Tax on income of certain domestic companies: Section 115BAA with case scenario study
1) Section 115BAA has been inserted w.e.f. A Y 2020-21 to provide for an optional alternative tax regime for domestic companies. The eligible corporate assessees are given an option to opt for a concessional rate of tax @25.17% ((22%+10%+4%) instead of the regular tax rate of 27.82% (25%+7%+4%) or 28.60% (25%+10%+4%) as the case may be.
2) For availing this concessional rate the assessee will be required to forego some deductions otherwise allowable to it under various sections under normal scheme of taxation:
| Section | Type of deduction | Quantum of deduction |
| 10AA | Special provisions in respect of newly established Units in Special Economic Zones. | 100% of Profit |
| 32(1)(iia) | Additional Depreciation | 20% of New Machinery installed |
| 32AD | Investment in new plant or machinery in notified backward areas in certain States | 15% as Additional deduction on New Machinery |
| 33AB | Tea development account, coffee development account and rubber development account | Amount deposited in Specified Bank or 40% of eligible profit whichever is less |
| 33ABA | Site Restoration Fund | Amount deposited in specified Bank or 20% of the eligible profit whichever is less |
| 35 | Expenditure on scientific research | 150% of the specified amount. |
| 35AD | Deduction in respect of expenditure on specified business. | 100% of the specified capital expenditure |
| 35CCC | Expenditure on agricultural extension project. | 150% of the specified amount. |
| 35CCD | Expenditure on skill development project. | 150% of the specified amount. |
| No deduction under any provisions of Chapter VI-A other than the provisions of section 80JJAA or section 80M | ||
3) Further the total income of the assessee will have to be calculated without set off of any brought forward or depreciation so far as they have been caused by any negative activity as stated above.
4) In the computation of total income no deduction for additional depreciation u/s 32(1)(iia) shall be allowed.
5) The loss caused by the negative activity and the additional depreciation referred to in point (2) and point (3) above shall be deemed to have been given full effect to and no further deduction for such loss or depreciation shall be allowed for any subsequent year:
6) In case where the additional depreciation is restricted to 50% then the deduction for the balance fifty per cent of the amount will be allowed in the immediately succeeding previous year.
7) When the 50% of the additional depreciation which has not been given full effect to prior to the A.Y. beginning on the 1st day of April, 2020, then the amount of such additional depreciation will be added to the WDV of assets as on the 1st day of April, 2019, if the option under sub-section (5) is exercised for a previous year relevant to the assessment year beginning on the 1st day of April, 2020.
8) MAT u/s 115JB will not be applicable when this option of concessional rate of tax is opted by the assessee. {Refer Section 115JB(5A) }
9) This option will not be applicable unless it is exercised by the assessee on or before the due date u/s 139(1) and such option once exercised shall apply to subsequent assessment years:
10) In case of an assessee which exercised another concessional option U/s 115BAB and the said option has been rendered invalid due to violation of conditions contained therein then such assessee can exercise option under this section 115BAA
11) Moreover once the option has been exercised for any previous year, it cannot be subsequently withdrawn for the same or any other previous year.
The following case scenario illustrates the amount of tax or MAT payable under both the schemes of taxation i.e.
