Corporate Tax Rates in India and Deduction for donation to PM Care Funds for Corporate Entity

> Introduction:

The Government of India specified Corporate Tax Rates in Income Tax Act, 1961 and Finance Act through schedules thereto. Income Tax Act, 1961 cover section i.e. Section 115BA, 115BAA & 115BAB though which corporate tax rate has been specified and further tax rates also specified in finance act through first schedules thereto.

Section 115BA has been inserted to provide for a reduced tax rate of 25% in case of all domestic manufacturing companies incorporated on or after March 1, 2016, Section 115BAA has been inserted to provide for a reduced tax rate of 22% for all domestic companies. Whereas, Section 115BAB has been inserted to provide for a reduced tax rate of 15% in case of those domestic manufacturing companies which have been incorporated on or after October 1, 2019. The benefit of reduced corporate tax rate under these sections shall be available only when the total income of the company is computed without providing for specified exemption, deduction or incentive available under the Act.

PM Care Funds

> Tax Rates in case of Domestic Companies from F.Y 2019-20

Section Applicable Conditions to be Satisfied Tax Rate Whether MAT Applicable or Not
Section 115BA 1. The co. is set up and registered on or after 01.03.2016

2. It is engaged in manufacture or production of any article or thing

3. It does not claim specified exemption, incentive or deduction (Refer Table A)

25% Yes

(Reduced to 15% from existing 18.5% increased by SC & EC)

Section 115BAB 1. The co. is set up and registered on or after 01.10.2019

2. It is engaged in manufacture or production of any article or thing (Subject to certain specified conditions)

3. It commences manufacturing on or after 01-10-2019 but on or before 31-03-2023

4. It does not claim specified exemption, incentive or deduction (Refer table A)

(Applicable from A.Y 2020-21)

15% Not Applicable
Section 115BAA 1.Domestic Company

2.No other condition for eligibility

3.If co. does not claim specified exemption, incentive or deduction (Refer Table A)

(Applicable from A.Y 2020-21)

22% Not Applicable

(Further, Brought forward MAT Credit  not available)

First Schedule to Finance Act If total turnover or gross receipts during the financial year 2018-19 does not exceed Rs. 400 crore 25% Yes

(Reduced to 15% from existing 18.5% increased by SC & EC)

First Schedule to Finance Act Any other domestic company 30% Yes

(Reduced to 15% from existing 18.5% increased by SC & EC)

> Table A – Exemptions or Deductions not available to companies opting for section 115BA, 115BAA or 115BAB

Section Deduction
Section 10AA Deduction for units established in Special Economic Zones (SEZ)
Section 32(1)(iia) Additional depreciation in respect of new plant and machinery
Section 32AD Deduction for investment in new plant and machinery in notified backward areas
Section 33AB Deduction in respect of tea, coffee or rubber business
Section 33ABA Deduction in respect of business consisting of prospecting or extraction or production of petroleum or natural gas in India
Section 35(1)(ii) Deduction for donation made to approved scientific research association, university college or other institutes for doing scientific research which may or may not be related to business
Section 35(1)(iia) Deduction for payment made to an Indian company for doing scientific research which may or may not be related to business
Section 35(1)(iii) Deduction for donation made to university, college, or other institution for doing research in social science or statistical research
Section 35(2AA) Deduction for donation made to National Laboratory or IITs, etc. for doing scientific research which may or may not be related to business
Section 35(2AB) Deduction for capital expenditure (excluding cost of land and building) on scientific research relating to business of bio-technology or manufacturing any article or thing
Section 35CCC Expenditure on agriculture extension project
Section 35CCD Expenditure on skill development project
 Chapter VI-A For A.Y 2020-21

Restriction in respect of deduction specified in Part C of Chapter VI-A (Except Section 80JJAA)

Hence, Companies are eligible for deduction in respect of other parts of Chapter VI-A. For E.g. Section 80G i.e. Donation to PM Care Funds etc.

