CBDT has issued a Notification No. 10/2020 dated 12-02-2020 and notified Form No. 10-IC for exercising the option for opting lower or concession rate of income tax by a domestic company under section 115BAA.
Similarly, Form No. 10 ID is prescribed for exercising the option for opting lower or concession rate of income tax by a domestic manufacturing company under section 115BAB.
The Notification No. 10/2020 dated 12-02-2020 has amended the Income Tax Rules, 1962 and inserted Rule 21AE with heading 'Exercise of option under sub-section (5) of section 115BAA'.
The notification states that a domestic company shall exercise the option in accordance with the provisions of sub-section (5) of section 115BAA for any previous year relevant to the assessment year beginning on or after the 1st day of April 2020, shall be in Form No. 10-IC.
It further states that the option in Form No. 10-IC shall be furnished electronically either under digital signature or electronic verification code.
The Notification No. 10/2020 dated 12-02-2020 has further amended the Income Tax Rules, 1962 and inserted Rule 21AF with heading 'Exercise of option under sub-section (7) of section 115BAB'.
The notification states that a domestic company shall exercise the option in accordance with the provisions of sub-section (7) of section 115BAB for any previous year relevant to the assessment year beginning on or after the 1st day of April 2020, shall be in Form No. 10-ID.
It further states that the option in Form No. 10-ID shall be furnished electronically either under digital signature or electronic verification code.
The notification has provided the format of the Form No. 10-IC and Form No. 10-ID.
Form 10-IC further provides the option to withdraw the option exercised by the domestic company under section 115BA which is exercising option under section 115BAA.
Section 115BAA(5) provides that the option shall be exercised by a domestic company in the prescribed manner on or before the due date specified under sub-section (1) of section 139 for furnishing the returns of income for any previous year relevant to the assessment year commencing on or after the 1st day of April, 2020 and such option once exercised shall apply to subsequent assessment years.
Section 115BAA(5) provides that the option shall be exercised by a domestic company in the prescribed manner on or before the due date specified under sub-section (1) of section 139 for furnishing the returns of income for any previous year relevant to the assessment year commencing on or after the 1st day of April, 2020 and such option once exercised shall apply to subsequent assessment years.
For the assessment year 2020-21, the prescribed due date for filing the return of income for a domestic company is 31st October, 2020 [extended from 30th September]. Hence, the option under section 115BAA(5) in Form 10-IC shall be exercised by 31-10-2020 and before the filing of the return of income. However, the return of income may be filed belatedly.
It is also provided that in case where the option exercised by a domestic company under section 115BAB has been rendered invalid due to violation of conditions contained in sub-clause (ii) or sub-clause (iii) of clause (a), or clause (b) of sub-section (2) of said section, such person may exercise option under section 115BAA.
It is also provided that once the option under section 115BAA(5) has been exercised for any previous year, it cannot be subsequently withdrawn for the same or any other previous year.
Recently, the government has introduced a new optional scheme of taxation for domestic companies under which they can avail lower or concessional rate of income tax at 22 percent as against 25 percent or 30 percent of income tax rate. However, to avail the benefit it has to forego certain deductions and exemptions.
One of the conditions is that such a company cannot claim any deduction under Chapter VI-A of the Income Tax Act, 1961 except deduction under section 80JJA and section 80M.
It is important to note that the Taxation Laws (Amendment) Act, 2019 restricted only deductions specified under any provisions of Chapter VI-A under the heading “C.—Deductions in respect of certain incomes” other than the provisions of section 80JJAA.
The Finance Bill, 2020 has amended the provision and disallowed any deduction under Chapter VI-A but allowed a deduction under section 80M. Section 80M provides for deduction for Inter-Corporate dividend.
This amendment shall apply from the assessment year 2020-21.
A similar amendment has also been proposed in the Finance Bill, 2020 for section 115BAB for disallowing any deduction under Chapter VI-A except section 80JJA and section 80M.
Similarly, section 115BAB(7) provides that the option shall be exercised by a domestic manufacturing company in the prescribed manner on or before the due date specified under sub-section (1) of section 139 for furnishing the returns of income for any previous year relevant to the assessment year commencing on or after the 1st day of April, 2020 and such option once exercised shall apply to subsequent assessment years.
As stated earlier, the due date for filing of return of income under section 139(1) is 31st October, 2020 for AY 2020-21.
