The Central Board of Direct Taxes vide circular dated 2nd October 2019, has issued clarification with respect to additional depreciation and MAT credit where a company exercises an option to lower rate of tax under section 115BAA of the Act.
The Section was introduced by the Taxation Law (Amendment) Ordinance dated 20th September, 2019. It provides for a reduced corporate tax rate of 22% for the FY 2019-2020 if such domestic companies adhere to conditions specified. Further, the Ordinance provides that no Minimum Alternate Tax (“MAT”) shall be applicable on companies availing section 115BAA.
Several representations were made by taxpayers seeking clarifications relating to exercise of option of lower tax rate under section 115BAA. CBDT has now clarified the following:
- The total income shall be computed without claiming any deduction under section 32(1)(iia) (additional depreciation) and without set-off of any loss carried forward from earlier Assessment Year, if the same is attributable, inter alia, to additional depreciation.
- Therefore, a domestic company which exercises option of availing benefit of reduced corporate tax rate, shall not be allowed to claim set-off of any brought forward loss on account of additional depreciation for any fiscal year for which the options has been exercised and for any subsequent fiscal year.
- Where the domestic company avails benefit of reduced corporate tax rate, Section 115JB will not be applicable.
- As there is no timeline for the domestic companies to choose a lower tax rate under section 115BAA, therefore such companies can avail the benefit of section 115BAA after claiming the brought forward loss on account of additional depreciation and utilising the MAT credit against the regular tax payable, if any.
Click here to read Circular.
