New Tax Rate For Domestic Companies (115baa)

All domestic companies have an option to pay tax at a concessional tax rate of 22% with surcharge 10% & cess 4% (effective rate comes to 25.17%) with no Minimum alternative tax (MAT) payment.

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This concessional rate can be opted only if certain conditions are satisfied and deduction benefits of certain sections are forgone, as provided below:

  • No deduction benefits under-
    • sec 10AA (For SEZ units),
    • additional depreciation,
    • investment allowance,
    • allowance for tea/coffee/rubber,
    • site restoration fund deduction,
    • scientific research expenditure deduction,
    • Capital expenditure on specified business,
    • Expenditure on agriculture extension project,
    • Expenditure on skill development project,
    • Income based deductions under Chapter VIA (such as tax holiday under sec 80IA, 80IAB, 80IAC, 80I) except u/s 80JJAA deduction in respect of new employees and 80M in respect of inter corporate dividends.
  • No set off of carried forward losses to the extent attributable to deductions referred above.
  • No MAT credit.

Deciding on tax rate

In terms of tax rate, option under sec 115BAA is beneficial but once it is opted any brought forward losses or MAT credit would be lapsed. Also, income-based deductions which provide tax holiday period for certain companies shall be considered, as it would not be available if concessional rate is opted. There is no time limit for opting sec 115BAA but once opted, it cannot be withdrawn.

Thus, it is advisable to opt sec 115BAA after expiry of tax holiday period and after exhausting the brought forward losses, certain deductions available over a period and MAT credit.

Also, a computation is to be made under both tax rates for a clear picture to select the least tax alternative.

Opting new tax rate

Sec 115BAA can be opted by filing declaration under Form 10 IC online on income tax portal before the ITR filing due date. Once opted it cannot be withdrawn.