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Tax Analyst, Vapi (2026)

17/08/2021

***ALL ABOUT SECTION 115BAA OF INCOME TAX ACT, 1961***

Section 115BAA was introduced by the Government of India through the Taxation (Amendment) Ordinance 2019 on the 20th of September 2019 with the objective of proffering reduced rates of taxes to domestic companies.

The provisions of Section 115BAA, its applicability and manner of applying, the prerequisites for availing the reduced rate of tax and its implications on facets such as Minimum Alternate Tax provisions, taxability of Capital Gains, set off of brought forward losses, depreciation, etc. have been discussed below.

1. What is the option provided under Section 115BAA?
Briefly put, Section 115BAA provides an option to all domestic companies to pay tax at an effective rate of 25.17% (22% Basic Tax plus 10% Surcharge and 4% cess) subject to satisfaction of certain conditions.

2. Who shall exercise the option?
The option of reduced rate of tax shall be exercised only by a Domestic Company that satisfies certain conditions (mentioned in Point 5 below). Hence, Individuals, LLPs, Partnership Firms, AOP, BOI, Foreign Companies and Societies are not eligible to avail this option.

3. When shall the option be exercised?
This option can be exercised with effect from Assessment Year 2020-21 i.e., in Previous Year 2019-20 or in any subsequent assessment year thereafter. Being an optional scheme, the decision of exercising the option is the prerogative of the assessee company.

In the absence of a strict timeline to exercise the option, the company is at the liberty to determine the assessment year in which it wishes to opt for the reduced rate of tax. However, upon exercising the option in a particular assessment year, it cannot be subsequently withdrawn and shall be continually applied in subsequent assessment years.

Further, if in any previous year the assessee company fails to satisfy any of the conditions (mentioned in Point 5 below)– the scheme under 115BAA would become invalid for the assessment year pertaining to that financial year as well as subsequent assessment years i.e., the assessee company will not be eligible to exercise this option in future.

4. What is the process for exercising the option?
Eligible companies that wish to exercise the option shall do so in the manner prescribed in Rule 21AE of the Income Tax Rules, 1962. As per Rule 21AE, the option u/s. 115BAA shall be exercised by electronically furnishing details in Form No. 10-IC to the principal officer, either under digital signature or electronic verification code.
Form 10-IC shall be furnished on or before the due date of furnishing return of income provided u/s. 139(1) of the Income Tax Act, 1962 (i.e., 30th November in case of domestic companies attracting Transfer Pricing provisions and 31st October in case of other domestic companies).

5. What are the conditions to be satisfied for exercising the option?
Section 115BAA provides that where a company wishes to avail the benefit of reduced rate of tax, the following set of deductions shall not be allowed to be reduced from its total income for the purposes of calculating tax at such reduced rates.

1. Section – 10AA - Special provisions in respect of newly established Units in Special Economic Zones

2. Section – 32(1)(iia) - Additional Depreciation
(it is pertinent to note that this restriction is only on additional depreciation and regular depreciation is permitted to be reduced from the total income of the assessee.

3. Section 32AD - Investment Linked Deduction

4. Section – 33AB - Tea development account, coffee development account and rubber development account

5. Section – 33ABA - Site Restoration Fund

6. Section 35 - Expenditure on Scientific Research

7. Section 35 AD - Deduction in respect of expenditure on specified business

8. Section – 35CCC - Expenditure on agricultural extension project

9. Section – 35CCD - Expenditure on skill development project

10. Chapter VI A - No deductions under Chapter VI A can be made while computing the total income for the purpose of Section 115BAA, subject to the following exceptions:

a. Section – 80JJAA: Deduction in respect of employment of new employees. While all other deductions like 80C, 80G, etc cannot be availed while computing total income for the purpose of section 115BAA, there is no such restriction on section 80JJAA deduction.
b. Section 80LA: Persons having eligible unit in the International Financial Services Centre referred to in section 80LA(1A) shall be allowed to claim deduction u/s. 80LA while computing total income for the purpose of section 115BAA.
c. Section 80M: Deductions in respect of inter-corporate dividends. Inserted vide Finance Bill, 2020, this deduction can be availed w.e.f. AY 2021-2022 while computing total income for the purpose of section 115BAA.

6. Can the brought forward losses and unabsorbed depreciation from previous assessment years be adjusted while computing total income for the purpose of Section 115BAA?

Brought forward losses and depreciation from the previous years shall be set off against the income on the condition that they must not be attributable to the deductions mentioned in point 5 above. To sum up, brought forward losses, additional depreciation or unabsorbed depreciation pertaining to or attributable to any of the deductions mentioned in Point 5 above shall not be eligible to be set off against the total income for the purpose of Section 115BAA.
In such cases it is advisable that the companies should avail the benefit of section 115BAA only after utilising the brought forward loss on account of deductions and additional depreciation mentioned in Point 5 above.

Further, if a company has unabsorbed depreciation as on 31.03.2020 and if it opts into 115BAA, then the WDV of the block as on 01.04.2019 can be adjusted to this extent in the manner as may be prescribed.

