Exploring Sections 115BA, 115BAA, and 115BAB of the Income Tax Act: Tax Incentives and Benefits

Section 115BA , 115BAA, 115BAB of Income Tax Act

In the realm of income tax laws in India, there are various provisions that individuals and businesses must adhere to. One such set of provisions is Section 115BA, 115BAA, and 115BAB of the Income Tax Act. These sections outline special provisions for certain entities and offer benefits and incentives to encourage investments and economic growth. In this article, we will delve into the details of these provisions, exploring their scope, eligibility criteria, and the advantages they provide.

Section 115BA, 115BBA and 115BAB are new provisions of options provided to certain specified classes of companies. Generally, the tax rate applicable to domestic companies is 30%. It is 25% if the turnover or gross receipt of the domestic company does not exceed rupees 400 crores in the previous year. Minimum Alternate Tax is applied when the taxable income calculated according to the I-T Act provisions is found to be less than 15.5 per cent of the book profit under the Companies Act, 2013.

Section 115BA: Tax on Income of Certain Domestic Companies

Under Section 115BA of the Income Tax Act, domestic companies can be taxed at a lower rate if they meet certain conditions. This provision was introduced to encourage investments and foster economic development in specific sectors. The key highlights of Section 115BA are as follows:

1. Applicability: Section 115BA applies to domestic companies that are engaged in the business of manufacturing or production of any article or thing. It does not extend to companies engaged in prohibited activities such as power generation, distribution, etc.
2. Eligibility Criteria: To avail of the benefits of Section 115BA, a domestic company must satisfy certain conditions. One of the primary conditions is that the company must not have been formed by splitting up or reconstructing an existing business. Additionally, the company should not have been formed by transferring machinery or plant previously used.
3. Tax Rate: Companies opting for taxation under Section 115BA are subject to a lower tax rate of 25% on their total income.
4. Exemptions and Deductions: Under Section 115BA, companies are not eligible to claim certain exemptions and deductions available under the regular provisions of the Income Tax Act. This includes deductions under Section 10AA and deductions for scientific research expenditure.

The following conditions are to be satisfied to opt for this special tax rate option,

• The company has been set up and registered on or after 01/03/2016
• The company should be engaged in the business of manufacturing or production of any article or things.
• The company should not have claimed the benefit of other  provisions of section 10AA or clause (iia) of sub-section (1) of section 32 or section 32AC or section 32AD or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) or sub-section (2AB) of section 35 or section 35AC or section 35AD or section 35CCC or section 35CCD or under any provisions of Chapter VI-A under the heading “C.—Deductions in respect of certain incomes” other than the provisions of section 80JJAA;
• This Option has to be exercised up to the due date of income tax return filing
• A company cannot opt-out once this option has been exercised, except when the company choose to opt for Section 115BAA
• The option should be in Form 10-IB, as notified by the CBDT. The form should be submitted online with a digital signature or under an electronic verification code.

Section 115BAA: Tax on Income of Certain Domestic Companies

Section 115BAA of the Income Tax Act provides another avenue for domestic companies to benefit from a reduced tax rate. This section applies to companies other than those covered under Section 115BA. Let’s explore the key aspects of Section 115BAA:

1. Eligibility: Domestic companies engaged in any business or profession can opt for taxation under Section 115BAA. This provision is not restricted to specific sectors or activities.
2. Tax Rate: Under Section 115BAA, domestic companies can avail of a lower tax rate of 25% on their total income.
3. Exemptions and Deductions: Similar to Section 115BA, companies opting for taxation under Section 115BAA are not eligible to claim certain exemptions and deductions available under the regular provisions of the Income Tax Act.
4. Conditions and Consequences: Companies opting for taxation under Section 115BAA must fulfil specific conditions, including the withdrawal of certain accumulated losses and unabsorbed depreciation. Moreover, once a company opts for Section 115BAA, it cannot subsequently withdraw from it for any assessment year.

Tax @22% applicable only if the following conditions are satisfied

The total income of the company shall be computed—

(i)  without any deduction under the provisions of section 10AA or clause (iia) of sub-section (1) of section 32 or section 32AD or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) or sub-section (2AB) of section 35 or section 35AD or section 35CCC or section 35CCD or under any provisions of 78[Chapter VI-A under the heading “C.—Deductions in respect of certain incomes” other than the provisions of section 80JJAA];

(ii)  without set off of any loss carried forward or depreciation from any earlier assessment year if such loss or depreciation is attributable to any of the deductions referred to in clause (i);

(iii) without set off of any loss or allowance for unabsorbed depreciation deemed so under section 72A, if such loss or depreciation is attributable to any of the deductions referred to in clause (i); and

(iv) by claiming the depreciation, if any, under any provision of section 32, except clause (iia) of sub-section (1) of the said section, determined in such manner as may be prescribed.

Other points to note

• The loss and depreciation referred to in clause (ii) and clause (iii) of sub-section (2) shall be deemed to have been given full effect and no further deduction for such loss or depreciation shall be allowed for any subsequent year:
• The beneficial provisions of this section will apply if the option is exercised in the prescribed manner on or before the due date u/s.139(1) for any previous year
• Once exercised, would apply to subsequent assessment years
• This option exercised cannot be withdrawn subsequently for the same previous year or another previous year
• Company shall not require to pay MAT; MAT Credit existing cannot be set off in this scheme
• The surcharge is applicable for the company if the company opts for this scheme at the rate of 10%, irrespective of total income. Thus Effective tax rate will be 25.17%
• The option should be in Form 10-IC, as notified by the CBDT. The form should be submitted online with a digital signature or under an electronic verification code.

