Applicability:

  • Applicable only to Domestic Companies from the Assessment year beginning on or after 1st April, 2020. The provisions under section 115BAA is optional nature not mandatory.
  • Domestic companies once exercised the option of availing the benefit of lower tax rate U/S 115BAA it has to be continued for the subsequent assessment years.

Further, as there is no time line within which option under section 115BAA can be exercised, it can be exercised subsequent assessment years also but once exercised it has to be continued.

  • where the person fails to satisfy the conditions contained in sub-section (2) in any previous year, the option shall become invalid in respect of the assessment year relevant to that previous year and subsequent assessment years and other provisions of the Act shall apply, as if the option had not been exercised for the assessment year relevant to that previous year and subsequent assessment years. (2) For the purposes of sub-section (1), the total income of the company shall be computed

Rate of Tax: Twenty-two per cent (22%) and applicable surcharge and cess.

Conditions:

  • Not applicable to companies covered/ opted under section 115BA and 115BAB
    • Sec 115BA: Tax on income of certain domestic manufacturing companies registered on or after 01-04-2016 @ 25% subject to conditions under sec 115BA (2)
    • Sec 115BAB: Tax on income of new domestic manufacturing companies registered on or after 01-10-2019 @ 15% subject to conditions under sec 115BAB (2)
  • Subsection (2) of Sec 115BAA: For the purposes of sub-section (1), the total income of the company shall be computed

i. without any deduction under the provisions of section 10AA (Newly established Units in Special Economic Zones) or clause (iia) of sub-section (1) of section 32 (Additional Depreciation) or section 32AD (Investment in new plant or machinery in notified backward areas in certain States) or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) or sub-section (2AB) of section 35 or section 35AD or section 35CCC or section 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]

ii. 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 to in clause (i) above

iii. 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 to in clause (i) above

iv. by claiming the depreciation, if any, under any provision of section 32, except clause (iia) of sub-section (1) of the said section, determined in such manner as may be prescribed.

Other Provisions:

  • 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.

  • In case of a person, having a Unit in the International Financial Services Centre, as referred to in sub-section (1A) of section 80LA, which has exercised option under sub-section (5), the conditions contained in sub-section (2) shall be modified to the extent that the deduction under section 80LAshall be available to such Unit subject to fulfilment of the conditions contained in the said section.

v. Explanation. —For the purposes of this sub-section, the term “Unit” shall have the same meaning as assigned to it in clause (zc) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005).

  • Subsection (5) of Sec 115BAA: Nothing contained in this section shall apply unless the option is exercised by the person in the prescribed manner (form 10-IC) on or before the due date specified under sub-section (1) of section 139 for furnishing the returns of income for any previous year relevant to the assessment year commencing on or after the 1st day of April, 2020 and such option once exercised shall apply to subsequent assessment years:

Provided that in case of a person, where the option exercised by it under section 115BAB has been rendered invalid due to violation of conditions contained in sub-clause (ii) or sub-clause (iii) of clause (a), or clause (b) of sub-section (2) of said section, such person may exercise option under this section:

Provided further that once the option has been exercised for any previous year, it cannot be subsequently withdrawn for the same or any other previous year.

MAT Credit Under section 115JB

  • The provisions of this section shall not apply to person who has exercised the option under section 115BAA
  • As regards allowability of brought forward MAT credit, it may be noted that as the provisions of section 115JB relating MAT itself shall not be applicable to the domestic company which exercise options under section 115BAA, it is hereby clarified that the tax credit of MAT paid by domestic company exercising option under section 115BAA of the Act shall not be available consequent to exercising of such option.

Further, as there is no time limit within which option under section 115BAA can be exercised, it may noted that domestic company having Credit of MAT may, if so desires, exercise the option after utilizing the said credit against the regular tax payable under taxation regime existing prior to promulgation of ordinance.

Circular No 29/2019 Dated 2nd October 2019

  • Claiming set off of any loss carried forward: Total income shall be computed without claiming set off of any loss carried forward from any earlier assessment year if the same is attributable to additional depreciation

Therefore, a domestic Company which would exercise option for availing benefit of lower rate of tax under section 115BAA shall not allowed to claim set off of any brought forward loss on account of additional depreciation for the assessment year for which the option has exercised and for any subsequent assessment year

Further, as there is no time limit within which option under section 115BAA can be exercised, it may noted that domestic company having brought forward losses on account of additional depreciation may, if it so desires, exercise the option after set off the losses so accumulated.

  • Allowability of brought forward MAT credit: As regards allowability of brought forward MAT credit, it may be noted that as the provisions of section 115JB relating MAT itself shall not be applicable to the domestic company which exercise options under section 115BAA, it is hereby clarified that the tax credit of MAT paid by domestic company exercising option under section 115BAA of the Act shall not be available consequent to exercising of such option.

Further, as there is no time limit within which option under section 115BAA can be exercised, it may noted that domestic company having Credit of MAT may, if so desires, exercise the option after utilizing the said credit against the regular tax payable under taxation regime existing prior to promulgation of ordinance.

Source: https://www.incometaxindia.gov.in

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