Section 115BA: New Corporate Tax regime and MAT

Last Updated On: Aug. 14, 2020, 9:15 p.m.
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SECTION 115BA NEW CORPORATE TAX REGIME AND MAT

The section 115BA was introduced in the Budget of the F.Y 2019-2020. This section is applicable to all domestic companies from 1st April 2020. This new section gives a one-time option to Domestic Companies to pay tax on their taxable income at 22% instead of 25% or 30% and an additional surcharge of 10%.

This section is applicable irrespective of taxable income subject to certain conditions:

1. Deductions for SEZ Units u/s 10AA are not claimed

2. Additional depreciation for new Plant & Machinery u/s 32(1)(iia) is not claimed

3. Deduction on account of deposit into Tea Development Account and Site Restoration Fund under Sections 33AB and Section 33ABA are not claimed respectively

4. Weighted deductions for contribution/expenditure on scientific research u/s 35 are not claimed

5. Deduction in respect of expenditure on specified business u/s 35AD, investment in backward areas u/s 32AD, expenditure on agricultural extension projects u/s 35CCC and expenditure on certain skill development projects U/s 35CCD are not claimed

6. Chapter VIA C Deductions under certain incomes are not claimed.

 

Other Conditions:

Any carry forward and set off of brought forward loss or depreciation allowances in respect of the above provision are shall be not claimed as well. Domestic companies exercising this option should continue under the same provision for all subsequent years.

Section 115BA restricts claiming of brought forward loss and unabsorbed depreciation on account of specific sections of the Act only (whether intentional or not). Hence, it can be inferred that normal business loss and unabsorbed depreciation can still be claimed by a company and there is no need to forego the same.

 

MINIMUM ALTERNATIVE TAX (MAT):

  • MAT is not applicable for Companies opting for the new regime, claiming MAT credit entitlement shall also be not available and they’d have to forego the same.
  • Companies that already have MAT Credit entitlement in their Balance sheet will be posted with a question of whether to go for reduced tax (22%) under new provisions or to go with old tax regime (25%) and claiming the MAT credit.
  • The effective tax rate after considering surcharge and cess will be 25.17% under Sec.115BAA and 26%/27.82%/29.12% under normal provisions. It is advisable to first see whether the old tax regime or the new one is beneficial and results in lower tax outflow
  • If the MAT credit entitlement is lower than the tax differential on normal taxable income, it would be beneficial to go with the new tax regime and vice versa.

 

Conclusion:

There is nothing wrong with opting for the old scheme to the maximum extent the MAT credit available and then opt-in for the new taxation regime. This being an irreversible decision, an assessee shall also look into the commercial impact of choosing the new regime. whether it plans for an SEZ unit in the near future, or to start investing in new plant and machinery or backward area projects, etc

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