Tax Rates for Domestic Companies: Section 115BA, 115BAA, 115BAB Explained

“Decipher the tax landscape for domestic companies with a comprehensive breakdown of Sections 115BA, 115BAA, and 115BAB. Explore the nuances, conditions, and benefits under each section, offering insights into tax rates for domestic manufacturing companies. Stay informed, optimize tax planning, and navigate compliance effectively.”

This article provides an in-depth analysis of the tax rates applicable to domestic companies under three distinct sections: Section 115BA, Section 115BAA, and Section 115BAB. The government introduced these sections at different times, each with its specific conditions and benefits. As we delve into each section, readers will gain a comprehensive understanding of the tax implications and potential advantages for domestic manufacturing companies.

Domestic manufacturing Companies (Section 115BA):

This section was inserted by the Finance Act, 2016, w.e.f. 1^st April, 2017. Under this section, the income-tax payable in respect of total income of a person, being domestic company, for any previous year relevant to the assessment year beginning on or after the 1^st day of April, 2017, shall at the option of such person, be computed at the rate of 25%, if the conditions contained in sub section (2) are satisfied. Over and above rate of tax, surcharge @7% / 12% and higher education cess @ 4% will applicable.

The conditions are as under:

• The company must be established after 1^st March, 2016 and is engaged in manufacturing of goods.
• To get the benefit of this section, company will not get any benefit available u/s 10AA, 32(1)(iia), 32AD, 33AB, 33ABA, 35(1)(ii), 35(1)(iia), 35(iii), 35(2AA), 35(2AB), 35AD, 35CCC, 35CCD.
• Company is entitled to get deduction u/s 80G,80GGA, 80GGB and 80JJAA under chapter VIA.
• Company is not entitled to get benefit of carried forward of loss.
• Company will have to select this option from the year, otherwise it is not permissible to get this benefits.
• While submitting first return of income, before its due date Form No 10-IB is to be submitted and there after it can not change. Of course as per section 115BBA, it can go to other regime of Alter Net tax.

Tax on Income of certain domestic companies (Section 115BAA):

This section was inserted by the Taxation Laws (Amendment) Act, 2019, with effect from 1^st April, 2020. This section is applicable to other than companies covered u/s 115BA and 115BAB, the income-tax payable in respect of the total income of a person, being a domestic company, for any previous year relevant to the assessment year beginning after the 1^st Day of April, 2020, shall, at the rate of 22% if the conditions contained in sub section (2) are satisfied. Over and above surcharge @10% and higher education cess @ 4%will applicable.

The conditions are as under:

• It must be a domestic Company, either public limited or private limited or listed or unlisted.
• No condition for date of establishment.
• Like section 115BA all the deductions u/s 32 and 35 are not available.
• No deduction under chapter VIA except section 80JJAA, 80LA and 80M are available.
• Company is not entitled to carried forward of loss and loss u/s 72A.
• At any time after assessment year 2020-21 company can choose this option and have to submit form no 10-IC before due date of submitting return of income.
• Once this option is selected it is to be continued forever.
• After selecting this option benefit of Minimum Alternative Tax is not available.

Tax on Income of new manufacturing domestic companies (Section 115BAB):

Notwithstanding   anything contained in this Act but subject to the provisions of this Chapter, other than those mentioned under section 115BA and section 115BAA, the income tax payable in respect of the total income of a person, being a domestic company, for any previous year relevant to the assessment year beginning on or after 1^st Day of April, 2020, shall at the option of such person, be computed at the rate of 15%, if the conditions in sub section (2) are satisfied. Over and above surcharge @10% and higher education cess 4% will applicable.

Conditions are as follow:

• The company has been set-up and registered on or after the 1^st day of October, 2019 and has commenced manufacturing or production of an article or things on or before 31^st day of March, 2024 and-

The business is not formed by splitting up, or the reconstruction of business already in existence, Does not use any machinery or plant previously used for any purpose. Does not use any building previously used as hotel or convention Centre, as the case may be.

• Like section 115BA, all the deductions u/s 32 and 35 are n No deduction under chapter VIA except section 80JJAA, 80LA and 80M are not available.
• No deductions u/s 80JJAA, 80M of chapter VIA is available.
• Company is not entitle to get benefit of carried forward of loss and loss u/s 72A.
• From the first assessment year domestic company will have to decide about this alternative tax regime, there after it is not permissible. Company has to submit Form No 10-ID, before submitting its return of income or before due date of submitting return of income.
• Once the company accept this regime, it cannot chose provision of Minimum Alternate Tax and cannot claim carried forward credit of tax.

Conclusion: Understanding the tax implications for domestic manufacturing companies under Sections 115BA, 115BAA, and 115BAB is crucial for making informed financial decisions. Each section offers different tax rates and conditions, catering to companies of varying ages and operational statuses. By carefully considering the benefits and limitations of each regime, domestic companies can optimize their tax planning strategies and ensure compliance with the relevant tax provisions.