Analysis of sections providing concessional rate of tax (section 115BAA/ 115BAC/115BAD)

The finance act 2019 introduced a new section 115BAA for domestic companies, which provides option to pay tax at concessional rate of 22% (Plus surcharge and Educational Cess). Further in line with the option provided to domestic companies, similar option is provided to Individuals/ HUF and Co-operative Societies by introducing section 115BAC and 115BAD.

Benefit of this option can be availed on forgoing major deductions, allowance which are other wise claimable. Option can be exercised in any assessment year before the due date in form and manner as prescribed. Once option is exercised cannot be withdrawn in any subsequent year. (Relaxation is given to Individual/HUF under certain conditions).

There are many informative articles available on web regarding the provisions of these sections. Hence the basic provisions will not be repeated here again. In this article we will discuss regarding the “set of and carried forward of loss and depreciation” clause. Let’s discuss sections one by one.

Under section 115BAA

“(ii) without set off of any loss carried forward or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions referred to in clause (i);

(iii) without set off of any loss or allowance for unabsorbed depreciation deemed so under section 72A, if such loss or depreciation is attributable to any of the deductions referred to in clause (i); and”

(3) The loss and depreciation referred to in clause (ii) and clause (iii) of sub-section (2) 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:

Provided that where there is a depreciation allowance in respect of a block of asset which  has not been given full effect to prior to the assessment year beginning on the 1st day of April, 2020, corresponding adjustment shall be made to the written down value of such block of assets as on the 1st day of April, 2019 in the prescribed manner, 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.

In the first instance section not allowed to set off of any loss or depreciation of earlier years attributable to section 32(1)(iia) ( i.e. additional depreciation) and unabsorbed depreciation under section 72A (relating to carry forward and set off of accumulated loss and unabsorbed depreciation allowance in amalgamation or demerger, etc)

And it will be deemed that full effect of such losses and depreciation has been given and no further effect will be given in later year. Means earlier losses cannot be carried forwarded and benefit form this will be forgone if one opts for this option.

Clause (ii) of the sub-section talks about set off of the losses and depreciation of earlier years and clause (iii) talks about the losses and depreciation, which relates to section 72A. i.e., occurs due to amalgamation, demerger etc. of earlier years

But proviso put forth under the sub-section 3 prescribed that if the depreciation in respect of block of assets has not given full effect than adjustment can be made to the WDV of the block of assets by way of increasing the amount of WDV by the amount of attributable additional depreciation.

This proviso requires to bifurcate, the amount of loss and depreciation of clause(i) and unabsorbed depreciation of clause (ii), into two part one normal and another additional depreciation. Unabsorbed Normal depreciation is not allowed for adjustment as per the proviso only attributable additional depreciation which falls under 32(1) (iia) will be allowed for adjustment.

However, the manner of calculation of amount of such attributable additional depreciation has not been prescribed yet. In this case corporates who seeks to opt for this option may face ambiguity regarding the determination of amount of attributable additional depreciation. As the unabsorbed depreciation may also contains normal deprecation.

One should consider the forgoing loss on opting this section. After comparison if opting this is beneficial than go ahead. Other wise there is option to set off all the losses and deductions available under normal provisions and opt for this in future year. In which there is no loss of deductions claimable considering once option does not have exit once exercised.

Under section 115BAC

(2) (ii) without set off of any loss,—

(a) carried forward or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions referred to in clause (i);

(b) under the head “Income from house property” with any other head of income;

(iii) …………………………………………………

(iv)…………………………………………………..

(3) The loss and depreciation referred to in clause (ii) of sub-section (2) 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:

Provided that where there is a depreciation allowance in respect of a block of assets which has not been given full effect to prior to the assessment year beginning on the 1st day of April, 2021, corresponding adjustment shall be made to the written down value of such block of assets as on the 1st day of April, 2020 in the prescribed manner, 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, 2021.”

Under section 115BAD

(2) (ii) without set off of any loss carried forward or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions referred to in clause (i); and

(iii) by claiming the depreciation, if any, under section 32, other than clause (iia) of sub-section (1) of the said section, determined in such manner as may be prescribed.

(3) The loss and depreciation referred to in clause (ii) of sub-section (2) 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:

Provided that where there is a depreciation allowance in respect of a block of asset which has not been given full effect to prior to the assessment year beginning on the 1st day of April, 2021, corresponding adjustment shall be made to the written down value of such block of assets as on the 1st day of April, 2020 in such manner as may be prescribed, 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, 2021”

Same above discussed provision are brought in section 115BAC and 115BAD except clause regarding section 72A (this clause is replaced by other clauses) . So nothing is new to discuss in this sections regarding adjustment of WDV where depreciation of earlier years not set off.

Under section 115BAC the clause is replaced by “loss under the head “Income from house property” with any other head of income”

Set off house property loss is with income of any other head, As well as the carried forward of such losses is not possible if opting to pay tax under this section.

So, The opting to pay tax under this section is beneficial for person does not have any loss under the head “ Income from House property” or any other loss under the prescribed sections or No deductions claimable.

Persons who do not have “Income from Business or profession” will have this option every year. Every year they have option to opt in at the time of filing return u/s 139(1).

But person having “Income from Business or profession” can opt this option for once and it will be applicable to all subsequent years. This option can be withdrawn by such persons only once and once it is withdrawn can never be exercised.

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Disclaimer: This article is solely for educational purpose and cannot be construed as legal and professional opinion. It is based on the interpretation of the author and are not binding on any tax authority. Author is not responsible for any loss occurred to any person acting or refraining from acting as a result of any material in this article.

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