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1. What Is Section 115BAA?
The government of India introduced section 115BAA with the aim of reducing the tax rates for domestic companies through taxation amendments in 2019. The new section 115BAA gives an option of paying tax at a rate of 22% + 10% surcharge and a 4% cess under Section 115BAA. This provision was introduced in the Finance Act, 2019, and is applicable from the assessment year 2020-21 onwards.
2. Features of Section 115BAA?
Features of section 115BAA of the income tax act are mentioned below- Companies will have to go with the Maximum Alternate Tax (MAT) system if they want to be covered under section 115BAA. The tax rate for domestic companies is 22%+ additional cess and surcharge. Companies can carry concessional tax and return to the previous tax regime. This is an optional taxation system.
3. Income Tax Rates For Domestic Companies: AY 2022-23
Income Tax Rates for Domestic Companies and Indian Companies are 25% during the AY 2022-23 (if the turnover is up to Rs. 400 crores). 30% when the turnover is over Rs. 400 crores. Although the companies that are covered under Sections 115BA, 115BAA, and 115BAB have lower tax rates:
4. Condition To Excercise For Section 115BAA
To avail of section 115BAA, the company's income must be calculated without any deductions and exemptions. As a result, the corporation must comply with the following deductions or concessions under IT Act to calculate its income: Newly established companies in Special Economic Zones (SEZ) are eligible for a deduction under Section 10AA. Depreciation claim deductions under Section 32 and 32AD Businesses can benefit from Section 33AB and 33ABA deductions if they manufacturer or produce coffee, rubber, tea, natural gas, or petroleum goods. Section 35, subsections 35AD, 35CCC, and 35CCD deductions for scientific study, skill improvement, and other expenses. All deductions are worded in Chapter VI A of the Income Tax Act, except for Section 80JJAA, Concessions for carrying loss or depreciation from previous AY forward. The Company shall exercise the option to receive benefits under Section 115BAA on or by September 30, the due date for filing the return of income for the Assessment Year. Domestic corporations must decide whether to be taxed under Section 115BAA on or before the deadline for filing income tax returns. Generally, this day falls on September 30 of a given evaluation year. A corporation can not later amend or withdraw its decision to be taxed in accordance with this clause.
Frequently Asked Questions
What is Section 115BAA?
Section 115BAA is a provision that allows domestic companies to pay tax at a lower rate of 22% (effective rate of 25.17%) provided they forego all exemptions and deductions.
Who can opt for Section 115BAA?
Domestic companies that are not engaged in any specific business or profession that are mentioned under Section 115BAB can opt for Section 115BAA.
Is it mandatory for companies to opt for Section 115BAA?
No, it is not mandatory for companies to opt for Section 115BAA. They can continue to pay tax at the normal rate and claim exemptions and deductions.
What is the effective tax rate under Section 115BAA?
The effective tax rate under Section 115BAA is 25.17%, which includes a surcharge of 10% and a cess of 4%.
What are the benefits of opting for Section 115BAA?
Companies can enjoy a lower tax rate and avoid the complexity of claiming exemptions and deductions.
Can a company switch from Section 115BAA to the normal tax rate?
No, once a company opts for Section 115BAA, it cannot switch to the normal tax rate.
Is MAT (Minimum Alternate Tax) applicable under Section 115BAA?
No, MAT is not applicable to companies that opt for Section 115BAA.
Can companies claim depreciation under Section 115BAA?
Yes, companies can claim depreciation on assets even if they opt for Section 115BAA.
Are there any exemptions available for companies that opt for Section 115BAA?
No, companies that opt for Section 115BAA cannot claim any exemptions or deductions under the Income Tax Act.
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