Dear friends and colleges, we are going through an unprecedented lockdown, due to COVID-19 Pandemic. This pandemic has killed more than 5.00 Lakhs and people and its killing spree is still going on. The whole world is facing lockdown and due to this their economies suffered a lot. The movement of people, transport, goods and services are badly affected, this leads generation of unemployment and anarchy. We have seen in these days how people are dying because their governments have not taken appropriate measures to stop and educate people effects of this pandemic.

We are lucky that our government has done a lot and has taken earlier measures to check and stop spreading this pandemic.

The government has taken various steps to boost our economy and provide relief to small and medium taxpayers. The tax rates on some type of companies and domestic manufacturing companies has been reduced to 22% and 15% subject to some conditions.

The Central Government has come out with Taxation Laws (Amendment) Ordinance ,2019 applicable for Assessment Year 2020-21.

Some special types of companies have given rebate in payment of Corporate Taxes and same will be applicable from AY 2020-21 or FY 2019-20.

 LET’S CONSIDER NEW AMENDED /INSERTED PROVISIONS UNDER THE INCOME TAX ACT, 1961

1. TAX ON INCOME OF CERTAIN DOMESTIC COMPANIES [SECTION 115BAA]

Section 115BAA has been inserted by Ordinance and same will be applicable from AY 2020-21.

A. CONDITIONS TO BE FOLLOWED FOR AVAILING PROVISIONS;

1. The assessee will a domestic company. It may be public or private or listed or unlisted company. There are no restrictions on Annual Turnover, shareholders may be resident or non-resident. it may be controlled by Indian or foreign entity. There is no restriction on formation of company. It may be newly incorporated or established domestic company.

2. Total income of the Company is computed without claiming below mentioned deductions;

1. Deductions under Section 10AA.

2. Additional depreciation u/s. 32(1) (iia)

3. Deduction u/s. 32AD

4. Deduction u/s. 33AB

5. Deduction u/s. 33ABA

6. Deduction u/s. 35(1)(ii)/(iia)/(iii)/35(2AA)/35(2AB)

7. Deduction u/s. 35 AD

8. Deduction u/s. 35CCC

9. Deduction u/s. 35CCD

10. Deduction under any provisions of Chapter VI-A(C) [ some sections such as 80HH to 80RRB] but other than the provisions of Section 80JJA.

  • The total income of the company is calculated without adjusting brought forward loss from any earlier years (if such loss pertains to any deduction under the aforesaid sections). Such type of loss shall not be carried forward to be setoff next years.

The total income shall be computed after charging depreciation for the year and calculated as prescribed.

B. TAX RATES

1. if aforesaid conditions have been complied, the income of the Company will be taxable at the rate of (22 +SC+HEC) %.

 2. If such company has other income also related to provisions of Sections of Chapter XII [ such as Sections 110 to 115BBG other than income under sections 115BA and 115BAB]. Then tax on such income will be calculated at the rates specified in these sections.

3. Surcharge will be applicable as follows;

Domestic Company which opts for lower taxation under section 115BAA Surcharge on tax on income chargeable under Section 115BAB Surcharge on tax on income taxable under provisions of Chapter XII (from Sections 110 to 115BBG other than Sections 115BA and 115BAA)
If total income of the Domestic Company does not exceed Rs. 1.00 Crore 10% NIL
If total income of the Domestic Company does not exceed Rs. 1.00 Crore but does not exceed Rs.10.00 Crores 10% 7%
If total income of the Domestic Company exceeds Rs. 10.00 Crore 10% 12%

C. OPTIONS AVAILABLE;

1. A domestic company will avail above option on or before due date of filing of returns under provisions of Section 139(1) of the Act on or after April, 2020;

2. This option can be exercised for any previous year relevant to the assessment year 2020-21 (or any subsequent year);

3. Once option availed for any assessment year by a company, it can not be changed in next assessment year.

 D. MAT APPLICABILITY;

1. The provisions of MAT under Section 115JB will not applicable on companies opting for lower tax regime;

2. The benefit of adjustment of brought forward MAT Credit will be available.

LET’S CONSIDER EXAMPLES FOR CALCULATION OF TAX

EXAMPLE 1:

Domestic Company opted for lower tax under Section 115BAA Business Income computed under Section 115BAA Long Term Capital gain U/s. 112A Brought Forward business loss from FY 2018-19 Total Income during year
XYZ Ltd. 4,00,00,000 80,00,000   4,80,00,000
ABC Pvt. Ltd. 14,00,00,000 5,00,00,000 70,00,000 19,00,00,000

LET’s CALCULATE

  Business Income (IT rate: @22%) Section 112A (IT rate: @10% on Capital Gain exceeding Rs.1.00 Lakh) Total
Tax Calculation on XYZ Ltd.

