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Introduction: 

 Section 115BAA of the Income Tax Act, 1961, which came into force through the Taxation (Amendment) Act, 2019, the Government of India enacted tax breaks for domestic corporations. Under this scheme, domestic businesses are entitled to a maximum tax rate of 22% with 10% plus 4% cess. The section 115 BAA option exempts companies from the Minimum Tax (MAT).

The 2019 Amendment Act amended the Income Tax Act of 1961, including a reduction in domestic corporate and manufacturing tax rates along with a reduction in the MAT rate from 18.5% to 15%. This article examines the scope, scope, objectives and requirements of section 115BAA of the Income Tax Act.

Section 115BAA: 

Section 115 BAA was introduced by the Government of India via the Taxation (Amendment) Ordinance 2019 on September 20, 2019.The Act made several amendments to the Income Tax Act, 1961, including reducing the corporate tax rate in the country and manufacturing sector excluding MAT rates from 18.5% to 15% decrease. Now, let’s dig deeper into the details of the corporate tax cuts for companies in the state:

Features of Section 115BAA : 

• Indian companies are entitled to corporate tax of 22%, plus 10% surcharge and 4% cess.
• This results in a new effective tax rate of 25.17% (instead of 30%).
• If a company elects to pay tax under section 115BAA, they are exempt from tax under the Minimum Alternative Tax (MAT).
• In the same amendment, the Minimum Alternate Tax (MAT) rate was also reduced from 18.5% to 15%.
• Companies have the option to opt out of the tax concession and revert to the previous tax system.

Condition of Section 115BAA Applicability:

• According to the new tax regime, companies across the country can pay income tax at a rate of 22% (plus applicable cesses and surcharges). However, under the Income Tax Act, companies must exclude the following deductions.
• Deductions under Section 10A for Special Economic Zones (SEZ).
• Additional depreciation under Section 32A and the establishment of Investment Provisions (Section 32AD) is available in the Notified Backward Regions of West Bengal, Telangana, Bihar and Andhra Pradesh.
• The deductions under section 33AB apply to the rubber, tea and coffee industries.
• Deductions under Section 35 apply to expenditures on scientific research and research-related expenses paid to any university.
• All deductions are under Title VI A, except sections 80JJAA, 80LA, and 80M.

Eligibility Criteria:

• Domestic companies can opt to pay income tax under the new tax introduced through section 115BAA, if the following conditions are met:
• Companies opting for tax under Section 115BAA should be exempted from availability of additional incentives or exemptions under other provisions of the I-T Act. Their gross income must be calculated excluding the following information.
• Deductions under section 35 are available for expenditure on scientific research or any payment to research institutes, universities, or IITs.
• Deduction or benefit under section 35CCC for any agricultural extension work or skill development project under section 35CCD.
• If such depreciation or loss occurs in connection with the aforementioned deductions, any loss carried forward by the combined company or damages by the combined company is allowed.
• f companies elect an alternative tax under section 115BAA, they should avoid paying any penalties for the losses described above.
• Domestic entities must elect a tax option under section 115BAA on or before the deadline for filing IT returns, generally on September 30 of the relevant assessment year. Once a corporation recognizes a tax under this section,it cannot be altered or withdrawn later on.
• Both existing and new companies are entitled to tax elections under section 115BAA.

Benefits of Section 115BAA:

• The main benefit of section 115 BAA is to provide tax breaks for domestic companies, resulting in significant tax savings. Previously taxed at 30%, domestic corporations can now opt for a lower tax rate of 22% under section 115 BAA. These reductions are intended to encourage investment and encourage growth in domestic companies, thus stimulating economic growth.
• However, it is important to recognize that companies that opt ​​for tax credits under section 115 BAA will lose their eligibility for certain tax credits and exemptions. These include deductions under section 10AA (Special Economic Areas), 32(1)(iia) (New Depreciation), 32AD (Investment in New Plant and Machinery), 33AB (Current Development Account); , 33ABA (Area of ​​Savings), and 35 under (1)(ii)/2. (iia)/(iii)/(iiia)/(iv)/(iva) (specific costs of scientific research). Companies should therefore carefully evaluate the benefits of lower tax rates against income losses and exemptions before opting for section 115 BAA.

Conclusion:

Section 115BAA of the Income Tax Act, 1961 entitles domestic corporations to avail of 22% tax reduction if certain deductions and exemptions are waived. The provision is intended to promote investment and foster growth in domestic companies and consequently stimulate economic growth. However, companies should assess the consequences of deductions and exemptions before electing to adopt Section 115BAA.