Section 115BAA and 115BAB to provide corporate tax rate relief to new manufacturing companies and existing companies. At the time of introduction of the above provision it was mentioned that the companies opting for such scheme won’t get the benefit of deduction under Heading ‘C’ of Chapter VI-A i.e. 80-IA to 80RRB except 80JJAA.
Now, amid corona virus pandemic people are donating more and more funds to PM cares fund and government is also encouraging people to donate more and therefore has extended the deadline to 30.06.2020 and hence any donation made to such fund till 30.06.2020 shall be eligible for deduction from income for F.Y. 2019-20. Therefore, all the huge donation by TATA group or Reliance would be tax deductible and would also fulfill their CSR requirements.
However there is an amendment in section 115BAA and 115BAB by Finance Bill, 2020 which most of us didn’t see which was:
“for the words, figures and letters ‘Chapter VI-A under the heading “C.—Deductions in respect of certain incomes” other than the provisions of section 80JJAA’, the words, figures and letters “Chapter VI-A other than the provisions of section 80JJAA or section 80M” shall be substituted with effect from the 1st day of April, 2021.”
meaning thereby that now the restriction has been extended to entire Chapter VI-A deduction and not restricted to Heading ‘C’ of Chapter VI-A and hence news and articles are being circulated that company making a donation to PM cares fund won’t be able to take benefit of lower tax rate u/s 115BAA and 115BAB because of the first proviso of section 115BAA which states that:
“where the person fails to satisfy the conditions contained in sub-section (2) in any previous year, the option shall become invalid in respect of the assessment year relevant to that previous year and subsequent assessment years and other provisions of the Act shall apply, as if the option had not been exercised for the assessment year relevant to that previous year and subsequent assessment years.”.
However that’s not true because the amendment would be made applicable from 01.04.2021 which means that this amendment shall apply for FY 2020-21 and won’t have any impact on donation made till 30.06.2020 as same would fall against income of FY 2019-20 where deduction of 80G is available to lower tax rate companies.
Therefore now the companies making donation with regard to FY 2020-21 needs to be skeptical and decide before making donation because if they want to take benefit of such deduction they will have to let go benefit of lower tax rate and if they had adopted such scheme in FY 2019-20 and can’t fulfill the condition in FY 2020-21 they won’t be able to take the benefit of lower tax rate in future years because of above proviso.
Hence, from FY 2020-21 company needs to make decision whether it wants to take benefit of lower tax rate and let go deduction of donation made or take benefit of donation made and let go lower tax rate.
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