Monday, July 13, 2020

Lower Tax Rate for New Manufacturing Company - Section 115BAB

A manufacturing domestic company can claim the benefit of section 115BAB from FY 2019-20 (AY 2020-21), which offers the option of a lower corporate tax rate of 15%

Effective Rate of Tax: 15% + 10% Surcharge + 4% Cess = 15*1.1*1.04 = 17.16%

Eligibility Criteria

a) Registration Date: The company has been registered on or after 01-Oct-2019 and has commenced manufacturing on or before 31-Mar-2023.

b) New Business: Not formed by the splitting up and reconstruction of a business already in existence except in case of a business re-established under section 33B.

c) New Plant & Machinery: Does not use any plant or machinery previously used for any purpose. However, the company can use plant and machinery used outside India and used in India for the first time. Also, the company can use old plant and machinery, the value of which does not exceed 20% of the total value of the plant and machinery used by the company.

d) Building: Does not use a building previously used as a hotel or a convention centre.

e) Manufacturing Business: The company should be engaged in the business of manufacture or production of any article or thing, and research in relation to such article or thing.

f) Exclusions from Manufacturing: Business of manufacture or production of any article or thing does not include development of computer software in any form or in any media, mining, conversion of marble blocks or similar items into slabs, bottling of gas into cylinder, printing of books or production of cinematograph film, and any other business as may be notified by the Central Government in this behalf.

No Additional Depreciation: Additional Depreciation [Sec 32(1)(iia)] would not be allowable if a company chooses for the lower tax rate. Further, they shall not be allowed to claim set-off of any brought forward depreciation (due to additional depreciation) for the assessment year in which the option has been exercised and future assessment years.

No MAT Applicability: Such companies will not be required to pay minimum alternate tax (MAT) under section 115JB. Further, such companies will not be able to claim MAT credits for taxes paid under MAT during this period.

Other Exemptions/Deductions Not Allowed: The total income of such company shall be computed without exemption/incentives provided in the following sections:

- Scientific Research expense related deduction [Sec 35]
- Deduction especially available for units established in SEZ [Sec 10AA]
- Deduction for the Capital Expenditure incurred by any Specified Business [Sec 35AD]
- Deduction for expenditure incurred on an Agriculture Extension Project or on Skill Development Project [Sec 35CCC or 35CCD]
- Deduction for tea, coffee and rubber manufacturing companies [Sec 33AB]
- Deduction towards deposits made towards site restoration fund by companies engaged in extraction or production of petroleum or natural gas or both in India [Sec 33ABA]
- Investment Allowance towards new plant and machinery made in notified backward areas in the states of Andhra Pradesh, Bihar, Telangana, and West Bengal [Sec 32AD]
- Deduction under chapter VI-A in respect to certain incomes, which are allowed under section 80IA, 80IAB, 80IAC, 80IB and so on, except deduction under section 80JJAA
- Set-off of any loss carried forward from earlier years, if such losses were incurred in respect of the aforementioned deductions

Opt-in Due Date: Such companies will have to exercise this option to be taxed under the section 115BAB on or before the due date of filing income tax returns i.e usually 30th September of the assessment year, which would be the extended due date for AY 2020-21 due to the Corona-virus pandemic. Once the company opts for such rate in a particular financial year, it cannot be withdrawn subsequently.

Form 10-ID:  The companies that are filing tax u/s 115BAB of the Income Tax Act are eligible to file Form 10-ID for adopting the new corporate tax rate.

The Form requires submission of information such as name, PAN, registered address, date of incorporation, nature of business, and date of commencement of manufacturing activity. A declaration is also given stating that the option once exercised shall not be withdrawn. The form is submitted using a digital signature or EVC validation.

Companies willing to adopt the new tax rates must file the forms with accurate information electronically before the due date for filing the ITR arrives (i.e. 30 September 2020 or extended date for the year).