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 It cannot be subsequently withdrawn.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 respective
sections.
Section 115ba of Income Tax Act 1961 (Tax Rate 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%.
Following are the
conditions to be fulfilled:
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:
- 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 115baa of Income Tax Act 1961 (Tax Rate 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%.
Following are the
conditions to be fulfilled:
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:
- 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
Section 115bab of Income Tax Act 1961 (Tax Rate 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%.
Following are the
conditions to be fulfilled:
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 2023.
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:
- 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.
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.
Topics you may be interested:
- IncomeTax Slab FY. 2019-2020 (AY. 2020-2021)
- New Income Tax Slab FY 2020-21 for Individuals, Senior Citizens
- Section80CCD Deduction and Eligibility | NPS | APY | in India
- Deduction under Section 80G and 80GGA of Income Tax Act
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