Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Tax on Total Income of a Company

Tax on Total Income of a Company
Tax on Total Income of a Company

Table of Contents

1.   Rates of Income Tax of a Company other than covered U/s 115BA

A company is assessed like any other assessee. however, its liability differs in two respects:

1.   No exemption limit: A company does not enjoy any exemption limit.

2.  Flat Rate of Tax: A company pays income-tax at a flat rate instead of slab rate.

Rates of Income-Tax for the Assessment years 2019-20 and 2020-21 are as under:

1. Short-term capital gain on equity shares in a company or units of an equity oriented fund where the transaction is chargeable to securities transaction tax 15%
2. Tax on Long-Term Capital Gains

 

(where the long-term capital gain is covered by section 115AB, 115AC or 115AD or there is a long-term capital gain to non-resident from unlisted securities subject to certain conditions, it is taxable at 10%)

20%
3. Tax on Long-Term Capital Gains arising from transfer of Long Term Capital Assets,
being equity shares of a company or an unit of equity oriented fund or an unit of
business trusts (Applicable w.e.f. A.Y. 2019-20)
10%
4. Tax on Winnings from Lotteries, Cross Word Puzzles, Races including Horse Races. etc. 30%
5. Tax on income by way of Dividends Declared, Distributed or paid by a Specified
Foreign Company [Section 115BBD]
15%
6. Tax on income from transfer of Carbon Credits 10%
7. Tax on any other income

(a)    Domestic company

(i)                  Where the total turnover or gross receipts in the previous year does not exceed Rs. 400 Crore – Tax Rate @ 25%

(ii)                In all other Cases – Tax Rate @ 30%

(b)    Certain Domestic Companies referred to in Section 115BA – Tax Rate @ 25% .

(c)     Foreign Company

(i)                  For all income other than given under (ii) below – Tax Rate @ 40%

(ii)                Royalty received from Government or an Indian concern in pursuance of an agreement made by it with the Indian concern after March 31, 1961 but  before April 1, 1976 or fees for rendering technical services in pursuance of an agreement made by it after February 29, 1964 but before 1st April, 1976  and where such agreement has in either case been approved by the Central Government – Tax Rate @ 50%

2.   [Section 115BA]- Tax on Income of certain Manufacturing Domestic Companies

(1)   [Section 115BA (1)]- Certain Domestic Companies given option to be Taxed at the Special Rate of 25%:

Notwithstanding anything contained in this Act but subject to the other provisions of this Chapter (i.e. Chapter XII relating to determination of tax in certain special cases), other than those mentioned under section 115BAA and section 115BAB 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 1.4.2017, shall, at the option of such person, be computed @ 25%, if the conditions specified in Section 115BA(2) are satisfied.

(2)   [Section 115BA (2)]- Specified Conditions for opting Provisions of Section 115BA (1)

(a)           The company has been set-up and registered on or after 1.3.2016;

(b)          The company is not engaged in any business other than the business of manufacture or production of any article or thing and research in relation to, or distribution of, such article or thing manufactured or produced by it; and

(c)           The total income of the company has been computed.—

(i)            Without any Deduction under the Provisions of—

—           section 10AA (relating to special economic zone), or

—           benefit of accelerated depreciation/additional depreciation under section 32(1) (iia), or

—           benefit of investment allowance under section 32AC or under section 32AD, or

—           deduction under section 33AB (tea/coffee/rubber development account), or

—           section 33ABA (site restoration fund), or

—           section 35(1)(ii), (iia), (iii), Section 35(2AA), Section 35(2AB) (relating to scientific research/social research), or

—           Section 35AC (expenditure on eligible projects and scheme), or

—           section 35AD (deduction on account of capital expenditure on specified business), or

—           section 35CCC (agricultural extension project), or

—           section 35CCD (skill development project), or

—           any provisions of Chapter VI-A under the heading “C.—Deductions in respect of certain incomes” other than the provisions of section 80JJAA;

(ii)           Without set off of any loss carried forward from any earlier assessment year if such loss is attributable to any of the deductions referred to in sub-clause (1) of clause (c); and

(ill)          Depreciation under section 32, other than additional depreciation under section 32(1)(iia), is determined in the manner as may be prescribed.

