Section 115BA , 115BAA , 115BAB of Income Tax Act 1961

Domestic companies have to pay tax at a specified rate on profit earned in the previous year.

Generally the tax rate applicable on domestic companies is 30%. It is 25% if turnover or gross receipt of the domestic company does not exceed rupees 400 crores in the previous year.

In addition to above tax rate there are three other sections i.e. Section 115ba, 115baa, 115bab of Income Tax Act 1961.

Domestic companies have the option to choose to pay tax in any of these sections, means if the domestic company opts to pay tax in either of the section 115ba, 115baa, 115bab then company need not to pay general tax rate i.e. 30% / 25% as the case may be.

Domestic companies can pay tax in either of Section 115ba, 115baa, 115bab only on fulfillment of certain conditions and once a company opts to pay tax in these sections then it has to follow the same in the subsequent years. It cannot be subsequently withdrawn.

Let’s understand what conditions are required to be fulfilling in Section 115ba, 115baa, 115bab of Income Tax Act 1961.

What is Section 115ba of Income Tax Act 1961?

Applicable Tax Rate under section 115ba is 25%.

This section is applicable from A.Y 2017-18. In this section, on fulfillment of the certain condition the tax rate will reduce to 25%.

Conditions to be fulfilled under section 115ba:

Companies should be newly set up domestic companies engaged in manufacturing / production of any article and include research or distribution of such articles.

Company must be set up and registered on or after 1st March 2016.

Following deduction not to be allowed while calculating Total Income under section 115ba:

Section 10AA: Deduction from special economic zones unit.
Section 32AD: Investment allowance towards new plant & machinery made in notified backward areas (Andhra Pradesh, Bihar, Telangana and West Bengal)
Section 33AB: Deduction for Tea, coffee and rubber manufacturing.
Section 33ABA: Deposits made by companies engaged in production or extraction of petroleum and natural gas in India towards the site restoration fund.
Deduction under section 32AC, 35(1) (ii) / (iia) / (iii) / 35(2AA) / (2AB), 35AC.
Section 35AD: Capital expenditure by any specified business.
Section 35CCC: Expenditure on an agriculture extension project.
Section 35CCD: Expenditure on skill development project.
Deduction under section 80H to 80TT (except 80JJAA)
Additional depreciation under section 32.
No set off and carried forward losses attributed to any of the deductions mentioned above from earlier years.

Surcharge applicable is 7% if total income exceeds rupees 1 crore and 12% if it exceeds rupees 10 crores.

Cess is 4%.

MAT (Minimum alternate tax) is applicable @15%.

Also Read: Section 194N: (TDS on Cash Withdrawal)

What is section 115baa of Income Tax Act 1961?

Applicable Tax Rate under section 115baa is 22%.

This section is applicable from A.Y 2020-21. In this section, on fulfillment of the certain condition the tax rate will reduce to 22%.

Conditions to be fulfilled under section 115baa:

This section is for all domestic companies i.e. any company can choose to opt this section.

Following deduction not to be allowed while calculating Total Income under section 115baa:

Section 10AA: Deduction from special economic zones unit.
Section 32AD: Investment allowance towards new plant & machinery made in notified backward areas (Andhra Pradesh, Bihar, Telangana and West Bengal)
Section 33AB: Deduction for Tea, coffee and rubber manufacturing.
Section 33ABA: Deposits made by companies engaged in production or extraction of petroleum and natural gas in India towards the site restoration fund.
Section 35AD: Capital expenditure by any specified business.
Section 35CCC: Expenditure on an agriculture extension project.
Section 35CCD: Expenditure on skill development project.
Additional depreciation under section 32.
Deduction under section 35.
Deduction under section 80IA, 80IAB, 80IAC, 80IB and so on (except 80JJAA).
No set off and carried forward losses attributed to any of the deductions mentioned above from earlier years.

Surcharge applicable is 10%.

Cess is 4%.

MAT (Minimum alternate tax) is not applicable.

Also Read: Section 194M: TDS on Payment to Contractors and Professionals

What is section 115bab of Income Tax Act 1961?

Applicable Tax Rate under section 115bab is 15%.

This section is applicable from A.Y 2020-21. In this section, on fulfillment of the certain condition the tax rate will reduce to 15%.

Conditions to be fulfilled under section 115bab:

The Company should be set up as a domestic company engaged in manufacturing / production of any article and include research or distribution of such article.

Company must be set up & registered on or after 1st Oct 2019 and must commence manufacturing on or before 31st March 2024.

That company must not be formed by splitting up and reconstruction of a business already in existence except in case of a business re-established under section 33B.

That company must not use any previously used plant or machinery and building which was previously used for a hotel or convention centre.

Old plants & machinery used outside India can be used. The value of old plant & machinery do not exceed 20% of the total value of plant and machinery used by the company.

Following deduction not to be allowed while calculating Total Income under section 115bab:

Section 10AA: Deduction from special economic zones unit.
Section 32AD: Investment allowance towards new plant & machinery made in notified backward areas (Andhra Pradesh, Bihar, Telangana and West Bengal)
Section 33AB: Deduction for Tea, coffee and rubber manufacturing.
Section 33ABA: Deposits made by companies engaged in production or extraction of petroleum and natural gas in India towards the site restoration fund.
Section 35AD: Capital expenditure by any specified business.
Section 35CCC: Expenditure on an agriculture extension project.
Section 35CCD: Expenditure on skill development project.
Additional depreciation under section 32.
Deduction under section 35.
Deduction under section 80IA, 80IAB, 80IAC, 80IB and so on (except 80JJAA).
No set off and carried forward losses attributed to any of the deductions mentioned above from earlier years.

Surcharge applicable is 10%.

Cess is 4%.

MAT (Minimum alternate tax) is not applicable.

Common points for all three sections

If you choose any of these sections 115ba, 115baa, 115bab of Income Tax Act 1961 then you have to follow the subsequent year also.
For opting these sections there is no restriction of turnover.

Conclusion

For Domestic companies the option is provided under section 115ba, 115baa, 115bab of Income Tax Act 1961 for lower the tax rates. But to opt for a lower tax rate certain conditions need to be fulfilled as discussed above. Once you opt, you have to follow it.

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Section 115BA , 115BAA , 115BAB of Income Tax Act 1961