What is Section 115BAA of Income Tax Act? Condition for Section 115BAA Applicability and Tax Rate for Domestic Companies

Introduction

The Government of India implemented Section 115BAA on the 20th of September 2019 through the Taxation Amendment Ordinance 2019, with the goal of providing domestic enterprises with lower tax rates. In this article we will walk you through the information on Section 115BAA of Income Tax Act, “What is Section 115bAA?”, Section 115baa Applicability, Tax Rate for Domestic Companies, and its features.

The government of India makes certain changes to the Income Tax Act of 1961. Changes were announced, including a corporation tax rate reduction for domestic and manufacturing enterprises. In addition, the MAT rate has been lowered from 18.5 percent to 15 percent.

What is Section 115BAA of Income Tax Act?

The Income Tax Act of 1961 was amended to include Section 115BAA, which provides domestic companies with a lower corporate tax rate. Domestic enterprises have the option of paying tax at a rate of 22 percent plus a 10 percent surcharge and a 4 percent cess under Section 115BAA. If the corporation chooses Section 115BAA, it will not be subject to MAT (Minimum Alternate Tax).

Features of Section 115BAA of the Income Tax Act

• A corporation that chooses Section 115BAA benefits is exempt from paying the Minimum Alternate Tax.

• Section 115BAA allows a firm to opt out of the concessional tax and return to the previous tax regime.

• However, once a firm exercises its Section 115BAA option for one assessment year, it cannot withdraw it for the following assessment years.

Condition for Section 115BAA Applicability

The total income of the company must be calculated without any exemptions or deductions. As a result, the corporation must waive the following deductions or concessions under Income Tax Act in order to calculate its income:

• Companies in Special Economic Zones (SEZ) are eligible for a deduction under Section 10AA.

• Deductions for depreciation claims under Section 32 and 32AD Companies that coffee, rubber, manufacture or produce tea, natural gas, or petroleum products, can take advantage of Section 33AB and 33ABA deductions.

• Scientific research, skill development, and other deductions under Section 35 and subsections 35AD, 35CCC, and 35CCD.

• Except for Section 80JJAA, all deductions are stated in Chapter VI A of the Income Tax Act.

• Concessions for carrying loss or depreciation from previous assessment years forward.

• Section 72A concessions for losses or allowances for unabsorbed depreciation

• On or before the due date for filing the return of income for the assessment year, which is normally September 30th, the company must exercise the option to receive benefits under Section 115BAA.

Tax Rate for Domestic Company under Income Tax Act for AY 2022-23

Information on Losses and Depreciation for the purpose of Section 115BAA

Any carried forward depreciation (extra depreciation) for the assessment year in which the option was exercised and subsequent assessment years will not be allowed to be set off by the domestic firm opting under section 115BAA.

Domestic enterprises have no deadline to pick a lower tax rate under section 115BAA. As a result, such businesses can take advantage of section 115BAA by claiming the brought-forward loss on account of increased depreciation and applying for the MAT credit against any normal tax due.

FAQs on Section 115BAA of Income Tax Act

1. Can a taxpayer take advantage of MAT credits if the 115BAA option is used?

Domestic enterprises that choose section 115BAA will not be eligible to receive MAT (Minimum Alternate Tax) credits for MAT taxes paid during the tax holiday period. Companies will not be allowed to claim MAT credits to decrease their tax payments under section 115BAA. In the instance of enterprises choosing for tax under section 115BAA, the CBDT may offer a clarification on MAT credits.

2. Does Section 115BAA have any bearing on capital gains tax?

No, even if a domestic enterprise decides to be taxed at concessionary rates under Section 115BAA, capital gains tax will not be affected. Similarly, moving forward losses under the ‘Capital Gains’ heading would have no effect.

3. Is it possible to opt out of Section 115BAA?

Yes, under Section 115BAA of the Income Tax Act, businesses can opt out of the concessional tax programme and return to the former tax regime.

4. Which Companies cannot opt for Section 115BAA?

• Partnership Firm

• Societies

• LLP (Limited Liability Partnership)

• Foreign Companies

• Individuals

• Association of Persons

Conclusion

Domestic businesses that want to take advantage of reduced tax rates under Section 115BAA of the Income Tax Act must meet specific criteria to be eligible. Existing businesses can readily switch to this section’s tax rates at any time. Domestic enterprises will be unable to take advantage of other tax incentives under the income tax act if they choose the new tax regime over the present one. Companies interested in using Section 115BAA should complete Form 10-IC and submit it electronically after logging into the e-filing system.