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Income Tax Rate Applicable on Domestic Companies

Rates of Income Tax for Financial year (FY) 2020-21 i.e., Assessment Year (AY) 2021-22 and FY 2021-22 (AY 2022-23) applicable on Domestic Companies

Introduction

This article explains Tax Rates, Surcharge, Health & Education Cess, MAT applicable to domestic companies under different sections of Income Tax Act, 1961 for income liable to tax in the Financial Year 2020-21 (Assessment Year 2021-22) and Financial Year 2021-22 (Assessment Year 2022-23).

A word cloud concept around the words Income Tax on a blackboard

A. Normal Income-tax rates applicable in the case of DOMESTIC COMPANIES are as follows: 

Turnover Criteria AY 2021-22  TAX RATE
Where total turnover or gross receipt during the previous year 2018-19 does not exceed Rs. 400 crores 25%
Where total turnover or gross receipt during the previous year 2018-19 exceed Rs. 400 crores 30%

 Surcharge: The amount of income tax shall be increased by a surcharge at the specified rate percentage of such tax: –

Total Income Rs.1 Crores to Rs.10 Crores Above Rs. 10 Crores
Surcharge Rate 7% 12%

Health and Education Cess (HEC): The amount of income tax and the applicable surcharge, shall be further increased by health and education cess calculated at the rate of 4% of such income tax and surcharge. 

MAT: As per the provisions of Minimum Alternate Tax (MAT), tax payable cannot be less than 15% (+HEC) of “Book profit” computed as per section 115JB.

However, MAT is levied at the rate of 9% (plus surcharge and cess as applicable) in case of a company, being a unit of an International Financial Services Centre and deriving its income solely in convertible foreign exchange.

B. SECTION 115BA: Tax on income of certain MANUFACTURING DOMESTIC COMPANIES.

  • This section is applicable from AY 2017-18
  • Domestic company engaged in the business of manufacture or production of any article or thing and research in relation to, or distribution of, such article or thing manufactured or produced by it is eligible for Sec 115BA
  • Company must be set-up and registered on or after the 1st day of March, 2016
  • Tax Rate specified in this section is 25%.
  • Surcharge and cess have the same rate as in normal tax provisions prescribed above.
  • MAT is also applicable to the company @ 15% (+HEC) of “Book profit” computed as per section 115JB
  • Total income of the company shall be computed without
  • Deduction under section –
Section Description
10AA Income Tax for SEZ Units
32(1)(iia) Additional Depreciation
32AC Investment Allowance
32AD Investment in new plant or machinery in notified backward areas in certain States
33AB Tea, coffee and rubber development account
33ABA Site Restoration Fund
35AC(ii) or 35AC(iia) Expenditure on eligible projects or schemes.
35AD Deduction in respect of expenditure on specified business
35CCC Deduction towards expenditure incurred on an agricultural extension project
35CCD Deduction towards expenditure incurred on the skill development project
Chapter VI-A under the heading ‘C’ except Sec 80JJAA Deductions in respect of certain incomes

> Set off of any loss carried forward from any earlier AY if such loss is attributable to any of the deductions mentioned above.

  • The option shall be exercised on or before the due date specified under Sec 139 (1) for furnishing the return of income.
  • Once the option has been exercised for any previous year, it cannot be subsequently withdrawn for the same or any other previous year.

Except in case the company exercises option under section 115BAA, the option under this section may be withdrawn.

C. SECTION 115BAA: Tax on income of certain DOMESTIC COMPANIES.

  • This section is applicable from AY 2020-21
  • All domestic companies are eligible for availing the benefit of that section.
  • Tax Rate is 22%, Surcharge shall be applicable @ 10% (mandatory) and Cess @ 4%. Thus Effective Tax rate shall be 25.168%
  • MAT is not applicable to the company who opts sec 115BAA
  • Total income of the company shall be computed without
  • Deduction under section –
Section Description
10AA Income Tax for SEZ Units
32(1)(iia) Additional Depreciation
32AD Investment in new plant or machinery in notified backward areas in certain States
33AB Tea, coffee and rubber development account
33ABA Site Restoration Fund
35 Expenditure incurred on scientific research
35AD Deduction in respect of expenditure on specified business
35CCC Deduction towards expenditure incurred on an agricultural extension project
35CCD Deduction towards expenditure incurred on the skill development project
Chapter VI-A under the heading ‘C’ except Sec 80JJAA Deductions in respect of certain incomes