7. What is the applicability of MAT Provisions in cases where option u/s. 115BAA is exercised and the position of unutilised MAT Credit?

MAT provisions shall not be applicable and consequently no MAT Credit shall be utilised in case Section 115BAA is opted.

As per Section 115JB(5A)(ii), the MAT provisions under Section 115JB shall not be applicable to the company that has exercised the option referred to under section 115BAA or section 115BAB.
It has been further clarified in Circular No. 29/2019 dated 2nd October 2019 that since section 115JB relating to MAT are not applicable, MAT credit shall not be available to the assessee consequent to exercising this option.

In such cases it is advisable that the companies avail the benefit of section 115BAA only after utilising the MAT credit against the regular tax payable if any.

8. Will Section 115BAA impact Capital Gain tax?

Even if an assessee company opts to exercise the option u/s. 115BAA, there will be no impact on the rates of tax of LTCG and STCG and the brought forward losses under the head capital gains. Section 115BAA does not supersede the other specific sections of Chapter XII (exceptions being Section 115BA and Section 115BAB). Hence, the incomes of specific nature covered under Chapter XII would be subject to tax at rates mentioned in those sections, i.e., STCG (Section 111A) at 15%, LTCG (Section 112) at 10% or 20%, Section 112A at 10%, dividend from foreign companies (Section 115BBDA) at 15%, etc. Further, surcharge rates would also be levied accordingly.

This is solely for educational purpose.

16/08/2021

***Admissibility of ITC on SOLAR PLANT***
KLF Nirmal Industries Private Limited (GST AAR Tamilnadu)

The issue as regards admissibility of input tax credit as inputs/capital goods or input services of the items used in Design, Engineering, Supply, Ex*****on (EPC) of Grid Solar Power Plant was considered recently before the Tamil Nadu Authority for Advance Ruling in case of M/s KLF Nirmal Industries Private Limited. Let’s we discuss the gist of ruling is as under :

The applicant company has their plant for extracting edible oils and has been installed solar panels at the top of the roof of the factory building and oil tanks. Electricity generated from the solar plant has been fully consumed to produce taxable goods. There is no third-party sale and the units generated by the solar plant are consumed for operating the edible oil extraction plant.

It is also submitted that the system installed does not envisage any surplus electricity and therefore no arrangement is required to be made with TNEB for any surplus.

The applicant has referred to the provisions of Section 17 of the CGST Act 2017. They have submitted that the primary conditions provided in section 16 of the CGST/TNGST Act have been complied with. The solar equipments purchased qualify as plant and machinery’ as they are equipment apparatus and machinery used by the taxable person for its business of supplying taxable goods. The applicant is in possession of invoices and the input tax credit sought to be availed are available in the GST site. Hence the inputs, input services and capital goods for use of er****on, commissioning and installation of solar power plant are permissible input tax credit under section 17 of the CGST/TNGST Act.

The applicant has relied upon the decision of Supreme Court in CCE VS SOLARIA CHEMTECH (2007) 214 EW 481 wherein the apex court held that fuel either utilized directly or for generating electricity as an intermediary product is integrally connected with several operations which results in the emergence of final product namely cement/caustic soda. Hence, MODVAT credit on LSHS used in production of electricity cannot be denied.

The applicant submitted that the production of electricity in the solar plant is an intermediate process in the extraction of edible oil. The entire electricity generated is consumed captively and no part of the energy produced is sold or discharged into the grid. Hence, the applicant is of the view that they are entitled to claim input credit.

In the instant case, though electric energy is fully exempted under GST, the same were fully captively consumed by the applicant for manufacture and supply of taxable goods viz Edible oils.

Hence, it s opined by AAR that the applicant may be entitled for availment of eligible input credits after taking into account that the entire production of electric energy is captively consumed within their factory and no wheeling and banking agreement were made with TANGEDCO for surplus/unused electric energy. It was held that there is no embargo in availing ITC as the said solar plant has been capitalized in their books of accounts excluding the depreciation element. However, the AAR refrained from commenting on admissibility of inputs/input service for running the plant in absence of proper evidences and substantiation from the applicant.

It is pertinent to note here that the above decision holding that applicant is eligible for entire input tax credit is applicable only where solar power plant has been installed for captive consumption in production of final products which are taxable under GST and no electricity is sold to third party as electricity is exempted under GST.

However, there are situations wherein there is arrangement of the power generator with the Electricity Department regarding supply of electricity which is exempted. In such case, the applicant is engaged in supply of taxable and exempt supply and so is eligible for availing proportionate input tax credit. This issue was considered by AAR Tamil Nadu in the case of KUMARAN OIL MILL [ Order No. 33/AAR/2020 dated on 28.09.2020]. Therefore, the extent of admissibility of ITC on solar plants used in generation of ITC on solar plant used in generation of electricity is dependent on the type of arrangement made with electricity department.

This is solely for educational purpose.

14/08/2021

Brief Notes on 115 BAC

The Budget 2020 introduces a new tax regim under section 115BAC giving an option to Individual and HUF taxpayer to pay income tax at lower rates.
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