Concessional Corporate Tax Rate for Companies- Sec- 115BAA & 115BAB

What does Section 115BAA includes?

Pros under the Section115BAA

1. Income tax rate is considered to 25.168% as the aggregate tax rate, includes 22% tax plus surcharge of 10% and additional 4% of cess, irrespective of the total income.
2. After opting the Section115BAA, provisions of MAT would not be applicable. Also, the authority could not force anyone to pay the tax.

The tax rate which is applicable to pay by domestic companies under this benefit of section 115BAA is 25.168%. The following break up of tax rate shows different tax types:

Basic Taxation Rate	Applicable Surcharge	Cess	Effective taxation rate
22%	10%	4%	22*1.10*1.04 = 25.168%

Relevancy

1. This section becomes effective from the fiscal year 2019-20.
2. Only Domestic Companies lies under this section, rather than foreign companies,      firms, LLP,  individuals AOP and more.

Changes under section 115JB

1. Liability of Tax under section 115BAB: Starting from AY 2020-2021, the tax rate u/s 115JB changes drastically from 18.50% to 15%. Currently, 17.16% is the tax rate which will levy on domestic companies only under section 115BAA.The break-down of tax liability is as follows:

Basic taxation rate	Applicable Surcharge	Cess	Effective taxation rate
15	10%	4%	15*1.10*1.04 = 17.16%

1. The provisions under section 115JB would not effect to: –

• Any company who is earning an income from life insurance u/s 115B.
• Any company who has utilised the alternative under section 115BAA or 115BAB.

Is there any possibility for a company to opt out from the Section 115BAA?

After availing the option for the concessional tax rate under section 115BAA of the Income Tax Act,1961, it has not any such chances for subsequently withdrawn.    

Whereas irrespective of following terms and conditions that are set by authority, if a company opt out so it would not again opt in again under section 115BAA.

Barriers under Section 115BAA?

Any of the deductions/exemptions/benefits could not be claimed by a company as mentioned below in computing total income for the use of Income Tax:

1. Tax Holiday for Units in Special Economic Zones (Section 10AA)
2. Additional Depreciation u/s 32((iia)
3. Investment Linked deduction u/s 32AD
4. Benefits u/s 33AB or 33ABA
5. Accelerated R&D allowance (Clause (ii), (iia), (iii) of Sub Section (1), SubSection (2AA) or Sub Section  (2AB) of Section 35)
6. Allowances u/s 35AD, 35CCC or 35CCD
7. Depreciation us/ 32 has been claimed without additional depreciation u/s 32(1) (iia)

 Other Barriers:

1. Any loss could not be carried forward by an existing company to the related above sections.
2. The benefit of deduction under Heading ‘C’ of Chapter VI-A i.e. 80-IA to 80RRB except 80JJAA could not be opt by any company at the time of introduction of the above provisions.

According to Finance Bill, 2020 the above mentioned words has replaced with “Chapter VI-A other than the provisions of section 80JJAA or section 80M” with effect from the 1st day of April, 2021.

1. After applying section 115BAA, MAT u/s 115JB could not be applied for those companies who exercised this option to pay tax under section 115BAA. Even, carry forward/MAT credit and additional deprection could not be allowed for a company.
2. Notification issued on dated 12.02.2020 notified Form no. 10-IC for Section 115BAA by CBDT. This form needs to be submitted electronically under digital signature or electronic verification code. Such a form needs to be signed and filled by a proper officer of a company on behalf of the company.

What do you understand by Section 115BAB?

1. A newly domestic company would be entitled for a 15 percent tax rate reduction (Plus Surcharge and Cess, making it an effective tax rate of 17.16 percent ).
2. The assessee is a domestic company, this section is not applicable to other entity types.
3. Such company is incorporated on or after 1st October, 2019.
4. The company has commenced manufacture or production of an article or thing on or before 31st March, 2023.
5. The business of such a company is not formed by splitting up or re-construction of a business already in existence.
6. Such companies do not use second-hand machinery (except imported second-hand machinery) whose value is more than 20% of the value of the total Plant & Machinery used by the company.
7. The company does not use any building previously used as a Hotel or Convention Centre and for which a deduction under Section 80ID has been allowed.
8. The company is not engaged in any other business other than : –

1. Manufacture of an article or thing
2. Research in regards to such manufacture or production
3. Distribution of such article or thing manufacture or production by it.