> Set off of any loss carried forward or depreciation from any earlier AY if such loss or depreciation is attributable to any of the deductions mentioned above

> Set off of any loss or allowance for unabsorbed depreciation under section 72A if such loss or depreciation is attributable to any of the deductions mentioned above

  • Deduction under section 80LAshall be available to Unit in IFSC subject to fulfilment of the conditions contained in the said section
  • The option shall be exercised on or before the due date specified under Sec 139 (1) for furnishing the return of income.
  • Once the option has been exercised for any previous year, it cannot be subsequently withdrawn for the same or any other previous year.

D. SECTION 115BAB: Tax on income of NEW MANUFACTURING DOMESTIC COMPANIES.

  • This section is applicable from AY 2020-21
  • Company must be set-up and registered on or after the 1st day of October, 2019 and has commenced manufacturing or production of an article or thing on or before the 31st day of March, 2023
  • Tax Rate is 15%, Surcharge shall be applicable @ 10% (mandatory)and Cess @ 4%. Thus Effective Tax rate shall be 17.16%
  • MAT is not applicable to the company who opts sec 115BAA
  • Any income derived from other business activities apart from manufacture or production of an any article or thing or research or distribution related thereto, shall be taxed @ 22% and no deduction of any expenditure will be allowed against such income
  • Short term capital gains derived from transfer of a capital asset on which no depreciation is allowable shall be taxed @ 22%
  • The business of the company –

> is not formed by splitting up, or the reconstruction, of a business already in existence except in case of Section 33B

> does not use any machinery or plant previously used for any purpose.

> does not use any building previously used as a hotel or a convention centre, in respect of which deduction under section 80-ID has been claimed and allowed.

  • Total income of the company shall be computed without

> Deduction under section –

Section Description
10AA Income Tax for SEZ Units
32(1)(iia) Additional Depreciation
32AD Investment in new plant or machinery in notified backward areas in certain States
33AB Tea, coffee and rubber development account
33ABA Site Restoration Fund
35 Expenditure incurred on scientific research
35AD Deduction in respect of expenditure on specified business
35CCC Deduction towards expenditure incurred on an agricultural extension project
35CCD Deduction towards expenditure incurred on the skill development project
Chapter VI-A under the heading ‘C’ except Sec 80JJAA Deductions in respect of certain incomes

> Set off of any loss or allowance for unabsorbed depreciation under section 72A if such loss or depreciation is attributable to any of the deductions mentioned above

  • The option shall be exercised on or before the due date specified under Sec 139 (1) for furnishing the return of income.
  • Once the option has been exercised for any previous year, it cannot be subsequently withdrawn for the same or any other previous year
  • If company fails to satisfy the conditions in any previous year, the option shall become invalid in respect of the assessment year relevant to that previous year and subsequent assessment years.

SUMMARY OF ABOVE SECTIONS

Particulars TURN-OVER UPTO 400 CRORES IN PY 2017-18 TURN-OVER EXCEED 400 CRORES IN PY 2017-18 Section- 115BA Section –  115BAA Section- 115BAB
AY 2017-18 2020-21 2020-21
Applicability All domestic companies All domestic companies Manufacture or production of any article or thing and research AND set-up and registered on or after the 1st day of March, 2016 All domestic companies set-up and registered on or after the 1st day of October, 2019 AND commenced manufacturing or production of an article or thing on or before the 31st day of March, 2023
Tax Rate 25% 30% 25% 22% 15%
Surcharge 7% or 12%   (if applicable) 7% or 12%         (if applicable) 7% or 12%        (if applicable) 10% (mandatory) 10% (mandatory)
HEC 4% 4% 4% 4% 4%
MAT 15% 15% 15% N.A. N.A.
Categories: Income Tax