(3)   [Section 115BA(4)]- Section not to apply unless the option is exercised in the prescribed manner on or before Due Date Specified U/s 139(1):

Nothing contained in this section shall apply unless the option is exercised by the person in the prescribed manner (See rule 21AD and Form No. 10-IB) on or before the due date specified U/s 139(1) for furnishing the first of the returns of income which the person is required to furnish under the provisions of this Act:
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.

Provided further where the person exercises option U/s 115BAA, the option under this section may be withdrawn (Second proviso inserted by The Taxation Law (Amendment) Act, 2019, w.e.f. A.Y. 2020-21).

3.   Special Provisions of Tax on Income of Certain Domestic Companies referred to in Section 115BAA

(1)   [Section 115BAA (1)]- Rate of Income Tax in case the Domestic Company opts for Section 115BAA

Notwithstanding anything contained in this Act but subject to the provisions of this Chapter (i.e. Chapter XII, other than those mentioned under section 115BA and section 115BAB), 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 1.4.2020, shall, at the option of such person, be computed at the rate of 22%, if the conditions contained in section 115BAA(2) are satisfied as stated below.

Where the person fails to satisfy the conditions contained in section 115BAA(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.

(2)   [Section 115BAA(2)]- Conditions to be Satisfied for Paying Tax U/s 115BAA(1)

The total income of the company will be computed.—

(i)            Without any Deduction under the Provisions of—

—           Section 10AA (relating to special economic zone), or

—           Benefit of accelerated depreciation/additional depreciation under section 32(1)( iia), or

—           Benefit of investment allowance under section 32AD. or

—           Deduction under section 33AB (relating to tea/coffee/robber development account), or

—           Section 33ABA (relating to site restoration fund), or

—           Section 35(1)(ii) (relating to any sum paid to certain research associations or to a university, college or other institution to be used for scientific research),

—           Section 35(1)(iia) (relating to any sum paid to a company to be used by it for scientific research),

—           Section 35(1)(iii) (relating to any sum paid to certain research associations or to a university, college or other institution to be used for research in social science or statistical research),

—           Section 35(2AA) (relating to any sum paid to a National Laboratory or a University or an Indian Institute of Technology or a specified person to be used for scientific research undertaken under an approved programme .

—           Section 35(2AB) (relating to any expenditure incurred on in-house scientific research and development facility (not being expenditure in the nature of cost of any land or building) by a company engaged in the business of bio-technology or in any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule

—           Section 35AD (relating to deduction on account of capital expenditure on specified business), or

—           Section 35CCC (relating to agricultural extension project), or

—           Section 35CCD (relating to skill development project), or

—           W.e.f. 1.4.2021 deduction under any provisions of Chapter VI-A under the heading “C—Deductions in respect of certain incomes” (i.e. 80-IA to 80Q whichever is applicable to a company other than the provisions of section 80JJAA or section 80M).

In other words for previous year 2019-20 i.e. A.Y. 2020-21 deduction u/s 80G and 80GGB will also be available. However, w.e.f. A.Y. 2021-22 no other deduction except deduction U/s 80JJAA and 80M will be allowed.

(ii)           Without set off of any loss carried forward or depreciation from any earlier assessment year if such loss or depreciation is attributable to any of the deductions referred to in sub-clause (i) above .

(iii)          Without set off of any loss or allowance for unabsorbed depreciation deemed so under Section 72A. if such loss or depreciation is attributable to any of the deductions referred to in clause (i) above; and

(iv)          By claiming the depreciation, if any, under any provisions of section 32, (other than additional depreciation under section 32(1) (iia)), determined in such manner as may be prescribed.

