Concessional rate of tax in respect of certain Domestic Companies

Insertion of new sections 115BAA and 115BAB providing for concessional rate of tax in respect of certain domestic companies

New section 115BAA and 115BAB have been inserted by the Taxation Laws (Amendment) Act, 2019 providing for concessional rates of tax and exemption from Minimum Alternate Tax (MAT) in respect of certain domestic companies with effect from AY 2020-21. The provisions of these new sections are tabulated hereunder-

  Particulars Section 115BAA Section 115BAB
1. Applicability Any Domestic Company Domestic Manufacturing Company
2. Rate of Tax 22% 15%
3. Rate of surcharge 10% 10%
4. Effective rate of tax (including surcharges and HEC i.e health & education cess) 25.168%

(Tax@ 22%+surcharges 10% + Health & Education cess 4%)

17.16%

(Tax@ 15%+surcharges 10% + Health & Education cess 4%)

5. Applicability of MAT Not Applicable Not Applicable
6. Manner of computation of tax liability
Particulars Section 115BAA Section 115BAB
Rate of tax

The rate of tax (i.e 25.168%) is notwithstanding anything contained in the Income Tax Act, 1961 but subject to provision of Chapter XII

The rate of tax (i.e 17.168%) is notwithstanding anything contained in the Income Tax Act, 1961 but subject to provision of Chapter XII

Rate of tax on income covered under  chapter XII (for example long term capital gain u/s 112 & 112A, short term capital gain u/s 111A)

Such income would be subject to tax at the rates mentioned in the said section in Chapter XII. Surcharge at the rate of 10% and HEC @4% would be levied.

Such income would be subject to tax at the rates mentioned in the said section in Chapter XII. Surcharge at the rate of 10% and HEC @4% would be levied.

Rate of tax on other income in respect of which no specific rate of tax is provided in Chapter XII (For example Income from House Property and other source etc)

25.168%

However no restriction regarding claim of any deduction permissible under the relevant provisions of the Act

25.168%

If such income has neither been derived from nor incidental to manufacture or production of an article or thing.

In respect of such income, no deduction for any expenditure shall be allowed in computing such income.

Rate of tax on STCG from transfer of capital asset on which no depreciation is allowable under the Act

25.168%

However no restriction regarding claim of any deduction of any expenditure permissible under the relevant provisions of the Act

25.168%

However no restriction regarding claim of any deduction of any expenditure permissible under the relevant provisions of the Act

7. Conditions to be fulfilled for availing concessional rate of tax and exemption from MAT
Particulars Section 115BAA Section 115BAB
Conditions to be fulfilled for availing concessional rate of tax and exemption from MAT. No time limit specified. Both existing and new companies can avail benefit.

The company has been set up and registered on or after 1st October 2019 and has commenced manufacturing on or before 31st March 2023.

No similar condition has been prescribed

It should not be formed by the splitting up and reconstruction of a business already in existence.

 

No similar condition has been prescribed

It does not use any plant or machinery previously used for any purpose. However, the company can use plant and machinery used outside India by any other person which was subsequently used in India for the first time. Also, the company can use old plant and machinery, the value of which does not exceed 20% of the total value of the plant and machinery used by the company

No similar condition has been prescribed In does not use any building previously used as a hotel or a convention centre in respect of which deduction u/s 80-ID has been claimed and allowed. (2 star, 3 star or 4 star category as classified by the central government)
No similar condition has been prescribed The company should be engaged in the business of manufacture or production of any article or thing, and research in relation to such article or thing. The company can also be engaged in the distribution of such article or thing manufactured or produced by it.

Note: Business of Manufacture or production of any article or thing does not include business of

·         Development of computer software in any form or in any media.

·         Mining

·         Conversion of marble blocks or similar items into slabs

·         Bottling of gas into cylinders

·         Printing of books or production of cinematograph films

Availability of set-off of MAT credit brought forward from earlier years. Brought forward MAT credit cannot be set-off against income u/s 115BAA.

Since it is new company, there would be no brought forward MAT credit.

8. Common conditions for both sections The total income should be computed

1.       Without providing for deductions under any of the following provisions

·         100AA – SEZ unit

·         32(1)(iia)  – Additional depreciation

·     32AD – Deduction for manufacturing located in backward areas of Andhra Pradesh, Telangana, Bihar and West Bengal.

·         33AB – Tea, coffee and rubber manufacturing companies

·         33ABA – deposit in site restoration fund by companies engaged in extraction or production of petroleum or natural gas or both.

·         35(1)(ii)/(iia)/(iii) –  Expenditure made for scientific research.

·         35(2AA) – Payment to a National Laboratory or University or IIT or approved specified person for scientific research

·         35 (2AB) – Scientific research expenditure by a company engaged in the business or bio technology or in the business of manufacture of any article or thing.

·         35AD – Investment linked tax deduction for specified business

·         35CCC – Expenditure incurred on notified agricultural extension projects.

·         35CCD – Expenditure incurred by company in a notified skill development project.

·         80IA to 80RRB – Deduction in respect of certain incomes other than 80JJAA.

2.       Without set off of any loss or allowance for unabsorbed depreciation u/s 72A, where such loss or depreciation is attributable to any of the deduction listed above.

3.       Where there is a depreciation allowance in respect of block of asset which has not been given full effect to prior to AY 2020-21, corresponding adjustment shall be made to the WDV of such block of asset as on 01.04.2019 in the prescribed manner, if option for section 115 BAA is exercised for previous year 2019-20.

  Particulars Section 115BAA Section 115BAB
9.

Exercise of option by the company to avail the benefit.

On or before the due date u/s 139(1) for furnishing return of income for any previous year relevant to the assessment year. Further, once the option has been exercised for any previous year, it cannot be subsequently withdrawn for the same or any other previous year.

 

Note: The option can be exercised even in a later year, but once exercised, cannot be withdrawn subsequently.

On or before the due date u/s 139(1) for furnishing the first of the return of income for any previous year relevant to the assessment year 2020-21 or subsequent assessment year.

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

Note: The option has to be exercised at the time of furnishing the first of the returns of income for any previous year. If a person fails to exercise such option, it cannot be exercised thereafter for any subsequent previous year.

 

In case of amalgamation, the option exercised u/s 115BAB shall remain valid in the case of the amalgamated company only and if the conditions mentioned in point no (7) and (8) are continued to be satisfied by such company.

10 Form for exercise of option

Form 10-IC shall be furnished on or before the due date u/s 139(1) for furnishing return of income, either under digital signature or electronic verification code.

Form 10-ID shall be furnished on or before the due date u/s 139(1) for furnishing the first of the return of income for any previous year either under digital signature or electronic verification code.

 

Compiled By CA Sunitha R Furtado

Date : 09.03.2020