Finance minister had announced special rates for companies at 22% and 15% in September 2019 under section 115BAA and 115BAB for normal domestic companies and new manufacturing companies respectively.
CBDT had even announced online forms in December 2019 which the company had to file if it wanted to opt for these scheme’s before filing their return of Income. However the structure of the form is not correct as on this date and one cannot file that form.
However, even ITR 6 is not available till date so let’s hope that these forms are properly structured before ITR 6 is made available.
The main topic we are going to discuss in this article is whether all the income of companies opting for this scheme would be charged to tax at 22% and 15% base tax rate respectively or not. Many people are getting confused, because wording of section 115BAA are as under:
“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”
Now, many people are confused that whether this total income relates to only business income or all income including capital gain. Also, if you look at total income calculation in sub section 2 the capital gain income has not been removed hence people are thinking that even capital gain u/s 111A, 112A and 112 which were charged at very less rate would be charged at 22% or 15%.
As this amendment was brought via an ordinance no memorandum was issued for such amendment and hence one cannot find any explanation for such total income.
However if you look at the First schedule of Finance Bill wherein regular tax rates of companies are mentioned, it has been stated that Tax on domestic company shall be charged at “25 per cent. of the total income”
So even in the normal provision the word used is total income, however as we know special income such as capital gain are taxed at special rates. Similarly, rates defined under 115BAA and 115BAB would be general rates and capital gain rates are special rates which will overrule general rate.
Thus, from the above analysis we could say that u/s 115BAA and 115BAB, capital gain would be taxed at special rate and not general rate of 22% or 15%.
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