(3)   [Section 115BAA(3)]- Loss and Depreciation shall be deemed to have been already given full effect to

The loss and depreciation referred to clause (ii) and clause (iii) above shall be deemed to have been already given full effect to and no further deduction for such loss or depreciation shall be allowed for any subsequent year.

Where there is a depreciation allowance in respect of a block of asset which has not been given full effect to prior to the assessment year 2020-21, corresponding adjustment shall be made to the written down value of such block of assets as on 1.4.2019 in the prescribed manner, if the option under section 115BAA(5) is exercised for a previous year relevant to the assessment year beginning on 1.4.2020.

(4)   [Section 115BAA (4)]- Conditions contained in section 115BAA (2) above to be modified to the extent the deduction under section 80LA is available to such Unit

In case of a person, having a Unit in the International Financial Services Centre, as referred to in of section 80LA (1A), which has exercised option U/s 115BAA (5), the conditions contained in Section 115BAA (2) shall be modified to the extent that the deduction under section 80LA shall be available to such Unit subject to fulfilment of the conditions contained in the said section.

(5)   [Section 115BAA(4)]- Assessee to opt for section 115BAA in the prescribed manner before the specified date

Nothing contained in section 115BAA shall apply unless the option is exercised by the person in the prescribed manner on or before the due date specified under section 139(1) for furnishing the returns of income for any previous year relevant to the assessment year commencing on or after 1.4.2020 and such option once exercised shall apply to subsequent assessment years.

In case of a person, where the option exercised by it U/s 115BAB has been rendered invalid due to violation of conditions contained in

—           Sub-clause (ii) (relating to machinery or plant previously used for any purpose) or sub-clause (iii) (relating to building previously used as a hotel or convention centre) of clause (a) of section 1 I5BAB(2) or

—           Clause (b) (relating to company engaged in any business other than the business of manufacture of production, etc.) of section 1 15BAB(2),

such person may exercise option under this section (i.e. Section 115 BAA):

Manner of exercising the option under section 115BAA [Rule 21AE]

(1)          The option to be exercised in accordance with the provisions of section 115 BAA(5) by a person, being a domestic company, for any previous year relevant to the assessment year beginning on or after 1.4.2020, shall be in Form No. 10-IC.

(2)          The option in Form No. 10-IC shall be furnished electronically either under digital signature or electronic verification code.

(3)          The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be, shall—

(i)            Specify the procedure for filing of Form No. 10-IC ;

(ii)           Specify the data structure, standards and manner of generation of electronic verification code, referred to in sub-rule (2), for verification of the person furnishing the said Form; and

(iii)          Be responsible for formulating and implementing appropriate security, archival and retrieval policies in relation to the Form so furnished.

Once the option has been exercised for any previous year, it cannot be subsequently withdrawn for the same or any other previous year.

(6)   Surcharge on Income Tax on Total Income computed U/s 115BAA

Provided that in respect of any income chargeable to tax under section 115BAA of the Income-tax Act, the tax computed shall be increased by a surcharge calculated at the rate of 10%.

Health and Education Cess (H&EC):

Further H&EC @ 4% shall be levied on the total tax (including surcharge) payable by the assessee.

Hence, the Tax Payable by such company shall be 25.168% (i.e. 22% + 10% + 4%)

4.   Special Provisions relating to Tax on Income of Certain New Manufacturing Domestic Companies referred to in section 115BAB

(1)   [Section 115BAB(1)]- Income derived from Manufacturing or Production by a New Manufacturing Domestic Company to be Taxed @ 22%

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 1.4.2020, shall, at the option of such person, be computed at the rate of 15%, if the conditions contained in section 115BAB (2) are satisfied (see below) .

(1A) First Proviso to Section 115BAB(1) :

Where the total income of the person, includes any income,

—           which has neither been derived from nor is incidental to manufacturing or production of an article or thing, and

—           in respect of which no specific rate of tax has been provided separately under this Chapter (i.e. Chapter XII relating to determination of tax in certain special cases),

such income shall be taxed @ 22% and No Deduction or Allowance in respect of any expenditure or allowance shall be allowed in computing such income:

(1B) Second Proviso to Section 115BAB (1)

The income-tax payable in respect of the income of the person deemed so under second proviso to section 115BAB(6) (see below) shall be computed @ 30%.

