Tax incentives by Indian Government to support domestic companies

Section 115 BBA

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% plus sc of 10% and cess of 4%. The Effective Tax rate being 25.17% from the FY 2019-20 (AY 2020-21) onwards if such domestic companies adhere to certain conditions specified. The company need not pay tax under MAT if it opts for Section 115BAA.

The new effective tax rate, which will apply to domestic companies availing the benefit of section 115BAA is 25.168%. The break up such tax rate is as follows:

Such companies will not be required to pay Minimum Alternate Tax (MAT) (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. The CBDT may issue a clarification on MAT credits in case of companies opting for tax under section 115BAA.

Moreover, the domestic company opting for section 115BAA shall not be allowed to claim set-off of any brought forward depreciation (additional depreciation) for the assessment year in which the option has been exercised and future assessment years.

There is no timeline for the domestic companies to choose a lower tax rate under section 115BAA. So such companies can avail the benefit of section 115BAA after claiming the brought forward loss on account of additional depreciation and also utilising the MAT credit against the regular tax payable if any.

Section 115 BAB

A new manufacturing company can exercise the option to be taxed under section 115BAB. The company has to exercise the option 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 Once the company opts for section 115BAB in a particular financial year, it cannot be withdrawn subsequently.

The new effective tax rate, which will apply to domestic companies availing the benefit of section 115BAA is 17.16%.