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

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

To Boost corporate development, corporate income tax rates are reduced to attract investments and create employment opportunities and boost the economy of the country as well.

Chapter XII of Income Tax Act consists of Determination of Tax in Certain Special Cases. The deferred tax liability represents a future tax payment a company is expected to make to appropriate tax authorities in the future, and it is calculated as the company’s anticipated tax rate times the difference between its taxable income and accounting earnings before taxes.

Section 115BA, 115BBA and 115BAB are new provisions of options provided to certain specified classes of companies. Generally the tax rate applicable on domestic companies is 30%. It is 25% if 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 (plus surcharge and cess as applicable) of the book profit under the Companies Act, 2013.

Section 115BA:

Tax for certain domestic manufacturing company subject to other provisions of Chapter XII (other than Section 115BAAA & Sec 115BAB) Is 25%. There is no time limit for the domestic manufacturing company to opt for lower-income tax under Section 115BAB. So, the companies can opt for the benefit of Section 115BAB once they set- all the brought forward losses and MAT credit under the regular tax regime. Under Section 115BA, the basic rate is 25%. However, this rate is different for companies filing taxes under Section 115BAA of the Income Tax Act. For those businesses, the basic tax rate is 22%. Keep in mind that Section 115BAA applies to all Indian businesses.

• To be eligible for this particular tax rate option, the company must have been established and registered on or after 1st March, 2016.
• Once a company has decided to take advantage of this option, it will no longer be able to withdraw from the agreement.

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

• Company has been setup and registered on or after 01/03/2016
• Company should be engaged in the business of manufacture of production of any article or things
• Company should not have claimed 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 upto due date of income tax return filing
• 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 under a digital signature or under an electronic verification code.

Section 115BAA

This section includes Tax on income of certain domestic companies , this was added by The Taxation Laws Amendment Act 2019 with effect from Assessment year 2020-2021. Section 115BAA has been inserted in the Income Tax Act,1961 to give the benefit of a reduced corporate tax rate for the domestic companies. Section 115BA , 115BAA, 115BAB states that domestic companies have the option to pay tax at a rate of 22% plus sc of 10% and cess of 4%. A company can opt-out of the concessional tax under Section 115BA , 115BAA, 115BAB and follow the old tax regime. However, if the company exercises the option under Section 115BAA for a given assessment year, it cannot withdraw it for the same or subsequent assessment years.

Companies need to opt out of the Maximum Alternate Tax (MAT) system if they choose to be in Section 115BAA. The tax rate for domestic companies is 22%+ additional cess and surcharge. Companies can opt out of concessional tax and can return to the previous tax regime. This is an optional taxation system.Claiming a deduction under Section 35 for expenditure on scientific research, or an amount paid to a university or research association or National Laboratory or IIT. Claiming a deduction for the capital expenditure incurred by any specified business under section 35AD.

Notwithstanding anything contained in this Act but subject to the provisions of this Chapter, other than those mentioned under Section 115BA , 115BAA, 115BAB, the income-tax payable in respect of the total income of a person, being a domestic company, for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2020, shall, at the option of such person, be computed at the rate of 22%. MAT is levied at the rate of 9% (plus surcharge and cess as applicable) in case of a company, being a unit of an International Financial Services Centre and deriving income solely in convertible foreign exchange. The taxable income of Essem Minerals Pvt. Ltd. computed as per the provisions of Income-tax Act

Tax @22% applicable only if 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 to and no further deduction for such loss or depreciation shall be allowed for any subsequent year:
• The beneficial provisions of this section would apply if 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 other previous year
• Company shall not require to pay MAT, MAT Credit existing cannot be set off in this scheme
• Surcharge is applicable for company if 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 under a digital signature or under an electronic verification code.

Section 115BAB

Tax on Income of Certain new domestic manufacturing companies added by The Taxation Laws (Amendment) Ordinance, 2019 passed on 20 September 2019 h This is done to promote the new manufacturing start-ups. Here by understanding the concept on how to calculate Income-tax in India you can estimate your taxes based on your salary. While all other deductions like 80C, 80G, etc cannot be availed while computing total income for Section 115BA , 115BAA, 115BAB, there is no such restriction on section 80JJAA deduction.

There is no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of machinery or plant by the person.

It is essential to file Form 10-ID to opt for section 115BAB on or before the due date for filing ITR under section 139(1). Companies who opt to pay tax under section 115BAB cannot withdraw it subsequently. The advantage of section 115BAB can be claimed by a domestic manufacturing company that meets the conditions outlined in Sub Section of the Income Tax. A domestic manufacturing is one that is incorporated and registered in India.

Notwithstanding anything contained in Act but subject to provisions of this Chapter, other than those under Section 115BA , 115BAA, 115BAB,  income tax payable in respect of the total income of a person, being a domestic company, for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2020, shall, at the option of such person, be computed at the rate of 15%

Companies opting under this section 115BAB, shall be required to pay tax at the rate of 22% on the income which has not derived or incidental to manufacturing or production of article or thing and no deduction or allowance shall be allowed on such income

The company must be in the business of manufacturing or production of an article or thing, and the same shall commence on or before 31st March 2023. The company must not be incorporated by means of splitting up or reconstruction of a business already in existence.

Tax rate @15% applicable if 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 the reconstruction, of 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

• Company does not use any building previously used as a hotel or a convention centre, as the case may be, in respect of which deduction under section 80-IDhas been claimed and allowed.
• The company is not engaged in any business other than the business of manufacture or production of any article or thing and research in relation to, 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 in any media;
• mining;
• conversion of marble blocks or similar items into slabs;
• bottling of gas into cylinder;
• printing of books or production of cinematograph film; or
• any other business as may be notified by the Central Government in 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 72Awhere 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 amalgamated 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 and 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 thecompany 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 the purposes of this section, take the amount of profits as may be reasonably deemed to have been derived therefrom .If transactions are more than 20 crores then it will be covered in specified domestic transaction and transfer pricing shall apply.
• Such companies shall not be required to pay MAT
• Surcharge 10% is applicable irrespective of income .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 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 under an electronic verification code.

Conclusion

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KEY TAKEAWAYS

•  However, this rate is different for companies filing taxes under Section 115BAA of the Income Tax Act.
• Companies need to opt out of the Maximum Alternate Tax (MAT) system if they choose to be in Section 115BAA.
• Companies can opt out of concessional tax and can return to the previous tax regime.
• (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 to and no further deduction for such loss or depreciation shall be allowed for any subsequent year: The beneficial provisions of this section would apply if 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 other previous year Company shall not require to pay MAT, MAT Credit existing cannot be set off in this scheme Surcharge is applicable for company if company opts for this scheme at the rate of 10% irrespective of total income.

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

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