1) Normal Scheme i.e. without option u/s 115BAA
2) Concessional Scheme i.e. with option u/s 115BAA
| CASE- 1 | ||
| Brought Forward Loss, Depreciation as at 01-04-19 | ||
| Business Loss B/F | 75 | |
| Unabsorbed Normal Depreciation B/F | 79 | |
| Unabsorbed Additional Depreciation B/F | 8 | |
| Additional depreciation relating to immediately preceding year on asset put to use for less than 180 days B/F *(1) | 5 | 92 |
| WDV as at 31-03-2019 under Normal Scheme | 188 | |
| Add: Additional dep for AY 19-20 on asset put to use for less than 180 days B/F *(1) | 5 | |
| WDV as at 31-03-2019 under Sec 115BAA | 193 | |
| *(1) This is the amount of adjustment required u/s 115BAA(3) Proviso which is required to be added to the WDV as at 01-04-19 when the option is exercised. | ||
| Transactions during the Financial Year 2019-20 | ||
| Business Profit | 150 | |
| Addition to eligible assets used for > 180 days | 50 | |
| Addition to eligible assets used for < 180 days | 25 | |
| Depreciation-1 | 71 | 73 |
| Depreciation-2 | 8 | 8 |
| Additional depreciation relating to immediately preceding year on asset put to use for less than 180 days | 5 | 0 |
| Additional Depreciation-1 | 10 | 0 |
| Additional Depreciation-2 | 3 | 0 |
| 97 | 81 | |
–
| Computation of Total Income | AY 20-21 | AY 20-21 |
| Normal | Concessional 115BAA |
|
| Net Profit before depreciation | 150 | 150 |
| Less Current year Depreciation | 97 | 81 |
| Book Profit after depreciation | 53 | 69 |
| Less: Loss B/F set off | 53 | 69 |
| Less: Depreciation B/F set off | 0 | 0 |
| Taxable Income | 0 | 0 |
| Income tax payable (27.82% & 25.17%) | 0 | 0 |
| Carried Forward amounts | ||
| Business Loss | 22 | 6 |
| Unabsorbed Depreciation AY 19-20 | 79 | 81 |
| Unabsorbed Additional Depreciation AY 19-20 | 8 | 0 |
| Additional Depreciation 50% of AY 19-20 to be C/F | 5 | 0 |
| Additional Depreciation 50% of AY 20-21 to be C/F | 3 | 0 |
| Total loss and unabsorbed depreciation to be C/F | 117 | 87 |
| MAT Calculation | AY 20-21 2020-21 |
AY 20-21 2020-21 |
| Normal | Concessional 115BAA |
|
| Net Profit before depreciation | 150 | Not Applicable |
| Less: Current year depreciation | 97 | |
| Net Profit for the year | 53 | |
| Set off (Lesser of business Loss and Depreciation B/F) | 53 | |
| Book Profit for MAT | 0 | |
| MAT Payable @16.69% | 0 | |
| MAT credit B/F | 5 | Not Applicable |
| MAT paid for the year | 0 | |
| MAT Credit carried forward AY 21-22 | 5 |
–
| CASE- 2 | ||
| Brought Forward Loss, Depreciation as at 01-04-19 | ||
| Business Loss B/F | 25 | |
| Unabsorbed Normal Depreciation B/F | 79 | |
| Unabsorbed Additional Depreciation B/F | 8 | |
| Additional depreciation relating to immediately preceding year on asset put to use for less than 180 days B/F *(1) | 5 | 92 |
| WDV as at 31-03-2019 under Normal Scheme | 188 | |
| Add: Additional dep for AY 19-20 on asset put to use for less than 180 days B/F *(1) | 5 | |
| WDV as at 31-03-2019 under Sec 115BAA | 193 | |
| Transactions during the Financial Year 2019-20 | ||
| Business Profit | 150 | |
| Addition to eligible assets used for > 180 days | 50 | |
| Addition to eligible assets used for < 180 days | 25 | |
| Depreciation-1 | 71 | 73 |
| Depreciation-2 | 8 | 8 |
| Additional depreciation relating to immediately preceding year on asset put to use for less than 180 days | 5 | 0 |
| Additional Depreciation-1 | 10 | 0 |
| Additional Depreciation-2 | 3 | 0 |
| 97 | 81 | |
–
| Computation of Total Income | AY 20-21 |
AY 20-21 |
| Normal | Concessional 115BAA |
|
| Net Profit before depreciation | 150 | 150 |
| Less Current year Depreciation | 97 | 81 |
| Book Profit after depreciation | 53 | 69 |
| Less: Loss B/F set off | 25 | 25 |
| Less: Depreciation B/F set off | 28 | 44 |
| Taxable Income | 0 | 0 |
| Income tax payable (27.82% & 25.17%) | 0 | 0 |
| Carried Forward amounts | ||
