SPECIAL RATES FOR COMPANIES– SECTION 115BAA & 115BAB
1.Section 115BAA – Tax on certain Domestic Companies with effect from A.Y 20-21?
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Assessee
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- Assessee must be a domestic company
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Tax rate
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- Income under Section 115BAA will be taxable @ 22%
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Surcharge & Cess
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- Surcharge will be taxable @ 10% irrespective of total income.
- Health & Education cess will be @ 4% always.
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Effective tax rate
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- Income u/s 115BAA: 22%+10%+4% = 25.168%
- Other income (like IFHP, IFOS etc.): 22%+10%+4% = 25.168%
- Income cover u/s XII (i.e. special income u/s 111A, 112, 112A etc.): Special rate + 10% + 4%.
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Minimum Alternative Tax (MAT)
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- Company opting for 115BAA is not required to pay MAT.
- Brought Forward MAT credit cannot be set off against income u/s 115BAA.
- Therefore, if a company has existing MAT credit, it should first exhaust the existing MAT credit thereafter opt for 115BAA in subsequent F.Y.
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Conditions
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1. Company should not claim the deductions under following Sections: –
- Section 10AA
- Additional depreciation u/s 32(1)(iia).
- Section 33AB, 33ABA.
- Section 35(1)(ii),(iia),(iii), 35(2AA), 35(2AB).
- Section 35AD, 35CCC, 35CCD
- Any deduction under Chapter VI-A (except: 80JJAA, 80LA, 80M).
2. Company cannot set off any brought forward loss or unabsorbed depreciation which is attributable to deduction referred above. Such loss or unabsorbed depreciation shall be deemed to have already given full effect to and no further deduction for such loss shall be allowed for any subsequent years.
3. If any of the above conditions are not satisfied in any P.Y. the option will be invalid for that P.Y and subsequent P.Y’s and normal provisions of the Act shall apply.
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Option
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- This Section apply only if the option is exercised in the FORM 10-IC upto due date of return of income u/s 139(1) for A.Y 2020-21 or subsequent years.
- Once the option is exercised it would apply to subsequent A.Y’s.
- Further, Once the option is exercised for any P.Y. it can’t be withdrawn for the same or any other P.Y.
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2.Section 115BAB – Tax on certain Domestic Manufacturing Companies with effect from A.Y 20-21?
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Assessee
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- Domestic Manufacturing Company setup & registered on or after 1st Oct 2019 and commences manufacturing business on or before 31st March 2025.
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Tax Rate
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- Income u/s 115BAB shall be taxable @ 15%.
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Surcharge & Cess
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- Surcharge will be levied @ 10% irrespective of the total income.
- Health & education cess will be @ 4% always.
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Effective Tax Rate
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Type of income
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Effective Rate
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Manufacturing income u/s 115BAB
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15%+10%+4%= 17.16%
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STCG on transfer of depreciable asset
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15%+10%+4%= 17.16%
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STCG om transfer of non- depreciable asset
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22%+10%+4%= 25.168%
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Income covered u/s XII (i.e. special income u/s 111A, 112, 112A etc.)
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Special rate +10%+4%
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Excess profit computed by A/O u/s 115BAB(6)
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30%+10%+4%= 34.32%.
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Other Income like Income from house property, Income from other sources etc.
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(However, no deduction or allowance in respect of any expenditure shall be allowed e.g. Section 24, 57 etc.)
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22%+10%+4%= 25.168%
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MAT
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- Company opting for 115BAB is not required to pay any MAT.
- Since this section only applies to newly setup companies, there is no question of brought forward MAT credit.
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Conditions
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1.Setup & registered on or after 01/10/2019 or on before 31/03/2024.
2.Should not be formed by splitting up or reconstruction.
3.Plant & machinery should be new.
Exception: –
- 20% of the plant & machinery can be second hand.
- Imported plant & machinery shall be treated as new only for this section.
4.Does not include any building previously used as a hotel or a convention center.
5.Not engaged in any business other than manufacturing and research relating to or distribution of such article manufactured by it.
Business of manufacturing does not include: –
Development of computer software.
Conversion of marble block or similar items into slabs.
Bottling of gas into cylinder.
Printing books or production of cinematography film.
Any other notifies business.
6.Company should not claim following deductions/ exemptions: –
Section 35(1)(ii), (iia), (iii).
Section 35(2AA), 35(2AB).
Section 35AD, 35CCC, 35CCD.
7.Company cannot setoff any such loss or unabsorbed depreciation attributable to deduction referred above. Such loss or unabsorbed depreciation shall be deemed to have been already given full effect to and no further deduction for such loss shall be allowed for any subsequent years.
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NOTES: –
- If above conditions not satisfied in any P.Y, the option will be invalid for that P.Y. and subsequent P.Y’s and normal provision of the Act will apply.
- However, if the option rendered invalid due to violation of condition stipulated in point no. (3) to (5), company may exercise option u/s 115BAA.
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Option
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- This section only applies if the option is exercised in FORM 10-ID on or before due date of furnishing FIRST return of income u/s 139(1).
- Once the option is exercised it would apply to subsequent A.Y’s.
- Further, once the option is exercised for any P.Y. it can’t be withdrawn for the same or any other P.Y.
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Other Points
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- Section 115BAB(6): Appears to AO that, owing to the close connection between the company and any other person or for any other reason, the course of business is so arranged that the business transacted between them produces more profit than ordinary expected from the company, Excess profit computed by the AO to be treated as income and taxable @ 30%+10%+4%= 34.32%.
- If transactions is > 20 crores. It will be covered in specified domestic transactions and transfer price shall apply.
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