(1C) Third Proviso to Section 115BAB (1)

The income-tax payable in respect of income being short term capital gains derived from transfer of a capital asset on which no depreciation is allowable under the Act shall be computed @ 22%.

(1D)  Fourth Proviso to Section 115BAB (1)

Where the person fails to satisfy the conditions contained in section 115BAB(2) (see below) 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 to the person as if the option had not been exercised for the assessment year relevant to that previous

year and subsequent assessment years.

(2)   [Section 115BAB(2)]- Conditions to be satisfied for paying Tax U/s 115BAB (1)

(a)           The company has been set-up and registered on or after 1.10.2019, and has commenced manufacturing or production of an article or thing on or before 31.3.2023 and—

(i)            The business is not formed by splitting up or the reconstruction, of a business already in existence:

Provided that this condition shall not apply in respect of a company, business of which is formed as a result of the re-establishment, reconstruction or revival by the person of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in the said section,

(ii)           Does not use any machinery or plant previously used for any purpose.

(iii)          Does not use any building previously used as a hotel or a convention centre, as the case may be, in respect of which deduction under section 80-ID has been claimed and allowed.

(b)          The company is not engaged in any business other than the business of manufacture or production of any article or thing and research in relation to, or distribution of, such article or thing manufactured or produced by it and

(c)           The total income of the company has been computed,—

(i)            Without any Deduction under the provisions of—

—           section 10AA (relating to special economic zone), or

—           benefit of accelerated depreciation/additional depreciation under section 32(1)(iia),
or

—           benefit of investment allowance under section 32AD, or

—           deduction under section 33AB (relating to tea/coffee/rubber development account),
or

—           section 33ABA (relating to site restoration find), or

—           section 35(1)(ii) (relating to any sum paid to certain research associations or to a university, college or other institution to be used for scientific research),

—           section 35(1)(iia) (relating to any sum paid to a company to be used by it for scientific research),

—           section 35(1)(iii) (relating to any sum paid to certain research associations or to a university, college or other institution to be used for research in social science or statistical research),

—           section 35(2AA) (relating to any sum paid to a National Laboratory or a University or an Indian Institute of Technology or a specified person to be used for scientific research undertaken under an approved programme

—           section 35(2AB) (relating to any expenditure incurred on in-house scientific research and development facility (not being expenditure in the nature of cost of any land or building) by a company engaged in the business of bio-technology or in any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule

—           section 35AD (relating to deduction on account of capital expenditure on specified business), or

—           section 35CCC (relating to agricultural extension project), or

—           section 35CCD (relating to skill development project), or

—           W.e.f. 1.4.2021 deduction under any provisions of Chapter VI-A under the heading “C.—Deductions in respect of certain incomes” (i.e. 80-IA to 80Q whichever is applicable to a company other than the provisions of section 80JJAA or section 80M).

In other words for previous year 2019-20 i.e. A.Y. 2020-21 deduction u/s
80G and 80GGB will also be available.

However, w.e.f. A.Y. 2021-22 no other deduction except deduction U/s 80JJAA and 80M will be allowed.

(ii)           Without set off of any loss or allowance for unabsorbed depreciation deemed so under section 72A where such loss or depreciation is attributable to any of the deductions referred to in sub-clause (i) above;

(iii)          By Claiming the depreciation under the provision of section 32, except clause (iia) of sub-section (1) of the said section, determined in such manner as may be prescribed.

(3)   [Section 115BAB(3)]- Loss referred to Clause (ii) of Section 115BAB(2)(c) above to be deemed to have been already given full effect to:

The loss referred to in clause (ii) of section 115BAB (2) above, shall be deemed to have been given full effect to and no further deduction for such loss shall be allowed for any subsequent year.

