New section 115BAA has been inserted by CBDT through the Taxation Law (Amendment) Act, 2019, providing for concessional rate of tax subject to the conditions as mentioned in succeeding paragraph and exemption from minimum alternate tax (MAT) in respect of domestic companies (any domestic company) with effect from A.Y. 2020-21(FY 2019-20).

Eligible Person under Section 115BAA

Any domestic company (existing or new) can avail of this option from AY 2020-21 or in any of the subsequent years but, once availed then the same can’t be withdrawn.

Rate of Tax, Surcharge, and Cess under Section 115BAA

The tax shall be payable at the rate of 22% on total income or net taxable income except incomes covered under Chapter XII (i.e. income chargeable at special rates like STCG u/s 111A, LTCG u/s 112, LTCG u/s 112A, etc)*. The surcharge shall be charged at the flat rate of 10% of tax irrespective of total income or net taxable income. There is no change in health and education cess and will charge at the same rate i.e. 4% of tax plus surcharge. Therefore, the effective rate of tax is 25.168% which is tabularly represented below.

Particular Rate (%)
Income tax rate (A) 22
Rate of surcharge @ 10% on A (B) 2.2
Health and education cess on A+B (C) 0.968
The effective rate of tax ( A+B+C) 25.168

*The rate of tax as defined in the said section will be applicable.

Exemption from MAT to those opting under Section 115BAA

The domestic company that opts to comply with the provision contained in section 115BAA is not required to pay minimum alternate tax under section 115JB. Under section 115JB, the minimum alternate tax needs to be paid on the book profit when the tax on total income arrived is less than 18.5% of the book profit. With effect from 01st April 2019, the rate of MAT has been reduced from 18.5% to 15% plus surcharge(if applicable) and health and education cess.

Conditions to be fulfilled for availing concessional rate of Tax and exemption from MAT

1. Total income should be computed without claiming the below-mentioned deductions.

Section Provision
10AA Exemption from profits and gains derived from the export of articles or things or from services by an assessee, being an entrepreneur from his unit in SEZ.
32(1)(iia) Additional Depreciation at the rate of 20% or 35% as the case may of the actual cost of new plant and machinery acquired and installed by manufacturing undertakings.
32AD Deduction @ 15% of the actual cost of new plant and machinery acquired and installed by an assessee in a manufacturing undertaking located in notified backward areas of Andhra Pradesh, Telangana, Bihar, and West Bengal. (Investment Allowance).
33AB Deduction @ 40% of profits and gains of business of growing and manufacturing tea, rubber, and coffee in India, to the extent deposited with NABARD.
33ABA Deduction @ 40% of profits and gains of business of prospecting for, or extraction or production of petroleum or natural gas or both, in India, to the extent deposited with SBI.
35(1)(ii)/
(iia)/(iii)
Deduction or Proportionate deduction for payment to any research association, company or university for performing scientific research or social science or statistical research.
35(2AA) Deduction at the rate of 150% of the payment to a National Laboratory or University or IIT or approved specific person for scientific research.
35(2AB)  Deduction @ 150% for in-house scientific research expenditure incurred by the company engaged in the business of biotechnology or in the business of manufacturing or production of any article or thing.
35AD Investment-Linked tax deduction for specified businesses.
35CCC Deduction at the rate of 150% of the expenditure incurred in the notified agriculture extension project.
35CCD Deduction at the rate of 150% of the expenditure incurred in the notified skill development project.
80IA- 80RRB Deduction from Gross Total Income under Chapter VI-A under the heading “C- Deduction in respect of certain incomes” other than section 80JJAA. Deduction u/s 80LA allowed if the undertaking is an IFSC.