 Other Barriers

Any of the deductions/exemptions/benefits could not be claimed by a company as mentioned below in computing total income for the use of Income Tax:

1. Tax Holiday for Units in Special Economic Zones (Section 10AA)
2. Additional Depreciation u/s 32((iia)
3. Investment Linked deduction u/s 32AD
4. Benefits u/s 33AB or 33ABA
5. Accelerated Research & Development allowance (Clause (ii), (iia), (iii) of Sub Section (1), Sub Section (2AA) or Sub Section  (2AB) of Section 35)
6. Allowances u/s 35AD, 35CCC or 35CCD
7. Depreciation us/ 32 has been claimed without additional depreciation u/s 32(1) (iia
8. Deductions under Chapter VIA under the heading C: Deductions in respect of certain incomes, excluding deduction for additional employment u/s 80JJAA.

Changes under section 115JB

1. W.e.f. AY 2020-2021, the rate of tax under section 115JB has been reduced from 18.5Percent to 15Percent.
2. The provisions of Section 115JB shall not applicable to: –
   • Any income accruing or arising to a company from life insurance business u/s 115B
   • A company who has exercised the scheme referred under section 115BAA or 115BAB.

As per the Finance Bill, 2020 the above words has replaced with “Chapter VI-A other than the provisions of section 80JJAA or section 80M” W.e.f. the 1st day of April, 2021.   

1. This section is applicable from the Financial year 2019-20.
2. Notification issued dated 12.02.2020 notified Form no. 10-ID for section 115BAB by CBDT. This form needs to be submitted electronically under digital signature or electronic verification code. Such a form needs to be signed and filled by a proper officer of a company on behalf of the company.
3. Once, if a company opts for the concessional tax rate under section 115BAA of the Income Tax Act,1961, it cannot be subsequently withdrawn.
4. However, if a company opts out of this section (by breaking any of the conditions which need to be complied), it would be a permanent opting out, it would never ever again in its life be able to come back to section 115BAA.

In Tabular form Section 115BA, 115BAA,115 BAB & Others

Particulars	Section 115BA	Section 115BAA	Section 115BAB	Others
Applicable from	A.Y. 2017-18	A.Y. 2020-21	A.Y. 2020-21	–
Type of Company	The domestic company engaged in manufacturing/ production	All Domestic companies	The domestic company engaged in manufacturing/ production	Any Domestic company
Start Date	Set up & registered on or after 01.03.2016	No specific  requirement	Set up & registered on or after 01.10.2019 and commence manufacturing on or before 31.03.2023	–
Allowability of specified deduction or loss	No	No	No	Yes
Basic Tax Rate	25%	22%	15%	25%/30%
Surcharge	7%/12%	10%	10%	7%/12%
Cess	4%	4%	4%	4%
Applicability of MAT	Yes (15%)	NA	NA	Yes (15%)
Specified domestic transaction provisions	NA	NA	Applicable	Applicable
Restriction for entities formed by restructuring /use of plant & machinery/use of building earlier use as hotel or convention centre	NO	NO	Yes	–

Corresponding amendments have been made to the tax audit report (Form 3CD), transfer pricing report (Form 3CEB), and income tax return Form ITR-6 (applicable to companies) to include disclosures where an option under section 115BA, 115BAA, or 115BAB has been exercised. These include:

1. Forms 3CD and ITR-6 have been updated to incorporate information on WDV adjustments, brought forward losses, and unabsorbed depreciation as required by section 115BAA; and
2. Form 3CEB: Amended to include particulars in respect of specified domestic transactions in the nature of any business transacted between persons referred to in section 115BAB(6) of the ITA.

Form 10-IC & 10-ID are two forms which can be used to opt for concessional tax rate in ITR.

Last updated 2 years ago