For A.Y.2021-22 Onwards

None of the Deduction specified in Chapter VI-A is available to the company except deduction under Section 80JJAA & 80M

Provision of carried forward and set-off Without set off of any loss carried forward from any earlier assessment year if such loss is attributable to any of the above deductions

> Surcharge Rate Applicable to New Corporate Tax

Company Range of Total Income
Rs. 1 crore or less Above Rs. 1 crore but up to Rs. 10 crore Above Rs. 10 crore
Domestic Company opting for section 115BA Nil 7% 12%
Domestic Company opting for section 115BAA 10% 10% 10%
Domestic Company opting for section 115BAB 10% 10% 10%
Any other company Nil 7% 12%

> The Summary table of Corporate Tax including Surcharge & Education Cess

Total Income Not opting for concessional Opting for concessional tax
Turnover not more than Rs. 400 crores in FY 2018-19 Turnover more than Rs. 400 crores in FY 2018-19 Others Section 115BAA New manufacturing section 115BAB
Up to Rs. 1 Crore 26.00% 31.20% 25.17% 17.16%
Rs.1 Crore to 10 crores 27.82% 33.38% 25.17% 17.16%
Above Rs. 10 Crores 29.12% 34.94% 25.17% 17.16%

> For better understanding, an example has been presented below:

Example: ABC Private Limited., a manufacturing company incorporated in year 2005-06, purchased a new plant and machinery of Rs. 20 lakhs on 01-04-2019. Its turnover for the previous year 2018-19 was less than Rs. 400 crore and, therefore, it would be chargeable to tax at the rate of 25% for the Assessment Year 2021-22. The total income of the company for Assessment Year 2021-22 before allowing for additional depreciation in respect of new plant and machinery is Rs. 40 lakh.

For the Assessment Year 2021-22, the company shall have only 2 options – opt for Section 115BAA or pay tax as usual at the rate of 25%.

Particulars If co. opts for Section 115BAA If co. doesn’t opt for section 115BAA
Total income before allowing additional depreciation 40,00,000 40,00,000
Less: Additional deprecation available as per section 32(1)(iia) [Rs. 20 lakh * 20%] NA 4,00,000
Total income (a) 40,00,000 36,00,000
Applicable tax rate (b) 22% 25%
Tax on total income (c = a * b) 8,80,000 9,00,000
Add: Surcharge (d) 88,000 Nil
Tax after surcharge (e = c + d) 9,68,000 9,00,000
Add: 4% Health and education cess (f = e * 4%) 38,720 36,000
Total tax liability (g = e + f) 10,06,720 9,36,000
Extra tax payable under Section 115BAA Rs. 70,720

> Exercise of above option i.e. section 115BA, 115BAA and 115BAB

Option under any of the above section is to be exercised on or before the due date of filing return of income under section 139(1) only once and it will apply automatically in subsequent years.

> Validity of Exercised option in above regime i.e. section 115BA, 115BAA and 115BAB

Once the option has been exercised for any previous year, it cannot be subsequently withdrawn for the same or any other previous year.

> Deduction in respect of PM Care Funds to Corporate Entity

In the Press Release, dated 31-03-2020, it has been clarified that any person including corporate assessees paying concessional tax on the income of Financial Year 2020-21 under the new regime can donate to PM CARES Fund up to 30-06-2020. They can claim deduction under section 80G against income of the financial year 2019-20, without losing the eligibility to opt for concessional tax regime in the financial year 2020-21. Thus, the donations made to PM Cares Fund between 01-04-2020 and 30-06-2020 can be claimed as deduction either in the financial year 2019-20 or 2020-21, at the option of the taxpayer. But, if the taxpayer opts to claim a deduction in the Financial Year 2020-21, then he shall not be eligible to opt for concessional tax regime.

> Concluding Remarks

It is suggested that before opting for any of the sections offering concessional rates, companies must analyse all the possible effects on revenue loss due to relinquishment of deductions and benefits with the possible gains as it can’t be withdrawn subsequently at later stage.

Assisted by:

The Article include input from Kirti Khushalani, Article Assistant, ATMS & CO LLP

Author Bio

Qualification: CA in Practice
Company: ATMS & CO LLP, CHARTERED ACCOUNTANTS
Location: THANE, Maharashtra, IN
Member Since: 18 Feb 2020 | Total Posts: 3

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2 Comments

  1. rajeev puri says:

    in respect of concessional rate of tax as provided in schedule to finance act, turnover of PY 2017-18 is to be seen and not that of PY 2018-19

    1. Ashwin Jain says:

      For FY 2020-21 i.e.AY 2021-22 You have to check Turnover for FY 2018-19.
      For more details you can refer updated Tax Rates chart at Income Tax Website.

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