Modification of concessional tax schemes for domestic companies under section 115BAA and 115BAB

Domestic companies who has opt for concessional rate u/s 115BAA and 115BAB can take deduction under section 80JJAA or 80M

Taxation Law Amendment Act, 2019 (TLAA) inserted section 115BAA and section 115BAB in the Act to provide domestic companies an option to be taxed at concessional tax rates provided they do not avail specified deductions and incentives. Some of the deductions prohibited are deductions under any provisions of Chapter VI-A under the heading “C. Deduction in respect of certain incomes” other than the provisions of section 80JJAA.

It is now proposed to amend the provisions of section 115BAA and section 115BAB to not allow deduction under any provisions of Chapter VI-A other than section 80JJAA or section 80M, in case of domestic companies opting for taxation under these sections.

These amendments will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-21 and subsequent assessment years.

[Clauses 51 & 52]

Extract of Relevant Clauses of Finance Bill 2020

Clause 51

Clause 51 of the Bill seeks to amend section 115BAA relating to tax on income of certain domestic companies.

It is proposed to amend sub-clause (i) of sub-section (2) of the section so as to modify this condition to provide that the total income by the company shall be computed without deduction under any provisions of Chapter VI-A other than the provisions of section 80JJAA or section 80M instead of computation without deduction under any provisions of Chapter VI-A under the heading “C.-Deductions in respect of certain incomes” other than the provisions of section 80JJAA.

This amendment will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-2021 and subsequent assessment years.

Clause 52

Clause 52 of the Bill seeks to amend section 115BAB of the Income-tax Act relating to tax on income of new manufacturing domestic companies.

It is proposed to amend said sub-clause (i) of sub-section (2) of the aforesaid section so as to modify this condition to provide that the total income by the company shall be computed without deduction under any provisions of Chapter VI-A other than the provisions of section 80JJAA or section 80M instead of computation without deduction under any provisions of Chapter VI-A under the heading “C.-Deduction in respect of certain incomes” other than the provisions of section 80JJAA.

Sub-section (1) of said section provides that the income-tax payable by a domestic company shall be at the rate of fifteen per cent. if the conditions in sub-section (2) of the said section are satisfied.

Sub-section (2) of said section specifies the conditions which a domestic company needs to satisfy to be eligible to be taxed at the rate of fifteen per cent.

It is proposed to insert an Explanation to the said sub-section (2) so as to provide that “manufacturing or production of an article or thing” for the purposes of clause (b) of the said sub-section shall include the business of generation of electricity.

These amendments will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-2021 and subsequent assessment years.

Extract of Relevant Amendment Proposed by Finance Bill, 2020

51. Amendment of section 115BAA.

In section 115BAA of the Income-tax Act, in sub-section (2), in clause (i), for the words, figures and letters ‘Chapter VI-A under the heading “C.- Deductions in respect of certain incomes” other than the provisions of section 80JJAA’, the words, figures and letters “Chapter VI-A other than the provisions of section 80JJAA or section 80M” shall be substituted.

52. Amendment of section 115BAB.

In section 115BAB of the Income-tax Act, in sub-section (2),–

(i) in clause (c), in sub-clause (i), for the words, figures and letters ‘Chapter VI-A under the heading “C.-Deductions in respect of certain incomes” other than the provisions of section 80JJAA’, the words, figures and letters “Chapter VI-A other than the provisions of section 80JJAA or section 80M” shall be substituted;

(ii) after clause (c), the following Explanation shall be inserted, namely:–

‘Explanation.– For the purposes of clause (b), the “business of manufacture or production of any article or thing” shall include the business of generation of electricity.’.

Source- Finance Bill 2020 / Union Budget 2020-21

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