Section 115BAA can be exercised by any domestic company whereas section 115BAB is applicable only to a domestic manufacturing company incorporated on or after 1st October, 2019 and must start its operation by 31st March, 2023.
It is not necessary that the option under section 115BAA(5) or section 115BAB(7) shall be exercised in the AY 2020-21. It can be exercised in any subsequent assessment year.
The concessional rate of tax for section 115BAA is 22 percent whereas it is 15 percent under section 115BAB.
The flat rate of income tax is subject to a flat surcharge of 10 percent and irrespective of any turnover limit. Health and Education Cess of 4 percent shall also apply.
Hence, the effective tax rate under section 115BAA is 25.17 percent whereas the effective rate of income tax under section 115BAB is 17.16 percent.
Further, these companies exercising option under section 115BAA or section 115BAB shall not be required to pay MAT on their Book Profit since section 115JB does not apply to them.
Other related articles on Taxation Laws (Amendment) Act, 2019 re;ated to section 115BAA and section 115BAB
Cabinet Approves Taxation Laws (Amendment) Bill, 2019
Read the full Text of the Notification No. 10/2020 dated 12-02-2020
NOTIFICATION
New Delhi, the 12th February, 2020
INCOME-TAX
G.S.R. 110(E).—In exercise of the powers conferred by section 115BAA and section 115BAB read with section 295 the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely: -
1. Short Title and Commencement.-
2. In the Income-tax Rules, 1962 (hereinafter referred to as the principal rules), after rule 21AD, the following rules shall be inserted, namely: -
3. In the principal rules, in Appendix II, after Form No. 10-IB, the following Forms shall be inserted, namely: -
Note: The principal rules were published in the Gazette of India Extraordinary, Part II, section 3, subsection (ii), vide notification number S.O. 969(E) dated the 26th March, 1962 and were last amended vide notification number G.S.R. No. 56(E) dated the 29th January, 2020.
Read the full Text of the Notification No. 10/2020 dated 12-02-2020
MINISTRY OF FINANCE
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
NOTIFICATION
New Delhi, the 12th February, 2020
INCOME-TAX
1. Short Title and Commencement.-
(1) These rules may be called the Income-tax (4th Amendment) Rules, 2020.
(2) They shall come into force on the 1st day of April, 2020.
“21AE. Exercise of option under sub-section (5) of section 115BAA.—(1) The option to be exercised in accordance with the provisions of sub-section (5) of section 115BAA by 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 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.;
21AF. Exercise of option under sub-section (7) of section 115BAB. (1) The option to be exercised in accordance with the provisions of sub-section (7) of section 115BAB by 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 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.”.
[Notification No. 10/2020/F. No. 370142/34/2019-TPL]
NEHA SAHAY, Under Secy. (Tax Policy and Legislation Division)
Note: The principal rules were published in the Gazette of India Extraordinary, Part II, section 3, subsection (ii), vide notification number S.O. 969(E) dated the 26th March, 1962 and were last amended vide notification number G.S.R. No. 56(E) dated the 29th January, 2020.
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4 Comments
In the act wording, they have mentioned "before before the due date specified under sub-section (1) of section 139". You have mentioned "before the filing of the return of income" in your article. Can you please clarify from where you surmised this if it is there in any rules etc? Response is most appreciated, thanks.
ReplyDeleteThank you for raising your query.
DeleteWhat you said is correct. But, an assessee will be called as 'opted' for section 115BAA/115BAB once it has exercised the option and such an option can be exercised only by filing Form 10-IC/10-ID. If it does not file Form 10-IC/10-ID then how can it fill the details in ITR in response to the question "Whether the assesse has opted for taxation under section 115BA/115BAA/115BAB?
The assessee can choose 'Yes' only if it has filed Form 10-IC/10-ID. This is a procedural interpretation and not an legal interpretation.
Now after the amendment of Tax Audit Report details in Form 3CD , a domestic company if liable for tax audit then it has to file the Form 10-IC before the tax audit report date, although the law prescribes filing of Form 10-IC on or before the due date u/s 139(1). If the assessee does not file Form 10-IC, how the tax auditor will sign the report without verifying filing of the Form 10-IC.
Hence, this is only an interpretation of the procedure and not the legal interpretation. Hope this clarifies.
Yes this clarifies it perfectly, thank you so much.
ReplyDeletefORM 10(1C) remained to be filed and demand has been raised.
ReplyDelete