- Introduction:
The Government of India specified Corporate Tax Rates in Income Tax Act, 1961 and Finance Act through schedules thereto. Income Tax Act, 1961 covers sections i.e. Section 115BA, 115BAA& 115BAB though which corporate tax rate has been specified and further tax rates are also specified in finance act through first schedules thereto.
Section 115BA has been inserted to provide for a reduced tax rate of 25% in case of all domestic manufacturing companies incorporated on or after March 1, 2016, Section 115BAA has been inserted to provide for a reduced tax rate of 22% for all domestic companies. Whereas, Section 115BAB has been inserted to provide for a reduced tax rate of 15% in case of those domestic manufacturing companies which have been incorporated on or after October 1, 2019. The benefit of reduced corporate tax rate under these sections shall be available only when the total income of the company is computed without providing for specified exemption, deduction or incentive available under the Act.
- Tax Rates for Domestic Companies
| Section | Applicable Conditions to be Satisfied | Tax Rate | Whether MAT Applicable or Not |
| Section 115BA | 1. The Co. is set up and registered on or after 01.03.2016
2. It is engaged in manufacture or production of any article or thing 3. It does not claim specified exemption, incentive or deduction (Refer Table A) |
25% | Yes
(Reduced to 15% from existing 18.5% increased by SC & EC) |
| Section 115BAB | 1. The co. is set up and registered on or after 01.10.2019
2. It is engaged in manufacture or production of any article or thing (Subject to certain specified conditions) 3. It commences manufacturing on or after 01-10-2019 but on or before 31-03-2023 4. It does not claim specified exemption, incentive or deduction (Refer table A) (Applicable from A.Y 2020-21) |
15% | Not Applicable |
| Section 115BAA | 1.Domestic Company
2.No other condition for eligibility 3.If co. does not claim specified exemption, incentive or deduction (Refer Table A) (Applicable from A.Y 2020-21) |
22% | Not Applicable
(Further, Brought forward MAT Credit not available) |
| First Schedule to Finance Act | If total turnover or gross receipts during the financial year 2018-19 does not exceed Rs. 400 crore | 25% | Yes
(Reduced to 15% from existing 18.5% increased by SC & EC) |
| First Schedule to Finance Act | Any other domestic company | 30% | Yes
(Reduced to 15% from existing 18.5% increased by SC & EC) |
- Table A – Exemptions or Deductions not available to companies opting for section 115BA, 115BAA or 115BAB
| Section | Deduction |
| Section 10AA | Deduction for units established in Special Economic Zones (SEZ) |
| Section 32(1)(iia) | Additional depreciation in respect of new plant and machinery |
| Section 32AD | Deduction for investment in new plant and machinery in notified backward areas |
| Section 33AB | Deduction in respect of tea, coffee or rubber business |
| Section 33ABA | Deduction in respect of business consisting of prospecting or extraction or production of petroleum or natural gas in India |
| Section 35(1)(ii) | Deduction for donation made to approved scientific research association, university college or other institutes for doing scientific research which may or may not be related to business |
| Section 35(1)(iia) | Deduction for payment made to an Indian company for doing scientific research which may or may not be related to business |
| Section 35(1)(iii) | Deduction for donation made to university, college, or other institution for doing research in social science or statistical research |
| Section 35(2AA) | Deduction for donation made to National Laboratory or IITs, etc. for doing scientific research which may or may not be related to business |
| Section 35(2AB) | Deduction for capital expenditure (excluding cost of land and building) on scientific research relating to business of bio-technology or manufacturing any article or thing |
| Section 35CCC | Expenditure on agriculture extension project |
| Section 35CCD | Expenditure on skill development project |
| Chapter VI-A | For A.Y 2020-21
Restriction in respect of deduction specified in Part C of Chapter VI-A (Except Section 80JJAA) Hence, Companies are eligible for deduction in respect of other parts of Chapter VI-A. For E.g. Section 80G i.e. Donation to PM Care Funds etc.
