The Government of India has introduced the Taxation (Amendment) Ordinance 2019 on the 20th of September 2019. Several amendments are made to the Income Tax Act,1961 through this ordinance. Changes such as corporate tax rate cut for domestic companies and as well as for manufacturing companies was announced. Also, the MAT rate has been reduced from the current 18.5% to 15%.
In order to attract fresh investment in the manufacturing sector and thereby provide a boost to ‘Make-in-India’ initiative, the government of India on 20th September 2019, introduce Taxation Laws (Amendment) Ordinance 2019 wherein government reduced the corporate tax rates to 22% for existing domestic companies and 15% for new domestic manufacturing companies and other fiscal reliefs. After slashed rates for corporate taxation, India becomes the country where the corporate tax rate is very low as compared to other leading countries. If the company opts for this scheme then it has to forego the various exemptions or deductions which are otherwise allowable to the company which not opt for this scheme. This step eases the complicated process of checking the eligibility of each and every exemptions/Deduction available to the company and then meet their conditions, now the company is not required to carry out such tedious task and only pay tax at a reduced rate.
The new section – 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 115BAA states that domestic companies have the option to pay tax at a rate of 22% from the FY 2019-20 (AY 2020-21) onwards if such domestic companies adhere to certain conditions specified. The salient features of new section 115BAA are as under:
- Section 115BAA has been inserted w.e.f. from FY 2019-20.
- New section 115BAA allows any domestic company (carrying out any activity) an option to pay income-tax at the rate of 22% subject to the condition that they will not avail any exemption/incentives or reliefs mentioned in annexure-I.
- The effective tax rate for these companies shall be 25.17% inclusive of surcharge@ 10% irrespective of Income & cess @ 4%.
- Also, such companies shall not be required to pay Minimum Alternate Tax.
- Existing companies cannot carry forward and set off their unutilized MAT credit if they opt for section 115BAA.
- If the company fails to satisfy the conditions contained in sub-section (2) in any previous year (i.e. claims incentives/reliefs not permissible to be claimed) the option shall become invalid in respect of that year and subsequent assessment years and other provisions of the Act shall apply as if the option had not been exercised for that year and subsequent assessment year.
- A company that does not opt for the concessional tax regime and avails the tax exemption/incentive shall continue to pay tax at the pre-amended rate. However, these companies can opt for the concessional tax regime after the expiry of their tax holiday/exemption period. Further, in order to provide relief to companies that continue to avail exemptions/incentives, the rate of Minimum Alternate Tax has been reduced from existing 18.5% to 15%.
Conditions specified under eligibility criteria of section 115BAA
All domestic companies shall have an option to pay income tax at the rate of 22% (plus applicable surcharge and cess), provided the following conditions are complied with:
- Such companies should not avail of any exemptions/incentives under different provisions of income tax. Therefore, the total income of such company shall be computed without:
- Claiming any deduction especially available for units established in special economic zones under section 10AA.
- Claiming additional depreciation under section 32 and investment allowance under section 32AD towards new plant and machinery made in notified backward areas in the states of Andhra Pradesh, Bihar, Telangana, and West Bengal.
- Claiming deduction under section 33AB for tea, coffee, and rubber manufacturing companies.
- Claiming deduction towards deposits made towards site restoration fund under section 33ABA by companies engaged in extraction or production of petroleum or natural gas or both in India.
- Claiming a deduction for expenditure made for scientific research under section 35.
- Claiming a deduction for the capital expenditure incurred by any specified business under section 35AD.
- Claiming a deduction for the expenditure incurred on an agriculture extension project under section 35CCC or on skill development project under section 35CCD.
- Claiming deduction under chapter VI-A in respect to certain incomes, which are allowed under section 80IA, 80IAB, 80IAC, 80IB, and so on, except deduction under section 80JJAA.
- Claiming a set-off of any loss carried forward from earlier years, if such losses were incurred in respect of the aforementioned deductions.
- Such companies will have to exercise this option to be taxed under section 115BAA on or before the due date of filing income tax returns i.e usually 30th September of the assessment year. Once the company opts for section 115BAA in a particular financial year, it cannot be withdrawn subsequently.
Opting in & Opting Out for Section 115BAA
- Form 10-IC is required to fill according to rule 21AE of the Income Tax Rules before the Due Date of filing the ITR as per Section 139(1) to take the benefit of section 115BAA.
- Such an option once exercised shall apply to subsequent assessment years. However, the company can permanently exit section 115BAA and can claim normal deductions/exemptions and pay tax as per normal regime.