Taxation Laws (Amendment) Ordinance, 2019 clarified by Circular No. 29 of 2019

• 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 last TaxBuzz dated 25th September, 2019, 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:
  • allowed to claim set-off of any brought forward loss attributable to additional depreciation under section 32(1)(iia) of the Act;
  • 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.

For more information please write to:
Mr. Gaurav Jain at [email protected]
Mr. Deepesh Jain at [email protected]