| Business Loss | 0 | 0 |
| Unabsorbed Depreciation AY 19-20 | 51 | 35 |
| Unabsorbed Additional Depreciation AY 19-20 | 8 | 0 |
| Additional Depreciation 50% of AY 19-20 to be C/F | 5 | 0 |
| Additional Depreciation 50% of AY 20-21 to be C/F | 3 | 0 |
| Total loss and unabsorbed depreciation to be C/F | 67 | 35 |
| MAT Calculation | AY 20-21 |
AY 20-21 |
| Normal | Concessional 115BAA |
|
| Net Profit before depreciation | 150 | Not Applicable |
| Less: Current year depreciation | 97 | |
| Net Profit for the year | 53 | |
| Set off (Lesser of business Loss and Depreciation B/F) | 25 | |
| Book Profit for MAT | 28 | |
| MAT Payable @16.69% | 5 | |
| MAT credit B/F | 5 | Not Applicable |
| MAT paid for the year | 5 | |
| MAT Credit carried forward AY 21-22 | 10 | |
| CASE- 3 | ||
| Brought Forward Loss, Depreciation as at 01-04-19 | ||
| Business Loss B/F | 0 | |
| Unabsorbed Normal Depreciation B/F | 79 | |
| Unabsorbed Additional Depreciation B/F | 8 | |
| Additional depreciation relating to immediately preceding year on asset put to use for less than 180 days B/F *(1) | 5 | 92 |
| WDV as at 31-03-2019 under Normal Scheme | 188 | |
| Additional dep for AY 19-20 on asset put to use for less than 180 days B/F *(1) | 5 | |
| WDV as at 31-03-2019 under Sec 115BAA | 193 | |
| Transactions during the Financial Year 2019-20 | ||
| Business Profit | 200 | |
| Addition to eligible assets used for > 180 days | 50 | |
| Addition to eligible assets used for < 180 days | 25 | |
| Depreciation-1 | 71 | 73 |
| Depreciation-2 | 8 | 8 |
| Additional depreciation relating to immediately preceding year on asset put to use for less than 180 days | 5 | 0 |
| Additional Depreciation-1 | 10 | 0 |
| Additional Depreciation-2 | 3 | 0 |
| 97 | 81 | |
–
| Computation of Total Income | AY 20-21 |
AY 20-21 |
| Normal | Concessional 115BAA |
|
| Net Profit before depreciation | 200 | 200 |
| Less Current year Depreciation | 97 | 81 |
| Book Profit after depreciation | 103 | 119 |
| Less: Loss B/F set off | 0 | 0 |
| Less: Depreciation B/F set off | 79 | 79 |
| Unabsorbed Additional Depreciation B/F | 8 | 0 |
| Additional depreciation relating to immediately preceding year on asset put to use for less than 180 days B/F | 5 | 0 |
| Taxable Income | 11 | 40 |
| Income tax payable (27.82% & 25.17%) | 3 | 10 |
–
| Carried Forward amounts | ||
| Business Loss | 0 | 0 |
| Unabsorbed Depreciation AY 19-20 | 0 | 0 |
| Unabsorbed Additional Depreciation AY 19-20 | 0 | 0 |
| Additional Depreciation 50% of AY 19-20 to be C/F | 0 | 0 |
| Additional Depreciation 50% of AY 20-21 to be C/F | 3 | 0 |
| Total loss and unabsorbed depreciation to be C/F | 3 | 0 |
–
| MAT Calculation | AY 20-21 | AY 20-21 |
| Normal | Concessional | |
| Net Profit before depreciation | 200 | Not Applicable |
| Less: Current year depreciation | 97 | |
| Net Profit for the year | 103 | |
| Set off (Lesser of business Loss and Depreciation B/F) | 0 | |
| Book Profit for MAT | 103 | |
| MAT Payable @16.69% | 17 | |
| MAT credit B/F | 5 | Not Applicable |
| MAT Credit for the year | 14 | |
| MAT Credit carried forward AY 21-22 | 19 |
Disclaimer:
The above study is meant only for academic purposes. The readers should consult professionals before using it for professional purposes. The author owes no responsibility for any error or omission in the above study.
Author Bio
Please review your article for treatment of unabsorbed depreciation on account of additional depreciation. The same is allowed to be added in opening WDV of AY 2020-21 as per the proviso to sub section (3) of section 115BAA.
The matter is further clarified vide notification dated 01.10.2020 amending Rule 5 for prescribing the mechanism of allowing the unabsorbed additional depreciation to be adjusted against the opening WDV of the block. ITR has also been updated to that effect.
Regards,