For A.Y.2021-22 Onwards
None of the Deduction specified in Chapter VI-A is available to the company except deduction under Section 80JJAA& 80M |
| Provision of carried forward and set-off | Without set off of any loss carried forward from any earlier assessment year if such loss is attributable to any of the above deductions |
- Surcharge Rate Applicable to New Corporate Tax
| Company | Range of Total Income | ||
| Rs. 1 crore or less | Above Rs. 1 crore but up to Rs. 10 crore | Above Rs. 10 crore | |
| Domestic Company opting for section 115BA | Nil | 7% | 12% |
| Domestic Company opting for section 115BAA | 10% | 10% | 10% |
| Domestic Company opting for section 115BAB | 10% | 10% | 10% |
| Any other company | Nil | 7% | 12% |
- The Summary table of Corporate Tax including Surcharge & Education Cess
| Total Income | Not opting for concessional | Opting for concessional tax | ||
| Turnover not more than Rs. 400 crores in FY 2018-19 | Turnover more than Rs. 400 crores in FY 2018-19 | Others Section 115BAA | New manufacturing section 115BAB | |
| Up to Rs. 1 Crore | 26.00% | 31.20% | 25.17% | 17.16% |
| Rs.1 Crore to 10 crores | 27.82% | 33.38% | 25.17% | 17.16% |
| Above Rs. 10 Crores | 29.12% | 34.94% | 25.17% | 17.16% |
- For better understanding, an example has been presented below:
Example: ABC Private Limited., a manufacturing company incorporated in year 2005-06, purchased a new plant and machinery of Rs. 20 lakhs on 01-04-2019. Its turnover for the previous year 2018-19 was less than Rs. 400 crore and, therefore, it would be chargeable to tax at the rate of 25% for the Assessment Year 2021-22. The total income of the company for Assessment Year 2021-22 before allowing for additional depreciation in respect of new plant and machinery is Rs. 40 lakh.
| Particulars | If co. opts for Section 115BAA | If co. doesn’t opt for section 115BAA |
| Total income before allowing additional depreciation | 40,00,000 | 40,00,000 |
| Less: Additional deprecation available as per section 32(1)(iia) [Rs. 20 lakh * 20%] | NA | 4,00,000 |
| Total income (a) | 40,00,000 | 36,00,000 |
| Applicable tax rate (b) | 22% | 25% |
| Tax on total income (c = a * b) | 8,80,000 | 9,00,000 |
| Add: Surcharge (d) | 88,000 | Nil |
| Tax after surcharge (e = c + d) | 9,68,000 | 9,00,000 |
| Add: 4% Health and education cess (f = e * 4%) | 38,720 | 36,000 |
| Total tax liability (g = e + f) | 10,06,720 | 9,36,000 |
| Extra tax payable under Section 115BAA | Rs. 70,720 |
For the Assessment Year 2021-22, the company shall have only 2 options – opt for Section 115BAA or pay tax as usual at the rate of 25%.
- Exercise of above option i.e. section 115BA, 115BAA and 115BAB
Option under any of the above section is to be exercised on or before the due date of filing return of income under section 139(1) only once and it will apply automatically in subsequent years.
- Validity of Exercised option in above regime i.e. section 115BA, 115BAA and 115BAB
Once the option has been exercised for any previous year, it cannot be subsequently withdrawn for the same or any other previous year.
- Deduction in respect of PM Care Funds to Corporate Entity
In the Press Release, dated 31-03-2020, it has been clarified that any person including corporate assessees paying concessional tax on the income of Financial Year 2020-21 under the new regime can donate to PM CARES Fund up to 30-06-2020. They can claim deduction under section 80G against income of the financial year 2019-20, without losing the eligibility to opt for concessional tax regime in the financial year 2020-21. Thus, the donations made to PM Cares Fund between 01-04-2020 and 30-06-2020 can be claimed as deduction either in the financial year 2019-20 or 2020-21, at the option of the taxpayer. But, if the taxpayer opts to claim a deduction in the Financial Year 2020-21, then he shall not be eligible to opt for concessional tax regime.
- Concluding Remarks
It is suggested that before opting for any of the sections offering concessional rates, companies must analyse all the possible effects on revenue loss due to relinquishment of deductions and benefits with the possible gains as it can’t be withdrawn subsequently at later stage.
Article by:
CA Ashwin Jain, Manager, Direct Tax, ATMS & CO LLP
Assisted by:
Kirti Khushalani, Article Assistant, ATMS & CO LLP