Understanding Section 115BAA: Reduced Corporate Tax Rates for Domestic Companies

Section 115BAA of the Income Tax Act, introduced on September 20, 2019, through the Taxation Laws (Amendment) Ordinance, 2019 (later enacted via the?Taxation Laws?(Amendment) Act, 2019), provides domestic companies the option to avail of reduced corporate tax rates. This article outlines the key features, conditions, and effective tax rates?under Section 115BAA to help companies determine its suitability.

Key Features of Section 115BAA

Effective Date

?Section 115BAA applies to any previous year beginning on or after April 1, 2019, i.e., from the Previous Year 2019-20 (Assessment Year 2020-21).

Concessional Tax Rate

?Companies opting for Section 115BAA are taxed at a reduced rate of 22%. After adding a 10% surcharge and a 4% health and education cess, the effective tax rate becomes 25.17%.

Opting for the Reduced Rate

?To avail of this benefit, companies must file Form 10-IC through the?e-filing?portal before the due date of their income tax return.

Irrevocability of the Option

?Once a company opts for Section 115BAA, it cannot revert to the regular tax regime in subsequent years.

Exemption from MAT

Companies under Section 115BAA are exempt from the Minimum Alternate Tax (MAT) provisions under Section 115JB and cannot claim credit for any MAT paid in prior years.

Conditions for Availing Section 115BAA

Income Computation Restrictions

Income must be calculated without claiming the following deductions:

• Section 10AA: Units in Special Economic Zones (SEZs)
• Section 32(1)(iia): Additional depreciation
• Section 32AD: Investment allowance
• Section 33ABA: Deposits in site restoration funds
• Section 35: Deductions for scientific research, biotechnology, or skill development projects
• Chapter VI-A deductions: Except under Sections 80JJAA (employment generation) and 80M (intercorporate dividends)

Restrictions on Losses and Depreciation

• Losses or unabsorbed depreciation arising from the disallowed deductions cannot be set off.
• Losses under Section 72A related to these exclusions are also not permissible.
• Depreciation can be claimed under Section 32, excluding additional depreciation on new plant or machinery acquired after March 31, 2005.

Learn More