CBDT has given clarifications on set off of brought forward loss due to additional depreciation & MAT credit if companies opt for 22% tax

Domestic Company wants to opt for 22% tax is not eligible to set off of brought forward loss on account of additional depreciation

  1. As per the provisions of newly inserted Sec 115 BAA, the total income of the Company (opted for 22% tax) shall be computed without any deduction towards:
    • SEZ u/s 10AA
    • Additional depreciation @20% u/s 32(1) (IIA)
    • Investment allowance in respect of new plant and machinery u/s 32 AD
    • Accelerated capital deduction u/s 35 AD
    • Chapter VI-A – “C – Deductions in respect of certain incomes,” i.e. 80 IA, 80IB, 80IC etc……… However, deduction u/s 80JJAA (in respect of employment of new employees)
    • Tea development benefits u/s 33AB
    • Site restoration benefits u/s 33ABA
    • Scientific research benefits u/s 35
    • The agricultural extension project benefits u/s 35 CCC
  2. Further, shall compute total income without setting off any brought forward loss if such loss is related to deductions mentioned above.
  3. Based on the above, CBDT clarified that a domestic company which would exercise the option for 22% tax should not be allowed to set off any brought forward loss on account of additional depreciation for that assessment year (AY) in which the option exercised and for any subsequent AY’s.
  4. Further, it is clarified that as there is no timeline for opting for 22% tax, a domestic company, having brought forward losses on account of additional depreciation, can exercise the option after setting off accumulated losses.

A domestic Company that wants to opt for 22% is not eligible to claim brought forward MAT credit.

  • CBDT clarified that MAT u/s 115JB itself is not applicable if a domestic Company opts for 22% tax. Accordingly, the credit of MAT is also not eligible to claim.
  • Further, it is clarified that as there is no timeline for opting for 22% tax, a domestic company, having brought forward MAT credit, can exercise the option after utilizing the accumulated credit.

Our Comments

  • The amendment has been made only in Sec 115JB (i.e. MAT is not applicable if domestic companies opt for 22%) by way of Taxation Laws (Amend) Ordinance, 2019 and no amendment is made up/s 115JAA (i.e. Utilizing brought forward MAT credit against regular tax liability).
  • In many judicial pronouncements, courts held that the CBDT has no power to override the provisions of the Act and Rules. Further, the CBDT circular is not binding on the assesses.
  • Sec 115JAA deals with bringing forward MAT credit against regular tax liability and no restriction on the same by the Taxation Laws (Amend) Ordinance, 2019, in case the Company opts for 22% tax. Hence, companies can utilize accumulated MAT credit against standard tax liability even if they opt for 22%.

Effective Tax Rate (ETR) schedule for FY 2019-20 (AY 2020-21)

 

SI No Particulars ETR if option exercised If option not exercised & wants to set off of B/F loss of additional depreciation
ETR Effective MAT Rate
1.         Turnover > Rs.400 Crore during the FY 2017-18 On balance income On book profit
Income ≤ Rs.1 crore 25.17% 31.20% 15.6%
Income > Rs.1 crore ≤ Rs.10 crore 25.17% 33.38% 16.69%
Income > Rs.10 crore 25.17% 34.94% 17.47%
2.         Other domestic companies (in existence on or before 30-Sep-2019)
  Income ≤ Rs.1 crore 25.17% 26% 15.6%
  Income > Rs.1 Crore ≤ Rs.10 crore 25.17% 27.82% 16.69%
  Income > Rs.10 crore 25.17% 29.12% 17.47%

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