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Reduced Rate of Income Tax for Domestic Companies - Section 115BAA

CA ALEXANDAR GAZI 
on 13 July 2020

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On fulfilling certain conditions every domestic company can optionally choose to pay income tax @22% on its total income for any previous year relevant to the assessment year beginning on or after 01.04.2020.

  • Surcharge @10% shall be charged irrespective of amount of total income of the domestic company opted to pay tax u/s 115BAA.
  • Health & Education cess @4% shall also be charged.

Therefore, effective tax rate = 22% + (10% of 22%) + (4% of 24.2%) = 25.168%

** 22 + 2.2 = 24.2

Such option has to be exercised by online filing Form 10IC on or before the due date of furnishing the return of income for any previous year relating to the assessment year commencing on or after 01.04.2020 and option once exercised shall apply to subsequent assessment years.

Therefore, the option under section 115BAA can be exercised in any assessment year. But such option once exercised cannot be subsequently withdrawn in future.

Reduced Rate of Income Tax for Domestic Companies - Section 115BAA

Notes:

  • Where a domestic company in the manufacturing sector set up and registered on or after 01.03.2016 already chose an option to pay income tax @25% on its total income u/s 115BA, may also exercise the option u/s 115BAA. On exercising option u/s 115BAA, the option previously exercised u/s 115BA may be withdrawn.
  • Newly formed domestic companies in the manufacturing sector set-up and registered on or after 01.10.2019 and on fulfilling certain conditions can choose to pay income tax @15% on total income u/s 115BAB.

Computation of total income

For the purpose of section 115BAA total income of a domestic company shall be computed in the following manner:

(1) Without claiming any deduction under several sections as mentioned below:

(i) Deduction u/s 10AA: Deduction in respect of newly established units in special economic zones

(ii) Deduction u/s 32(1) (iia): Deduction in respect of additional depreciation

(iii) Deduction u/s 32AD: Deduction on account of setting up of an undertaking and enterprise for manufacture or production of article or thing and acquire and install new plant or machinery for the said undertaking or enterprise in any notified backward area in the states of Andhra Pradesh, Bihar, Telangana and West Bengal.

(iv) Deduction u/s 33AB: Deduction on account of deposit in Tea, Coffee & Rubber development account.

(v) Deduction u/s 33ABA: Deduction on account of deposit in Site restoration Fund.

(vi) Deduction u/s 35 (2AB), u/s 35 (2AA), u/s 35 (1) (ii), u/s 35 (1) (iia) and u/s 35 (1)(iii): Deduction on account of expenditure on scientific research.

(vii) Deduction u/s 35AD: Deduction in respect of capital expenditure on specified business

(viii) Deduction u/s 35CCC: Deduction in respect of notified agricultural expansion project

(ix) Deduction u/s 35CCD: Deduction in respect of notified skill development project

(x) Deduction under chapter VI-A under the heading 'C - Deduction in respect of certain incomes' other than the provisions of section 80JJAA. Sec. 80JJAA: Deduction in respect of employment of new employees. But where a domestic company having a unit in the international financial services centre as referred to in section 80LA (1A) deduction u/s 80LA shall be available to such unit.

 

(2) Without setting off of any loss carried forward or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions as mentioned in serial no. (i) to (x) above.

(3) Without setting off of any loss or allowance for unabsorbed depreciation deemed so in amalgamation or demerger (i.e. u/s 72A), if such loss or depreciation is attributable to any of the deductions as mentioned in serial no. (i) to (x) above.

Note: Loss or depreciation as mentioned above in serial number (2) and (3) shall be deemed to have been given full effect to and no further deduction for such loss or depreciation shall be allowed for any subsequent year.

Consequence when the option exercised u/s 115BAA become invalid

Where the domestic company fails to satisfy the conditions of computation of total income in any previous year, the option exercised to pay tax at the reduced rate u/s 115BAA shall become invalid in respect of the assessment year relevant to the previous year and subsequent assessment years. But it will not have any retrospective effect i.e. benefit already availed u/s 115BAA in earlier year/s shall not be withdrawn.

MAT is not applicable

The domestic company who has opted to pay tax at the rate as prescribed u/s 115BAA is exempted from provision of MAT.

Further, once option is exercised u/s 115BAA, the tax credit of MAT paid by the domestic company in any earlier year/s shall not be available consequent to exercising of such option.

A domestic Company exercised option u/s 115BAB but become invalid

Where a domestic company in the manufacturing sector exercised option to pay tax @17.16% including SC and HEC u/s 115BAB but violated specified conditions thus such option rendered invalid, such person may exercise option under section 115BAA.

How to file Form 10IC?

Followings are the steps for filing of Form 10IC online onto the portal of www.incometaxindiaefiling.gov.in

 
  1. Logging into company’s PAN A/C through www.incometaxindiaefiling.gov.in
  2. Take mouse pointer on e-File tab
  3. Click on Income Tax Forms from drop-down menu
  4. Select form name 10IC then select submission mode
  5. Fill up the form
  6. Preview & submit
  7. Submit under digital signature or EVC

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