Section 115BAA – Tax Rates for Domestic Companies

What is Section 115BAA?

Section 115BAA was introduced by the Government of India through the Taxation Ordinance 2019 on the 20th of September 2019 with the objective of offering reduced rates of taxes to domestic companies. Additionally, the MAT – Minimum Alternate Tax rate has been reduced from the current 18.5% to 15%.

The new section 115BAA states that domestic companies have the option to pay tax at a rate of 22% from the FY 2019-20 onwards if such domestic companies adhere to certain conditions.

When can the Companies Opt for Section 115BAA?

Companies can exercise the option for Section 115BAA with effect from AY 2020-21, or in any subsequent assessment year. Furthermore, it being an optional scheme, the decision of exercising the option is only available to the assessee company. Moreover, the company can decide the assessment year it wishes to opt in for the reduced tax rate. Importantly, exercising this option for a particular assesssment year would mean that it cannot be withdrawn and must be applied in the subsequent assessment years.

If in any previous year the assessee company fails to satisfy any of the conditions, the scheme under section 115BAA would become invalid, i.e, the assessee company will not be eligible to exercise this option in the future.

Process for Exercising Option for Section 115BAA

As per Rule 21AE, the option u/s 115BAA shall be exercised by electronically furnishing details in Form 10-IC to the principal officer, either under digital signature or electronic verification code. Hence, companies that wish to exercise the option shall do so in the manner prescribed in rule 21AE of the IT rules, 1962.

This form has to be furnished on or before the due date of furnishing return of income provided u/s 139(1) of the IT act, 1962 that is 30th November in case of domestic companies attracting transfer pricing provisions and 31st October in case of other domesetic companies.

Conditions to Satisfy for Section 115BAA

Section 10AA Special provisions in respect of newly established Units in Special Economic Zones
Section 32(1)(iia) Additional Depreciation

 

(it is pertinent to note that this restriction is only on additional depreciation and regular depreciation is permitted to be reduced from the total income of the assessee so long as it does not pertain to other deductions enumerated in this table

Section 32AD Investment Linked Deduction
Section 33AB Tea development account, coffee development account and rubber development account
Section 33ABA Site Restoration Fund
Section 35 Expenditure on Scientific Research
Section 35 AD Deduction in respect of expenditure on specified business
Section 35CCC Expenditure on agricultural extension project
Section 35CCD Expenditure on skill development project
Chapter VI A No deductions under Chapter VI A can be made while computing the total income for the purpose of Section 115BAA, subject to the following exceptions:

 

a. Section – 80JJAA: Deduction in respect of employment of new employees. While all other deductions like 80C, 80G, etc cannot be availed while computing total income for the purpose of section 115BAA, there is no such restriction on section 80JJAA deduction.

b. Section 80LA: Persons having eligible unit in the International Financial Services Centre referred to in section 80LA(1A) shall be allowed to claim deduction u/s. 80LA while computing total income for the purpose of section 115BAA.

c. Section 80M: Deductions in respect of inter-corporate
dividends. Inserted vide Finance Bill, 2020, this deduction can be availed w.e.f. AY 2021-2022 while computing total income for the purpose of section 115BAA.

New Rates Applicable to Domestic Companies

Base tax rate

Surcharge applicable 

Cess

Effective tax rate

22%

10%

4%

22*1.1*1.04 = 25.168%

Such companies will not have to pay Minimum Alternate Tax under section 115JB. Additionally, the companies would not be able to reduce their tax liabilities u/s 115BAA by claiming MAT credits. The domestic company opting for section 115BAA shall not be allowed to claim set-off of any brought forward depreciation for the assessment year in which the option has been exercised and future assessments.

FAQs

Can a company opt out of section 115BAA?

Domestic companies who do not wish to avail this concessional rate immediately can opt for the same after the expiry of their tax holiday period or exemptions or incentives. However, once such a company opts for the company opts for the concessional tax rate under section 115BAA of the income tax act, 1961, it cannot be subsequently withdrawn.

Who shall exercise the option?

The option of reduced rate of tax shall be exercised only for a domestic company that satisfies certain conditions. Hence, individuals, LLPs, partnership firms, AOP, BOI, foreign companies and societies are not eligible to avail this option.

What is the option provided u/s 115BAA?

Section 115BAA provides an option to all domestic companies to pay tax at an effective rate of 25.17% including 22% basic tax plus 10% surcharge and 4% cess subject to satisfaction of certain conditions.

Got Questions? Ask Away!

  1. If I want to opt for the New regime but had told my employer that I am choosing the existing one, can I select new tax regime while filing ITR??

  2. Hey @riya_gupta

    An individual having salaried income and no business income has the option to choose between the old and new tax regimes every year i.e. he/she can switch regimes from year to year.

    However, individuals having business income are not eligible to choose between the new and old tax regime every year. Once they have opted for the new tax regime, they only have a one-time option of switching back to the old tax regime in their lifetime.

    Once they switch back, they will not be allowed to opt for new tax regime again.

  3. Hey @TanyaChopra

    If you have opted for old tax regime with your employer for TDS on salary, and plan to opt the new tax regime at the time of filing ITR, then you can do that by filling the new form i.e. 10-IE.

  4. Can full-time traders claim expenses like Broker charges STT, GST + other expenses like computer buy for trading, internet connection bill etc under new tax slabs?

  5. Apart from the tax-saving criteria, which tax slab is better for a first-time taxpayer?

  6. Hey @HarishMehta

    If you forget to fill the new form i.e. Form 10-IE, at the time of filing ITR, then you may be disallowed the tax rates available under the new tax regime. The tax department will calculate your income tax liability based on the existing/old tax regime.

  7. Hey @SonalYadav

    These budget changes will be applicable from FY 2020-21. From FY 2020-21 it will be up to the taxpayer to select the tax regime based on their Income and Investments situation.

    Following are the pros of following a new tax regime:

    1. The Income Tax Slab Rates are lower,
    2. A simplified Tax Structure i.e, Ease in filing ITR.
    3. Individuals can invest freely according to their financial goals without any compulsion to make an investment to avail deduction.

    Following are the cons of following a new tax regime:

    1. Discourages New Home buyers since no benefit will be available on Interest paid on Home Loans.
    2. Salaried individuals who live in rented properties will not be able to claim Exemption on HRA which will increase their tax burden.
    3. No tax benefit under section 80C or 80CCD(1B) upon investment in different tax savings schemes.

    Hope this helps!

  8. Hey @HarshitShah

    Yes, any individual taxpayer can opt for new tax slabs, there are no restrictions based on type of income earned by a taxpayer.

    Under new tax slabs, you will be able to claim all the direct expenses related to your business activity while calculating your taxable income.

    Hope this helps!

  9. I have carry forward losses in the previous financial years, is it allowed to claim losses under the new tax regime?

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