Clarification on option exercised under Section 115BAA of Income Tax Act, 1961 (Income Tax Circular No. 29/2019 dated 2nd October, 2019

  • Section 115BAA provides that any Domestic Company, at its option, may pay tax at a lower rate of 22% from AY 2020-21 subject to conditions. This option is to be exercised before the due date of furnishing the return and once exercised it cannot be withdrawn for any of the subsequent Assessment Years.
  • As per the notification, to opt for Section 115BAA, the total income had to be computed without claiming any deduction or exemption.
  • Representations were received by the Government with respect to couple of issues which were addressed as below:
    • Allowability of brought forward loss on account of additional depreciation:
      • Section 115BAA(2)(i) provides that the total income shall be computed without claiming any deduction under clause 32(1)(iia) & Section 115BAA(2)(ii) provides that the total income shall be computed without claiming sett off of any loss carried forward from any earlier assessment year if the same is attributable, inter alia, to additional depreciation.
      • Hence no set off of brought forward losses on account of additional depreciation shall be availed if the benefit of Section 115BAA is opted.
    • Allowability of brought forward MAT Credit:
      • The Ordinance has amended Section 115JB of the Act so as to, inter alia, provide that the provisions of said Section shall not apply to a person who has exercised the option referred in Section 115BAA
      • Hence the MAT credit being carried forward from earlier will be lapsed in case the option under Section 115BAA is exercised.
    • The clarification also states that there is no timeline within which the option under Section 115BAA has to be exercised, and hence the option can be exercised after utilizing the said losses or credit against the regular tax payable. It means that the option of opting 115BAA benefit can be availed in AY 2021-22 or AY 2022-23 or so on depending on when the said loss or credit is exhausted. But once the option is availed, a domestic Company cannot subsequently withdraw.

Amendment in Rule 10CB of Income Tax Rules, 1962 (“the Rules”) – Notification No. 76/2019 dated 30th September, 2019:

  • Difficulties were noted in implementing the provision with respect to primary adjustments that arises on account of Agreement for Advance Pricing (‘APA’) or on account of an agreement reached under Mutual Agreement Procedure (‘MAP’). In order to remove the difficulties, the amendments are made.
  • A summary of the change is provided below:
Scenario under which primary adjustment is determined Time Limit of repatriation
As per Current Rules As per Amended Rules
Adjustment due to APA On or before 90 days from the due date of filing of Income Tax Return as per Section 139 of the Act On or before 90 days from the date on which the APA has been entered into by the taxpayer.
Adjustment due to MAP On or before 90 days from the date of giving effect by the tax officer to the resolution reached under the MAP.

Also Read relevant Press Releases and Notifications

Taxation Laws (Amendment) Ordinance, 2019

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May 2021