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

Category : | Author :MasterGST
1.1  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 115BAA, 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 32AD
    • Accelerated capital deduction u/s 35AD
    • Chapter VI-A – “C – Deductions in respect of certain incomes” i.e. 80IA, 80IB, 80IC etc… However, deduction u/s 80JJAA (in respect of employment of new employees)
    • Tea development benefit u/s 33AB
    • Site restoration benefit u/s 33ABA
    • Scientific research benefit u/s 35
    • Agricultural extension project benefit u/s 35CCC
  2. Further, total income shall be computed without set off of any brought forward loss if such loss is related to above mentioned deductions.
  3. Based on the above, CBDT clarified that, a domestic company which would exercise option for 22% tax shall not be allowed to set off of any brought forward loss on account of additional depreciation for that assessment year (AY) in which option exercised and for any subsequent AY’s.
  4. Further, it is clarified that as there is no time line for opting 22% tax, a domestic company having brought forward losses on account of additional depreciation, can exercise option after set off of losses so accumulated.
1.2. Domestic Company wants to opt for 22% is not eligible to claim brought forward MAT credit
  • CBDT clarified that MAT u/s 115JB itself not applicable, if domestic company opt for 22% tax. Accordingly, credit of MAT also not eligible to claim.
  • Further, it is clarified that as there is no time line for opting 22% tax, a domestic company having brought forward MAT credit, can exercise option after utilising the accumulated credit.

Our Comments

  • 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 (Amendment) Ordinance, 2019 and no amendment is made u/s 115JAA (i.e. Utilising brought forward MAT credit against normal tax liability).
  • In many judicial pronouncements, courts held that CBDT does not have any power to override the provisions of the Act and Rules. Further, CBDT circular is not binding on the assessee.
  • Sec 115JAA deals with utilisation of brought forward MAT credit against normal tax liability and no restriction on the same by Taxation Laws (Amendment) Ordinance, 2019, in case company opt for 22% tax. Hence, companies are eligible to utilise accumulated MAT credit against normal tax liability even if they opt for 22%.
1.3. 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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