(4)   [Section 115BAB (4)]- Board with the Approval of Central Government empowered to issue guidelines for the purpose of any difficulty  :

If any difficulty arises regarding fulfilment of the conditions contained in sub-clause (ii) or sub-clause (iii) of clause (a) of section 115BAB (2) or clause (b) of said section, as the case may be, the Board may, with the approval of the Central Government, issue guidelines for the purpose of removing the difficulty and to promote manufacturing or production of article or thing using new plant and machinery.

(5)   [Section 115BAB (5)]- Guidelines issued by the Board under section 115BAB (4) to be laid before each house of Parliament and shall be binding on the person and department:

Every guideline issued by the Board under section 115BAB (4) shall be laid before each House of Parliament and shall be binding on the person, and the income-tax authorities subordinate to it.

(6) [Section 115BAB(6)]- How to Compute Profit where there is close connection between the company and any other person:

Where it appears to the Assessing Officer that, owing to the close connection between the person to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the person more than the ordinary profits which might be expected to arise in such business, the Assessing Officer shall, in computing the profits and gains of such business for the purposes of this section, take the amount of profits as may be reasonably deemed to have been derived therefrom:

Provided that in case the aforesaid arrangement involves a specified domestic transact ion referred to in section 92 BA, the amount of profits from such transaction shall be determined having regard to arm’s length price as defined in clause (ii) of section 92F:

Provided further that the amount, being profits in excess of the amount of the profits determined by the Assessing Officer, shall be deemed to be the income of the person.

(7)   [Section 115BAB (7)]- Assessee to opt for Section 115BAB in the prescribed manner and before the specified date  :

Nothing contained in section 1 1SBAB shall apply unless the option is exercised by the person in the prescribed manner on or before the due date specified under section 139(1) for furnishing the returns of income for any previous year relevant to the assessment year commencing on or after 1.4.2020 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.

Manner of exercising the option under section 115BAB [Rule 21AF]

(1)          The option to be exercised in accordance with the provisions of section 115BAB (7) by a person, being a domestic company, for any previous year relevant to the assessment year beginning on or after 1.4.2020 shall be in Form No. 10-ID.

(2)          The option in Form No. 10-ID shall be furnished electronically either under digital signature or electronic verification code.

(3)          The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be, shall—

(i)            specify the procedure for filing of Form No. 10-ID;

(ii)           specify the data structure, standards and manner of generation of electronic verification code, referred to in sub-rule (2), for verification of the person furnishing the said Form; and

(iii)          be responsible for formulating and implementing appropriate security, archival and retrieval policies in relation to the Form so furnished.

(8)   Rate of Income Tax and Surcharge on Total Income if the New Manufacturing Domestic Company opts Section 115BAB

S. No. Nature of Income Rate of income
tax
Surcharge on income
tax
1. Income derived from manufacturing or production of an article or thing [Section 115BAB (1) ] 15% 10%
2. Income taxable at special rates as per
Chapter XII i.e.
(i) Short-term capital gain referred to in Section_111A
15% 10%
(ii) Long-term capital gain other than referred to in Section 112A 10% / 20% , as the case may be 10%
(iii) Long-term capital gain referred to in Section 112A 10 % on the LTCG
exceeding
Rs. 1,00,000
10%
3. Income computed by the AO by applying the specific domestic provisions i.e. where there is close connection between the company and any other person [Second Proviso to Section 115BAB (1)] 30% 10%
4. Short-term capital gain derived from transfer of a capital asset on which no depreciation is allowable under the Act [Third Proviso to Section 115BAB (1)] 22% 10%
5. Any other income of the company from which no deduction or allowance in respect of any expenditure or allowance shall be allowed in computing such income [First Proviso to Section 115BAB (1)] 22% 10%

(9)          Health and Education Cess (H&EC)

Further H&EC @ 4% shall be levied on the total tax (including surcharge) payable by the assessee.

See also  Alternate Minimum Tax (AMT) on all Persons other than Companies [Section 115JC to 115JF Chapter XII-BA]
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