2. In case, the domestic company opting for section 115BAA, total income should be computed without setting off of any brought forward loss or unabsorbed depreciation from any earlier assessment year, where such loss or unabsorbed depreciation pertains to any of the deductions listed in (1)

3. If an assessee has acquired and put to use an asset prior to the assessment year 2020-21 (which is eligible for additional depreciation) e. in AY 2019-20 and claimed 50% additional depreciation in the said assessment year then the remaining 50% additional depreciation could not be claimed in AY 2020-21, if section 115BAA provisions opted. Also, this unclaimed 50% additional depreciation will be reduced from the opening WDV of the block of assets.

4. Since there is no timeline within which section 115BAA can be exercised, a domestic company that has brought forward losses and unabsorbed depreciation on account of deductions listed in (1) above, may, if it so desires, postpone exercising the option under section 115BAA to a later assessment year, once brought forward losses and depreciation so accumulated set off.

Availability of Set-off of MAT Credit

Once the option of availing the provision of section 115BAA exercised, then the domestic company will forego the balance of brought forward MAT credit. It is recommended that in case, a company has brought forward MAT credit, then, firstly it exhausts the MAT credit balance and thereafter opts for section 115BAA in the year the brought forward MAT balance utilized and reduced to nil.

Prescribed Time Limit for Exercising the Section 115BAA

The beneficial provisions of this section would apply if the option is exercised in the prescribed manner on or before the due date u/s 139(1) for furnishing the return of income for any previous year relevant to the assessment year 2020-21 onwards. Such an option once exercised shall apply to subsequent years and couldn’t be withdrawn.

Disclaimer: The above information includes provisions as per Income Tax Act, 1961. We disclaim that this article has been prepared based on a new section inserted by the Central Board of Direct Tax with related amendments from Assessment year 2020-21.

In case of any query relating to Income Tax, kindly contact CA. Manoj Kumar/CA. Julie (Partners), Rajesh Raj Gupta & Associates, Chartered Accountants,  412A, Chiranjiv Tower, Nehru Place New Delhi-110019, Contact No: 011- 49424708/41066053.

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4 Comments

  1. Vihar Soni says:

    The interpretation of proviso to sub-section (3) of section 115BAA that you have made in point 3 of conditions above is ridiculously wrong. The correct interpretation is as follows:

    Section 115BAA:
    “…(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….”

    As per the sub-section (3) ,any brought forward loss pertaining to the not allowable deduction or the brought forward additional depreciation shall be deemed to have been given full effect and no further deduction shall be allowed in respect of same. The proviso however states that the brought forward additional depreciation from any financial year prior to FY 2019-20 shall be added to the WDV of block of assets as on 01.04.2019.

    The adjustment referred to in the proviso is with respect to the brought forward additional depreciation and not the 50% amount of additional depreciation that is yet to be claimed due to asset being put to use for less than 180 days.

    In nutshell, the brought forward additional depreciation is not going to be allowed if the option is availed u/s 115BAA of the Act but such amount of brought forward additional deprecation is to be adjusted i.e. added to the WDV of block standing on 01.04.2019. Such option of adjustment is, however, available only if the option is availed from FY 2019-20 itself and not thereafter.

    1. Jatin Jindal says:

      Dear Vihar Soni Ji,

      Thank you for your concern in our article !!

      I think you have interpret the proviso to sub-section 3 of section 115BAA of income tax act in different manner. First of all I would like to say that the wording of proviso is “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”, and such depreciation allowance may be related to additional depreciation or normal depreciation.

      Point 3 of conditions of an article is just an example to understand the proviso to sub-section 3 of section 115BAA of income tax act.

      Second thing you are saying to “ADD in WDV as on 1.4.19 of PY 2019-2020” but we have not deducted from the WDV of the block as on 1.4.19 of the PY 2019-2020 related to AY 2020-2021 then how can we ADD the same, so we need to “LESS” from opening WDV as on 1.4.19 of PY 2019-2020 for giving FULL effect instead of adding the balance allowance of depreciation not taken in AY 2019-2020.

      So as per our opinion Point 3 is correct.

      If you require any further clarification feel free to contact us through our Email id.

      Your response is Welcome !!

      Thanks

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