Section 115BAB: Tax Concessions for New Manufacturing Companies

Section 115BAB of the Income Tax Act aims to promote investments and employment generation in the manufacturing sector. It offers attractive tax concessions to new manufacturing companies. Let’s dive into the details of this provision:

1. Applicability: Section 115BAB applies to new manufacturing companies that commence operations on or after October 1, 2019, and before April 1, 2023.
2. Eligibility Criteria: To avail of the benefits of Section 115BAB, a new manufacturing company must fulfil certain conditions. The company must be engaged in manufacturing or producing any article or thing and should not have been formed by splitting up or reconstructing an existing business.
3. Tax Rate: Companies eligible under Section 115BAB are subject to a reduced tax rate of 15% on their total income.
4. Exemptions and Deductions: Similar to the other provisions discussed earlier, companies opting for taxation under Section 115BAB are not eligible to claim certain exemptions and deductions available under the regular provisions of the Income Tax Act.

The company must manufacture or produce an article or thing, which shall commence on or before 31st March 2023. The company must not be incorporated by splitting up or reconstructing a business already in existence.

Tax rate @15% applicable if the following conditions are satisfied

• The company has been set up and registered on or after the 1st day of October 2019, and has commenced manufacturing or production of an article or thing on or before the 31st day of March 2023
• The business is not formed by splitting up or reconstructing a business already in existence: Does not use any machinery or plant previously used for any purpose. (Plant or machinery should be new)

Exception: A 20% of  total Plant and machinery can be second hand

• Imported P&M shall be treated as new

• The company does not use any building previously used as a hotel or a convention centre, as the case may be, regarding which deduction under section 80-ID has been claimed and allowed.
• The company is not engaged in any business other than the manufacture or production of any article or thing and research concerning, or distribution of, such article or thing manufactured or produced by it.

Business of manufacture does not include

• development of computer software in any form or any media;
• mining;
• conversion of marble blocks or similar items into slabs;
• bottling of gas into the cylinder;
• printing of books or production of a cinematograph film; or
• any other business as may be notified by the Central Government on this behalf;

The total income of the company has been computed—

• without any deduction under the provisions of section 10AAor clause (iia) of sub-section (1) of section 32 or section 32AD or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) or sub-section (2AB) of section 35 or section 35AD or section 35CCC or section 35CCD or under any provisions of 79[Chapter VI-A under the heading “C.—Deductions in respect of certain incomes” other than the provisions of section 80JJAA];
• without set-off of any loss or allowance for unabsorbed depreciation deemed so under section 72A, where such loss or depreciation is attributable to any of the deductions referred to in sub-clause (i).
• In case of an amalgamation, the option under sub-section (7) shall remain valid in case of the combined company only and if the conditions contained in sub-section (2) are continued to be satisfied by such company; and
• Where it appears to the Assessing Officer that, owing to the close connection between the company, applies. Any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the company more than the ordinary profits which might be expected to arise in such business, the Assessing Officer shall, in computing the profits and gains of such business for this section, take the number of profits as may be reasonably deemed to have been derived from that place. If transactions are more than 20 crores, they will be covered in specified domestic transactions, and transfer pricing shall apply.
• Such companies shall not be required to pay MAT.
• A surcharge of 10% is applicable irrespective of income. The effective tax rate is 17.16%including surcharge and cess.
• Nothing contained in this section shall apply unless the option is exercised by the person in the prescribed manner on or before the due date specified under sub-section (1) of the section 139for furnishing the first of the returns of income for any previous year relevant to the assessment year commencing on or after 1st day of April, 2020 and such option once exercised shall apply to subsequent assessment years
• once the option has been exercised for any previous year, it cannot be subsequently withdrawn for the same or any other previous year.
• The option should be in Form 10-ID as notified by the CBDT. The form should be submitted online under a digital signature or an electronic verification code.

Comparison of Sections 115BA, 115BAA, and 115BAB

While all three sections provide tax benefits, they target different categories of taxpayers. Section 115BA applies to companies in the power sector, offering a reduced tax rate of 25%. Section 115BAA applies to all domestic companies, allowing them to be taxed at a concessional rate of 22% by giving up certain deductions. Section 115BAB, on the other hand, focuses on new manufacturing companies, providing them with a significantly lower tax rate of 15%. These sections reflect the government’s efforts to promote specific sectors and incentivize new investments.

Benefits and Implications

The benefits of Sections 115BA, 115BAA, and 115BAB are multi-fold. Firstly, they provide a competitive tax rate to specific categories of taxpayers, enhancing their profitability and encouraging them to expand their operations. The reduced tax burden frees up resources that can be reinvested in research, development, and infrastructure. Additionally, these sections attract domestic and foreign investments, fostering economic growth and employment generation.

However, availing of the benefits under these sections comes with certain implications. Taxpayers must carefully evaluate the conditions and trade-offs associated with each section. For instance, while the reduced tax rates may seem attractive, taxpayers opting for them must forego certain deductions or meet specific criteria. Therefore, thorough analysis and professional advice are crucial to making informed decisions that align with the long-term goals of the taxpayer.

Conclusion

Are you seeking experts who can provide the needed information and expertise on Sections 115BA, 115BAA, and 115BAB of the Income Tax Act? Get in touch with Kanakkupillai to get proper legal help. The professionals here make sure to leave no stone unturned in helping people through the legalities in every possible way. Moreover, you can get all the legal Services at affordable prices.

Section 115BA, 115BAA, and 115BAB of the Income Tax Act provide avenues for eligible domestic companies to benefit from reduced tax rates and incentives. These provisions are crucial in promoting investment, economic growth, and employment generation in specific sectors. By offering attractive tax concessions, the government aims to create a conducive environment for businesses to thrive and contribute to the overall development of the economy.

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