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CBDT Circular on Section 115BBA on MAT Credit and Additional Depreciation

cbdt-circular-on-section-115bba-on-mat-credit-and-additional-depreciation

CBDT Circular on Section 115BBA on MAT Credit and Additional Depreciation: After promulgation of Taxation Laws (Amendment) Ordinance, 2019, CBDT issued Circular No 29/2019 dated 02.10.2019 and clarified the position on Additional Depreciation under section 32(1)(iia) and MAT credit if reduced and beneficial tax rate under section 115BAA or 115BAB is opted from AY 2020-21. It is further analysed whether the restriction on utilization of brought forward MAT credit is contrary to provisions of law.


CBDT by a Circular dated 02.10.2019 clarified that a domestic company which would exercise option of lower tax rate under section 115BAA shall not be allowed to claim set-off of any  brought forward loss on account of additional depreciation under section 32(1)(iia) for the Assessment year in which the option is exercised and in any subsequent assessment year.

Similarly, it is further clarified that a domestic company which availed the benefit of the reduced tax rate by using the option under section 115BAA shall not be entitled to avail the brought forward MAT credit.

The circular has addressed only the following two issues -

(a) Allowability of brought forward loss on account of additional depreciation; and

(b) Allowability of brought forward MAT credit.

Comments: Though the Circular clarifies that MAT credit shall not be available to a domestic company opted for a reduced rate of income tax under section 115BAA but it is contrary to the provisions of law.

The Taxation Laws (Amendment) Ordinance, 2019 only provides for non-applicability of provisions of section 115JB to a domestic company which has opted for a reduced rate of tax of 22 per cent under section 115BAA or 15 per cent under section 115BAB. The ordinance has amended the section 115JB by substituting the sub-section (5A)  and provided that the provisions of section 115JB shall not apply to a person who has exercised the option referred to under section 115BAA or section 115BAB.

The new sub-section (5A) provides for non-applicability of MAT to such domestic companies. Such domestic companies shall be required to pay tax only under the normal provisions of income-tax law.

However, the provisions related to MAT credit is contained in section 115JAA of the Income Tax Act, 1961. Though the ordinance excluded such domestic companies from payment of MAT but did not amend the section 115JAA so as to restrict the utilization of MAT credit.

The relevant portions of section 115JAA are given below-

115JAA (1A) Where any amount of tax is paid under sub-section (1) of section 115JB by an assessee, being a company for the assessment year commencing on the 1st day of April, 2006 and any subsequent assessment year, then, credit in respect of tax so paid shall be allowed to him in accordance with the provisions of this section.

115JAA (2A) The tax credit to be allowed under sub-section (1A) shall be the difference of the tax paid for any assessment year under sub-section (1) of section 115JB and the amount of tax payable by the assessee on his total income computed in accordance with the other provisions of this Act:

115JAA (5) Set off in respect of brought forward tax credit shall be allowed for any assessment year to the extent of the difference between the tax on his total income and the tax which would have been payable under the provisions of sub-section (1) of section 115JA or section 115JB, as the case may be for that assessment year.

As per Section 115JAA(1A), credit is available for MAT paid u/s 115JB(1). Sub-section (2A) prescribes the manner in which credit for brought forward MAT shall be allowed from the amount of tax payable by the assessee on his total income computed in accordance with the other provisions of this Act including section 115BAA. 

As per sub-section (5) of section 115JAA, credit for payment of tax paid on Book Profit u/s 115JB(1) shall be available to the extent of difference between income-tax payable on total income and income-tax payable on Book Profit u/s 115JB(1). As per provisions of section 115BAA, no tax under section 115JB(1) is payable but credit u/s 115JAA is not restricted by any provision in the Taxation Laws (Amendment) Ordinance, 2019.

Hence, credit for MAT paid u/s 115JB(1) shall be available even from the income-tax payable u/s 115BAA.

