File Tax Returns

Expert assistance on your annual filings

Get Expert Assistance






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%.

Let’s discuss the corporate tax rate cut for domestic companies in detail:

  1. Which section has been introduced by the government for this reduced tax rate for domestic companies?
  2. Conditions specified under eligibility criteria of section 115BAA
  3. What is the new effective rate applicable to domestic companies?
  4. Can a company opt-out of the section 115BAA?

1. Section introduced to give effect to the reduced tax rate for domestic companies

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.

2. 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:

  1. Such companies should not avail 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

  2. Such companies will have to exercise this option to be taxed under the 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.

3. What is the new effective rate applicable to domestic companies?

The new effective tax rate, which will apply to domestic companies availing the benefit of section 115BAA is 25.168%. The break up such tax rate is as follows:

Base tax rate

Surcharge applicable 

Cess

Effective tax rate

22%

10%

4%

22*1.1*1.04 = 25.168%

Such companies will not be required to pay minimum alternate tax (MAT) under section 115JB of the act.

The domestic companies opting for section 115BAA will not be able to claim MAT credits for taxes paid under MAT during the tax holiday period. The companies would not be able to reduce their tax liabilities under section 115BAA by claiming MAT credits. The CBDT may issue a clarification on MAT credits in case of companies opting for tax under section 115BAA.

Moreover, the domestic company opting for section 115BAA shall not be allowed to claim set-off of any brought forward depreciation (additional depreciation) for the assessment year in which the option has been exercised and future assessment years.

There is no timeline for the domestic companies to choose a lower tax rate under section 115BAA. So such companies can avail the benefit of section 115BAA after claiming the brought forward loss on account of additional depreciation and also utilising the MAT credit against the regular tax payable if any.

4. Can a company opt out of this section?

The domestic companies who do not wish to avail this concessional rate immediately can opt for the same after the expiry of their tax holiday period or exemptions/incentives as mentioned in point 2 earlier.

However, once such a company opts for the concessional tax rate under section 115BAA of the Income Tax Act,1961, it cannot be subsequently withdrawn.

FREE software to e-file tax return of your clients
Signup Now for TaxCloud