Section 115BAA of the Income Tax Act, introduced on September 20, 2019, through the Taxation Laws (Amendment) Ordinance, 2019 (later enacted via the Taxation Laws (Amendment) Act, 2019), provides domestic companies the option to avail of reduced corporate tax rates. This article outlines the key features, conditions, and effective tax rates under Section 115BAA to help companies determine its suitability.
Section 115BAA applies to any previous year beginning on or after April 1, 2019, i.e., from the Previous Year 2019-20 (Assessment Year 2020-21).
Companies opting for Section 115BAA are taxed at a reduced rate of 22%. After adding a 10% surcharge and a 4% health and education cess, the effective tax rate becomes 25.17%.
To avail of this benefit, companies must file Form 10-IC through the e-filing portal before the due date of their income tax return.
Once a company opts for Section 115BAA, it cannot revert to the regular tax regime in subsequent years.
Companies under Section 115BAA are exempt from the Minimum Alternate Tax (MAT) provisions under Section 115JB and cannot claim credit for any MAT paid in prior years.
Income must be calculated without claiming the following deductions:
| Total Income | With Section 115BAA | Without Section 115BAA |
|---|---|---|
| Less than ₹1 Crore | 25.17% | 26.00% |
| ₹1 Crore to ₹10 Crore | 25.17% | 27.82% |
| More than ₹10 Crore | 25.17% | 29.12% |
Opting for Section 115BAA is an irrevocable decision. Companies should thoroughly evaluate its impact by analyzing their current and future tax liability. The concessional tax regime disallows several deductions and set-offs, which may affect long-term tax planning and profitability.
A detailed cost-benefit analysis can help domestic companies make an informed decision on whether to adopt the reduced tax rate under Section 115BAA.
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