The restriction of MAT credit from the income-tax payble u/s 115BAA by the Circular dated 02.10.2019 thus ultra vires the Act and it is a settled legal principle that a Circular cannot override the provisions of the Act. It is imperative to have an express provision in the law to forbid a benefit already given under a law which is absent in this case. A Circular cannot override the provisions of law.

Though it appears that there is a lacuna in drafting the Ordinance because a domestic company which has availed the beneficiary rate of section 115BAA can enjoy the brought forward MAT credit without any limit set out in the section 115JAA(5), which may not be the intention of the government. However, till the law is amended, credit of brought forward MAT is available from income-tax payable under section 115BAA or section 115BAB.



Full text of the Circular No. 29/2019 dated 02.10.2019 is gen below-

Circular No. 29/2019

F. No. 142120/2019-TPL

Government of India
Ministry of Finance
Department of Revenue 
Central Board of Direct Taxes


New Delhi, 2nd of October, 2019

Subject: Clarifications in respect of option exercised under section 115BAA of the Income-tax Act, 1961 inserted through The Taxation Laws (Amendment) Ordinance, 2019- reg.

The Taxation Laws (Amendment) Ordinance, 2019 (the Ordinance) has been promulgated by the President of India on September 20, 2019. The Ordinance, inter alia, inserted a new section 115BAA in the Income-tax Act, 1961 (the Act) with effect from April 1, 2020,

2. Section 115BAA so inserted, inter alia, provides that. –

(d) a domestic company shall, at its option, pay tax at a lower rate of 22 per cent for any previous year relevant to the Assessment Year beginning on or after 1st April 2020, subject to certain conditions, including that the total income should be computed without claiming any deduction or exemption;

(e) the option is required to be exercised by the company before the due date of furnishing return of income; and

(f) the option, once exercised, cannot be subsequently withdrawn and shall apply to all subsequent assessment years.

3. The Ordinance also amended section 115JB of the Act relating to ‘Minimum Alternate Tax (MAT) so as to, inter alia, provides that the provisions of said section shall not apply to a person who has exercised the option referred to under newly inserted section 115BAA.

4. Representations have been received from the stakeholders seeking clarification on following issues relating to exercise of option under section 115BAA:

(a) Allowability of brought forward loss on account of additional depreciation; and

(b) Allowability of brought forward MAT credit.

4.1 These issues have been examined in the Board and in order to provide clarity in the matter, the clarifications are issued in following paras.

5.1 As regards allowability or brought Forward loss on account of additional depreciation, it may be noted that clause (1) of sub-section (2) of the newly inserted section 115BAA, inter provides that the total income shall be computed without claiming any deduction under clause (iia) of sub-section (1) of section 32 (additional depreciation): and clause (ii) of the said sub‑section. provides that the total income shall be computed without claiming set-off of any loss carried forward from any earlier assessment year if the same is attributable, inter alia to additional depreciation.

5.1.1 Therefore, a domestic company which would exercise option for availing benefit of lower tax rate under section 115BAA shall not be allowed to claim set-off of any brought forward loss on account of additional depreciation for an Assessment Year for which the option has been exercised and for any subsequent Assessment Year.

5.1.2 Further, as there is no timeline within which option under section 115 BA can be exercised. it may be noted that a domestic company brought forward losses on account of additional depreciation may, if it so desires, exercise the option after set oil of the losses so accumulated.

5.2 As regards allowability or brought forward MAT credit, it may be noted that as the provisions of section 115JB relating to MAT itself shall not be applicable to the domestic company which exercises option under section 115BAA, it is he clarified that the tax credit of MAT paid by the domestic company exercising option under section 115BAA of the Act shall not be available consequent to exercising of such option.

5.2.1 Further, as there is no timeline within which option under section 115BAA can be exercised, it may be noted that a domestic company having credit of’ MAT may. if it so desires, exercise the option after utilising the said credit against the regular tax payable under the taxation regime existing prior to promulgation of the Ordinance.
(Saurahh Gupta)

Under Secretary to the Govt. of India

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