Section 115BAA – Honoured Tax on Domestic Companies @ 22% by Kuldeep Dadhich


Key Highlights of Section 115BAA

The new Section 115BAA has been inserted in the Income Tax Act, 1961for lower corporate tax rate for the domestic companies. Section 115BAA states that all domestic companies have the option to pay corporate tax at a rate of 22% from the FY 2019-20 (AY 2020-21) onwards if such domestic companies adhere to certain conditions specified under this section;

  1. Conditions specified under section 115BAA

All domestic companies shall have an option to pay corporate tax at the rate of 22% (plus applicable surcharge and cess), subject to comply with the following conditions.

Such companies shall not avail any exemptions and/or incentives under different provisions of income tax. However’ following benefits will not be given to such companies

  • Additional depreciation under section 32 shall not be allowed.
  • Available brought forward MAT Credit shall be lapsed.
  • Investment allowance under section 32AD for new plant and machinery made in notified backward areas in the states of Andhra Pradesh, Bihar, Telangana and West Bengal.
  • Benefits/Deductions specially available for units established in special economic zones (SEZ) under section 10AA
  • Benefits/Deductions specially available under section 33AB for tea, coffee and rubber manufacturing companies
  • Deductions for expenditure made for scientific research under section 35
  • Deduction for the capital expenditure incurred for any specified business under section 35AD
  • Deduction for deposits made towards site restoration fund under section 33ABA by companies engaged in extraction or production of petroleum and/or natural gas in India.
  • Deduction under Chapter VI-A for specified incomes/expenditures under section 80IA, 80IAB, 80IAC and 80IB.
  • Deduction for the expenditure incurred on an agriculture extension project under section 35CCC or skill development project under section 35CCD.
  • Claiming a set-off of brought forward business losses, if such losses were incurred in respect of the aforementioned deductions.

Note: The rate of surcharge would be 10% flat under section 115BAAirrespective of the amount of total income.

It is important to note that there are many cases where paying tax @ 25% is more beneficial than opting the scheme of privileged tax rate @ 22% under section 115BAA

Practical Scenario:

ABC Limited wants to pay corporate tax @ 22% and in the books of the Company following significant facts are available.

  1. Turnover of the Company is Rs. 200 Crore
  2. The brought forward MAT Credit is Rs. 10,00,000/-
  3. Additional Installation of Machinery of Rs. 50,00,000/- on dated 01.05.2019

Case

Tax @ 25%

Tax @ 22%

Best Option

1. Company having MAT Credit

Yes

No

Tax @ 25%

2. Installation of new machinery during FY 2019-20

 

Yes

No

Tax @ 25%

Profit w/o considering Additional Depreciation

1,00,00,000

1,00,00,000

 

Less: Additional Dep. (50,00,000*20%)

10,00,000

NA

 

Net profit after depreciation

90,00,000

1,00,00,000

 

Corporate Tax

22,50,000

   22,00,000

 

Add: Surcharge

NA

     2,20,000

 

Add: Health &Edu. Cess @ 4%

     90,000

96,800

 

Total Tax

23,40,000

   25,16,800

 

Less: MAT Credit

  2,00,000

NA

 

Net Tax Payable

21,40,000

    25,16,800

Tax @ 25%

MAT credit shall be allowed to be set off in a year when the tax becomes payable as per normal provisions of the Act. Set off shall be allowed to the extent of difference between the tax on the total income under normal provisions of the Act and tax which would have been payable as per MAT under section 115JB.

However’ we assume that Company is using Rs. 2,00,000/- against payable tax out of available MAT credit of Rs. 10,00,000/-

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