In order to provide relief to the corporates, an amendment was made in the section 115JB of the Income Tax Act, 1961 (“the Act”) by the Taxation Laws (Ordinance), 2019 whereby the rate of MAT was reduced from 18.5% to 15% with effect from AY 2020-21.
However, the Taxation Laws (Amendment) Bill, 2019 proposed to insert a proviso to section 115JB(1) of the Act that the rate shall be reduced from 18.5% to 15% from previous year commencing on or after the April 1, 2020. Hence, the Bill has proposed to defer the applicability of this provision by one year.
The bill also inserted the below-mentioned sub-section:
“(5A) The provisions of this section shall not apply to;
Section 115BAA of the Act states that “the income-tax payable in respect of the total income of a person, being a domestic company, for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2020, shall, at the option of such person, be computed at the rate of twenty-two per cent, if the conditions contained in sub-section (2) are satisfied.”
Section 115BAB of the Act states that “the income-tax payable in respect of the total income of a person, being a domestic company, for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2020, shall, at the option of such person, be computed at the rate of fifteen per cent, if the conditions contained in sub-section (2) are satisfied.
Provided the Company has been set up and registered on or after 01.10.2019, and has commenced manufacturing on or before 31.03.2023.”
Section 115BAA and 115BAB of the Act has been made applicable for assessment year beginning on or after 01.04.2020. This creates inconsistency between the provisions of Section 115JB of the Act and the new tax regimes of Section 115BAA and 115BAB of the Act.
For instance, if the company opts to pay tax under section 115BAA or 115BAB of the Act, then the provision of Section 115JB of the Act does not apply. But the ambiguity arises when the company does not opt to pay tax under section 115BAA or 115BAB of the Act, then whether the MAT rate shall be 18.5% or 15% for assessment year 2020-21?
Since the provisions of Section 115BAA and 115BAB of the Act are applicable from previous year 2019-20, it would be prudent that benefit of reduced MAT rate is extended to companies which are not opting for section 115BAA or 115BAB of the Act, from the same assessment year 2020-21. A clarification regarding the same is expected to be issued by the Ministry of Finance.
Source: Taxmann
