. 80A, 80IB, 80IC etc. (other than sec. 80JJAA
|
|
Allowability of brought forward and set off loss
|
Allowed
|
Not allowed (to the extent of any of the deductions specified above
|
|
Applicability of MAT
|
Applicable at the rate of 15%
|
Not Applicable
|
|
Option to opt out of regime
|
Not Applicable
|
Not allowed
|
|
When option can be exercised
|
Not Applicable
|
In any year
|
|
Allowability of brought forward MAT credit
|
Allowed
|
Not allowed
|
Other Points for consideration:
There is no timeline for the domestic companies to choose a lower tax rate under Section 115BAA. Therefore, such companies can avail the benefit of section 115BAA after claiming the brought forward loss on account of additional depreciation and also utilizing the MAT credit against the regular tax payable if any.
CBDT has issued a Notification No. 10/2020 dated 12-02-2020 and notified Form No. 10-IC for exercising the option for opting lower or concession rate of income tax by a domestic company under section 115BAA.
The notification states that a domestic company shall exercise the option in accordance with the provisions of sub-section (5) of section 115BAA for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2020 shall be in Form No. 10-IC.
It further states that the option in Form No. 10-IC shall be furnished electronically either under digital signature or electronic verification code.
Section 115BAA (5) provides that the option shall be exercised by a domestic company in the prescribed manner on or before the due date specified under sub-section (1) of section 139 for furnishing the returns of income for any previous year relevant to the assessment year commencing on or after the 1st day of April, 2020 and such option once exercised shall apply to subsequent assessment years.
[The author is Senior Executive, Assurance at Kalyaniwalla & Mistry LLP, Chartered Accountants, Bangalore and the views expressed are strictly personal.]
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