Section 115BAA tax rate for companies explained

Section 115BAA was introduced by the Income Tax Department with a view to encourage domestic companies by reducing the income tax rates.

This document covers

1. Applicable Tax Rates
2. Deductions not applicable for the taxpayers
3. How to opt for Concession rate of tax
4. Non-Applicability of Sec 115BAA
5. Opting out of Sec 115BAA
6. Application of concessional rate of tax for capital gains

1. Applicable Tax Rates u/s 115BAA

• The tax rate u/s 115BAA for all domestic companies (Private or Public) is 22%.
• Surcharge of 10% and education cess of 4% is applicable on the tax rate for all domestic companies.
• The effective tax rate is 25.168%

Year of Applicability

• Section 115BAA is applicable w.e.f AY 2020-21.
• Every domestic company which is incorporated before or after 31st Mar 2020 can opt for Sec 115BAA.

Applicability of MAT Credit

Domestic Companies who are opting for concessional rate of tax @ 22% u/s 115BAA cannot opt for Minimum Alternate Tax Credit (MAT)

2. Deductions not applicable for the taxpayers opting Sec 115BAA i.e., tax rate @ 22%

Following deductions will not be applied to domestic companies who are opting for concessional rate of tax @ 22% u/s 115BAA

1. Deduction u/s 10AA (Tax holiday for units located in SEZ)
2. Deduction u/s 32AD (Investment in new Plant and Machinery in notified areas)
3. Deduction u/s 33AB or 33ABA (For business related to cultivating and manufacturing tea, coffee, rubber or tea and prospecting, extraction or production of petroleum or natural gas in India)
4. Deductions u/s Chp VIA except 80JJAA (tax incentive for employment generation) and 80M (inter Corporate dividends)
5. Additional depreciation u/s 32(1)(iia)
6. Deduction u/s 35AD, 35CCC or 35CCD
7. Deduction u/s 35(1), 35(2AA), 35(2AB) (Related to Scientific research)
8. Set-off of any losses or unabsorbed depreciation from previous years if such loss is due to above deductions

3. How to opt for Concession rate of tax @ 22% u/s 115BAA?

• Domestic Companies required to file Form 10IC before the Income tax filing and mention the acknowledgement number and date of filing in Income Tax Return
• Form 10IC must be filed on or before the due date of Income Tax Filing
• If Form 10IC is not filed, then the companies cannot opt for 22% tax rate
• Form 10IC is not required to be submitted every year if submitted in 1 year

4. Non-Applicability of Sec 115BAA (Concessional rate of 22%)

Concessional rate of tax @ 22% is not applicable for the following

1. Foreign Companies
2. LLP/Firms
3. Individuals
4. AOP/Societies

5. Opting out of Sec 115BAA

Once the concession tax rate of 22% is opted, the companies cannot opt out of sec 115BAA in the subsequent year

6. Application of concessional rate of tax @ 22% (Sec 115BAA) for capital gains

Sec 115BAA i.e., 22% tax rate is not applicable for capital gains . Capital Gains are taxable @ rates as per Income tax act depending on type of capital gain