The Government of India has introduced the Taxation (Amendment) Ordinance 2019 on the 20th of September 2019.

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.

ELIGIBILITY CRITERIA

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:
   1. Claiming any deduction especially available for units established in special economic zones under section 10AA
   2. 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
   3. Claiming deduction under section 33AB for tea, coffee and rubber manufacturing companies
   4. 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
   5. Claiming a deduction for expenditure made for scientific research under section 35
   6. Claiming a deduction for the capital expenditure incurred by any specified business under section 35AD
   7. Claiming a deduction for the expenditure incurred on an agriculture extension project under section 35CCC or on skill development project under section 35CCD
   8. 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
   9. 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 Once the company opts for section 115BAA in a particular financial year, it cannot be withdrawn subsequently.

Tax 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%.

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.

Written by Kanuj Gupta