Surcharge  

HEC@4% 

Total Tax Liability

88,00,000

8,80,000

——————-

96,80,000

3,87,200

——————-

1,00,67,200

——————-

7,90,000

55,300

————————

8,45,300

33,812

————————

8,79,112

———————–

95,90,000

9,35,300

——————-

1,05,25,300

4,21,012

——————-

1,09,46,312

——————-

 

Tax Calculation on ABC Ltd. (Rs. 14,00,00,000-70,00,000)

Surcharge 

HEC@4% 

Total Tax Liability

 

 

 

2,92,60,000

29,26,000

——————-

3,21,86,000

12,87,440

——————-

3,34,73,440

——————-

 

 

 

49,90,000

5,98,800

————————

55,88,800

2,23,552

————————

58,12,352

———————–

 

 

 

3,42,50,000

35,24,800

——————-

3,77,74,800

15,10,992

——————-

3,92,85,792

——————- 

 

 EXAMPLES II

Domestic Company opted for lower tax under Section 115BAA Business Income computed under Section 115BAA Long Term Capital gain U/s. 112A Brought Forward business loss from FY 2018-19 MAT Credit brought forward from previous years. Book Profit
XYZ Ltd. 4,00,00,000 80,00,000   70,50,000 5,80,00,000
ABC Pvt. Ltd. 14,00,00,000 5,00,00,000 70,00,000 4,05,00,000 17,00,00,000

The provisions of MAT i.e. Section 115JAA are not applicable in case of Domestic Company, which opts for lower tax scheme under Section 115BAA.In this case MAT is not applicable in XYZ Limited and ACB Pvt. Ltd., during AY 2020-21. But adjustment of brought forward MAT Credit will be available to both companies even after opting new scheme under Section 115BAA.

  Business Income (IT rate: @22%) Section 112A (IT rate: @10% on Capital Gain exceeding Rs.1.00 Lakh) Total
Tax Calculation on XYZ Ltd.

Surcharge 

HEC@4% 

Total Tax Liability

Less: Available b/f MAT Credit 

Net Tax Liability 

88,00,000

8,80,000

——————-

96,80,000

3,87,200

——————-

1,00,67,200

——————–

 

7,90,000

55,300

————————

8,45,300

33,812

————————

8,79,112

———————–

 

95,90,000

9,35,300

——————-

1,05,25,300

4,21,012

——————-

1,09,46,312

——————-

-70,50,000

——————- 

38,96,312

——————-

Tax Calculation on ABC Ltd. (Rs. 14,00,00,000-70,00,000)

Surcharge 

HEC@4% 

Total Tax Liability 

Less: Available b/f MAT Credit 

Net Tax Liability 

 

 

 

2,92,60,000

29,26,000

——————-

3,21,86,000

12,87,440

——————-

3,34,73,440

——————-

 

 

 

49,90,000

5,98,800

————————

55,88,800

2,23,552

————————

58,12,352

———————–

 3,42,50,000

35,24,800

——————-

3,77,74,800

15,10,992

——————-

3,92,85,792

——————-

-4,05,00,000

——————–

(12,14,208) 

In case of ABC Private Limited the balance MAT Credit of Rs. 12,14,208 will be carried forward for AY 2021-22 and setoff will be available from tax liability.

Conclusion:

The government has taken various steps to boost our economy and for the welfare of business world and society at large. The COVID-19 pandemic, brings whole world on foot. The developed and developing both are affected a lot. The government has come out with some more provisions to reduce tax of domestic company. We shall consider all those provisions in next article. 

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, author assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws and take appropriate advice of consultants. The user of the information agrees that the information is not professional advice and is subject to change without notice. Author assume no responsibility for the consequences of the use of such information. 

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