Important Keyword: Income Tax, Income Tax Filing, Section 115BAA.
Table of Contents
What is Section 115BAA?
In a significant move aimed at stimulating the domestic business landscape, the Government of India ushered in Section 115BAA via the Taxation Ordinance 2019 on September 20, 2019. This strategic initiative sought to extend reduced tax rates to domestic companies, signaling a pivotal shift in the taxation paradigm.
Under the provisions of the newly introduced Section 115BAA, domestic companies were granted the option to avail themselves of a favorable tax rate of 22%, effective from the financial year 2019-20. However, this preferential rate is contingent upon compliance with specific conditions delineated by the legislation.
A notable aspect of this reform is the revision in the Minimum Alternate Tax (MAT) rate, which saw a reduction from the prevailing 18.5% to a more competitive 15%. This adjustment in the MAT rate further bolstered the appeal of the revamped tax framework, providing a more conducive environment for domestic enterprises to thrive and contribute to economic growth.
When can the Companies Opt for Section 115BAA?
Companies are empowered to opt for the benefits of Section 115BAA from the assessment year 2020-21 onwards or in any subsequent assessment year. However, it’s crucial to note that this option is exclusively available to the assessee company, rendering it a discretionary decision. Additionally, the company holds the authority to choose the assessment year for which it intends to avail the reduced tax rate.
Once the option for Section 115BAA is exercised for a specific assessment year, it becomes irrevocable and must be adhered to in subsequent assessment years. However, failure to meet any of the stipulated conditions in a previous year renders the scheme invalid for the assessee company. In such a scenario, the company loses eligibility to exercise this option in the future.
Process for Exercising Option for Section 115BAA
According to Rule 21AE, companies opting for Section 115BAA must electronically submit details using Form 10-IC to the principal officer. This submission can be made via digital signature or electronic verification code. It’s important for companies desiring to exercise this option to adhere to the procedures outlined in Rule 21AE of the IT Rules, 1962.
Form 10-IC must be furnished by the due date for filing the return of income as specified under Section 139(1) of the IT Act, 1962. For domestic companies subject to transfer pricing provisions, the due date is 30th November. For other domestic companies, the due date is 31st October.
Conditions to Satisfy for Section 115BAA
| Section 10AA | Special provisions in respect of newly established Units in Special Economic Zones |
| Section 32(1)(iia) | Additional Depreciation it is pertinent to note that this restriction is only on additional depreciation and regular depreciation is permitted to be reduced from the total income of the assessee so long as it does not pertain to other deductions enumerated in this table |
| Section 32AD | Investment Linked Deduction |
| Section 33AB | Tea development account, coffee development account and rubber development account |
| Section 33ABA | Site Restoration Fund |
| Section 35 | Expenditure on Scientific Research |
| Section 35 AD | Deduction in respect of expenditure on specified business |
| Section 35CCC | Expenditure on agricultural extension project |
| Section 35CCD | Expenditure on skill development project |
| Chapter VI A | No deductions under Chapter VI A can be made while computing the total income for the purpose of Section 115BAA, subject to the following exceptions: a. Section – 80JJAA: Deduction in respect of employment of new employees. While all other deductions like 80C, 80G, etc cannot be availed while computing total income for the purpose of section 115BAA, there is no such restriction on section 80JJAA deduction. b. Section 80LA: Persons having eligible unit in the International Financial Services Centre referred to in section 80LA(1A) shall be allowed to claim deduction u/s. 80LA while computing total income for the purpose of section 115BAA. c. Section 80M: Deductions in respect of inter-corporate dividends. Inserted vide Finance Bill, 2020, this deduction can be availed w.e.f. AY 2021-2022 while computing total income for the purpose of section 115BAA. |
New Rates Applicable to Domestic Companies
| Base tax rate | Surcharge applicable | Cess | Effective tax rate |
| 22% | 10% | 4% | 22*1.1*1.04 = 25.168% |
Under Section 115BAA, companies are exempt from paying Minimum Alternate Tax (MAT) as per Section 115JB. Furthermore, they cannot offset their tax liabilities by utilizing MAT credits. Additionally, any domestic company opting for Section 115BAA cannot avail the set-off of any brought forward depreciation for the assessment year in which the option has been exercised and for future assessments.
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Official Income Tax Return filing website: https://incometaxindia.gov.in/
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