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Tax Alert: CBDT clarification on brought forward MAT credit and brought forward loss due to additional depreciation where the domestic company opts for beneficial tax rate regime

03 October 2019

On 20 September 2019, the Government of India introduced The Taxation Laws (Amendment) Ordinance, 2019 (the Ordinance). Through this Ordinance, amendments are made to the Income-tax Act, 1961 (IT Act) and the Finance (No 2) Act, 2019 with effect from financial year 2019-20. One of the new sections introduced, section 115BAA of the IT Act, provides for a reduced corporate tax rate of 22% (plus surcharge of 10% and cess of 4%) for domestic companies. It also provides that the domestic companies, availing the concessional tax rate, cannot avail any of specified deductions/exemptions. Further, such domestic companies shall not be liable to pay Minimum Alternate Tax (MAT).

Subsequently, representations were made by taxpayers seeking clarifications on following issues relating to exercise of option of lower tax rate under section 115BAA of the IT Act:

  1. Allowability of brought forward loss on account of additional depreciation; and
  2. Allowability of brought forward MAT credit.

In response to these representations, the Central Board of Direct Taxes (CBDT) has recently issued a circular[1] giving following clarifications:

  1. Re. allowability of brought forward loss on account of additional depreciation
  • As per section 115BAA(2)(i) of the IT Act, the total income of the domestic company shall be computed without claiming any deduction for additional depreciation under section 32(1)(iia) of the IT Act; and
  • As per section 115BAA(2)(ii) of the IT Act, loss (attributable to additional depreciation) carried forward from earlier fiscal year shall not be allowed to be set-off.

In view of the above provisions, CBDT has clarified that where 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.

  1. Re. allowability of brought forward MAT credit

Where the domestic company avails benefit of reduced corporate tax rate, the provisions of section 115JB of the IT Act are not applicable. The CBDT has clarified that as the MAT provisions are itself not applicable to domestic companies opting for reduced tax rate, the MAT credit brought forward from earlier fiscal years shall not be available consequent to exercising the benefit of reduced tax rate.

Further, the circular has also provided that the domestic companies, which are having either MAT credit or brought forward losses attributable to additional depreciation, may, if it so desire, exercise option of reduced tax rate under section 115BAA of the IT Act after utilising the MAT credit and/or set-off of losses from additional depreciation against regular tax payable in the taxation regime prevailing prior to promulgation of the Ordinance.

BDO Comments

Post the introduction of the Ordinance, various stakeholders had raised concerns on above issues. The CBDT has come out with a timely clarification which should help to avoid any litigation around these issues of availability of brought forward losses on account of additional depreciation and brought forward MAT credit in case of domestic companies availing the benefit of reduced tax rate.

Please click here to read our detailed tax alert on the Ordinance.

[1] Circular No. 29/2019 dated 2 October 2019.