Can an existing company claim or opt for tax rate 115BAB if not opted in first year’s income tax return
Section 115BAB was introduced from AY 2020-21 for companies engaged in manufacturing of goods. Name of the section is: Tax on income of new manufacturing domestic companies.
Earlier also similar section was introduced for domestic manufacturing company under the section 115BA of the Act.
Section 115BAB starts as under:
Notwithstanding anything contained in this Act but subject to the provisions of this Chapter, other than those mentioned under section 115BA and section 115BAA, the income-tax payable in respect of the total income of a person, being a domestic company, for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2020, shall, at the option of such person, be computed at the rate of fifteen per cent,
Further, if the income earned by the company is not incidental to manufacturing or not related to manufacturing then such income shall be taxed at the rate of 22% unless there is a specific rate specified for it under the Income tax act.
Few important points in relation to Section 115BAB is as under:
Following are the deduction which will not be available if a person opts for this scheme: –
1. Section 10AA:- Related to SEZ (special economic zone) this deduction will be available to industry which is established between 1.4.2006 to 31.3.2021.
2. Section 32AD:- As per this section investment by business of generation, transmission or distribution in backward areas in certain states like Andhra Pradesh, Bihar, Telangana, west Bengal between 1.4.2015 to 31.3.20.
3. Section 33AB(1):- This deduction is available to a company who engage in business of growing and manufacturing tea or coffee or rubber in India.
4. Section 35CCD:- Where a company incurs any expenditure (not being expenditure in the nature of cost of any land or building) on any skill development project.
5. Section 32(1)(iia):- As per income tax act assesse who claim 115BAB cannot claim additional depreciation. However, normal depreciation on assets can be claimed.
6. Section 35CCC:- Where an assessee incurs any expenditure on agricultural extension project.
7. Section 35(1)(ii), 35(1) (iia), 35(1)(iii), 35(2AA) and 35(2AB):- Expenditure on Scientific research is not allowed except section 35(1)(iv) (i.e. Capital expenditure on scientific research will be allowed)
8. Section 35AD:- Deduction in respect of expenditure on specified business.
9. Deductions under Chapter VI-A:- For example deductions u/s 80G, 80GGB shall not be available except deductions u/s 80JJAA and 80M.
Following deduction will be available:-
1. Section 80JJA:- If industry hire additional employee then assesse can claim deduction equal to 30% of additional employee cost provided that 44AB apply on assesse and this exemption would be allowed for three assessment year including the assessment in which such assessment is provided.
Additional Employee mean: –
a) if there is increase in no. of employee
b) Emoluments(salary) are not more than 25000 per month & paid by ECS/Account payee cheque
c) Should not government employee.
d) Employee should participate in recognised provident fund.
e) Employee should have employed for minimum 240
2. Section 80M:- Where the gross total income of a domestic company in any previous year includes any income by way of dividends from any other domestic company or a foreign company or a business trust then deduction will be allowed to industry equal to amount of dividend receive.
An important thing to consider under section 115BAB is in relation to sub section 7 which is as under:
(7) Nothing contained in this section shall apply unless the option is exercised by the person in the prescribed manner on or before the due date specified under sub-section (1) of section 139 for furnishing the first of the returns of income for any previous year relevant to the assessment year commencing on or after 1st day of April, 2020 and such option once exercised shall apply to subsequent assessment years:
Provided that once the option has been exercised for any previous year, it cannot be subsequently withdrawn for the same or any other previous year.
Hence, an important thing to note here is that a person can claim benefit of this section only when it has opted for this section while filing it’s first return of income after AY 2020-21.
Thus, if you have started a company after October 2019 but started manufacturing after the first year of company incorporation as you must be figuring out how to start such manufacturing then in that case you cannot opt for 115BAB later on.
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