Income Tax

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

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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

Section 115BA, 115BBA and 115BAB are new provisions of options provided to certain specified classes of companies.

Section 115BA:

Tax for certain domestic manufacturing company subject to other provisions of Chapter XII (other than Section 115BAAA & Sec 115BAB) Is 25%

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 10AAor 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

Notwithstanding anything contained in this Act but subject to the provisions of this Chapter, other than those mentioned under section 115BA and section 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%

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.

Notwithstanding anything contained in this Act but subject to the provisions of this Chapter, other than those mentioned under section 115BA and section 115BAA, 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 15%

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.
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