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can avail of this option from AY 2020-21 or in any of the subsequent years but, once availed then the same can’t be withdrawn.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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