Detailed analysis of Section 115BAA & Section 115BAB

Shorya Bansal

Two new sections (Section 115BAA and Section 115BAB) were introduced reducing the corporate tax rate for domestic companies to 22% and for domestic companies indulged in manufacturing activities to 15%. Taxation and other Laws (Relaxation of Certain Provisions) Ordinance, 2020 has also fixed the rate of surcharge to 10% irrespective of the profits earned by the company.

Detailed analysis of Sec 115BAA:-

• Applicable tax rate – 22%
• Rate of surcharge – 10%
• Applicable on domestic companies
• The companies can opt of the above tax regime for any previous year relevant to the assessment year beginning
  on or after the 1st day of April, 2020, and should be applicable for all subsequent assessment years, subject to
  some conditions.
• The total income of the company shall be computed –
  • Without any deduction under sec 10AA, 32(1)(iia), 32AD, 33AB, 33ABA, 35AD, 35CCC, 35CCD or, under
    any provisions of Chapter VI-A under the heading “C.—Deductions in respect of certain incomes” other
    than the provisions of section 80JJAA
  • 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 above.
  • 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 above.

Detailed analysis of Sec 115BAB:-

• Applicable tax rate – 15%
• Rate of surcharge – 10%
• Applicable on domestic companies engaged in manufacturing activities or incidental activities.
• The companies can opt of the above tax regime for any previous year relevant to the assessment year beginning
• on or after the 1st day of April, 2020, and should be applicable for all subsequent assessment years, subject to some conditions.
• Any income earned by the company which is not incidental to manufacturing of products shall be taxed at the
• rate of 22% and no deduction of expenses shall be allowed in computing such income.
• Tax on short term capital gain on sale of assets shall be computed at 22%
• Following conditions shall be fulfilled for opting in this regime.
  • The company shall be registered on or after 1.10.2019 but before 31.03.2023.
  • The business should not be formed by splitting up, or the reconstruction, of a business already in existence.
  • The business does not use any machinery or part of machinery previously used, however any machinery  or part previously used outside India shall not be regarded as previously used.
  • The business of manufacturing of products shall not include-
    • Development of computer software
    • Mining
    • Bottling of gas into cylinders
    • Printing of books
    • Production of cinematograph films
  • The total income of the business shall be computed –
    • Without any deduction under sec 10AA, 32(1)(iia), 32AD, 33AB, 33ABA, 35AD, 35CCC, 35CCD or,
      under any provisions of Chapter VI-A under the heading “C.—Deductions in respect of certain
      incomes” other than the provisions of section 80JJAA
    • without set-off of any loss or allowance for unabsorbed depreciation deemed so under section
      72A where such loss or depreciation is attributable to any of the deductions referred above

Other Details relevant for both the inserted sections:-

• Provisions of MAT under section 115JB shall not be applied on companies opting for new regime.
• It has been clarified by CBDT through issue of a circular that the MAT credit outstanding in the Balance sheet
  shall be lapsed on exercise of such option.

How companies can opt for this new regime:-

• Companies can opt in this new regime by filing the relevant forms using their e-filing portal
• The relevant forms are –
  • FORM 10-IC for sec 115BAA
  • FORM 10-ID for sec115BAB

If companies does not satisfy the conditions during any relevant previous year they will be shifted to the old regime and income tax shall be charged as if they have not opted for the new regime.

Annexure-A defining various sections used in the report

Sec 10AA – Provisions for newly established units in SEZ

Sec 32(1)(iia) – Provision for additional depreciation

Sec 32AD – Investment in new plant and machinery in certain backward areas

Sec 33AB – Deposition of amount with respect to scheme framed by Tea board, coffee board or rubber board

Sec 33ABA – Site restoration fund

Sec 35AD – Deduction in respect of specified business

Sec 35CCC – Expenditure on agricultural extension project

Sec 35CCD – Expenditure on skill development project

Sec 72A – Provisions relating to carry forward and set off of accumulated loss and depreciation allowance in amalgamation or demerger.

Sec 80JJAA – Deduction in respect of employment of new employees