The Taxation Laws (Amendment) Ordinance, 2019 (“the Ordinance”), promulgated by the President on
20.09.2019, had interalia introduced
a new provision, viz., section 115BAA in the Income Tax Act, 1961 (“the Act”)
providing for a lower rate of tax at 22% (plus applicable surcharge and cess)
for domestic companies, subject to fulfilment of certain conditions. Simultaneously, section 115JB relating
to payment of Minimum Alternate
Tax (‘MAT’) on book profit was also amended
to provide that companies opting for preferential rate of tax under section
115BAA of the Act will be exempt from MAT on book profit under the former section.
·
In our earlier post, where we had analyzed the aforesaid amendments introduced by the
Ordinance, we had opined that since the provisions of section 115JB have been
made inapplicable to companies opting preferential rate of tax under section
115BAA, the set-off
of brought forward
MAT credit available
under section 115JAA against
tax liability under the new provision would be highly contentious.
·
Further, the issue whether
brought forward loss needs to be segregated to determine amount of loss attributable to claim of
additional depreciation under section 32(1)(iia), for the purposes of
determining tax liability under the new provision of section 115BAA, was
ambiguous.
·
The CBDT vide Circular No.29 of 2019 dated 02.10.2019 (“the Circular”) has
clarified that once a company has opted for preferential rate of tax of
25.17% under section 115BAA, such company shall not, in the year of exercise of
option or in any succeeding assessment year
be:
o allowed
to claim set-off of any brought forward loss attributable to additional
depreciation under section 32(1)(iia) of the
Act;
o
eligible to set-off brought forward MAT credit.
Observations/ Comments
·
Considering that the CBDT vide
aforesaid Circular has clarified the legislative intent of not allowing
set-off of MAT credit once the company
opts for preferential of tax under the
new provisions of section 115BAA of the Act, it may not, in our view, be
possible to contend otherwise.
·
It is advisable that for companies
having unutilized MAT credit to first exhaust the same by remaining under the
existing scheme of taxation and thereafter opt for the new scheme of preferential tax under section
115BAA. It may further be noted that since MAT payable
under section 115JB has been reduced from 18.5% to 15% vide the Ordinance, there would be scope
for increased set-off of brought forward MAT credit by 3.5%, if the companies
opt to remain under the existing scheme of taxation
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