Shift From 115BAB to 115BAA of Income tax act

[anand vaidyanathan]

Dear Learned members,

1. A Pvt Ltd company opted for 115BAB lower taxation (15% TAX+ S.C + Cess) having accumulated loss. Incorporated on JAN-2021 they have duly filed 10-ID and commenced manufacturing before 31/03/2023.

2. Now due to circumstances they will have to do trading also thereby 115BAB advantage shall be not there in future and they are ready to give up lower tax rate

Now the query is

1. Whether they can opt/ shift for 115BAA (22% TAX+ S.C + Cess) from present 115BAB if they are doing trading in the same company? Is it valid? Are they eligible for 115BAA tax rate when they opt for the same it since it is mentioned that 115BAB is irrevocable.

2. What will be the procedure for opting 115BAA other than filing form 10-IC?

3. Whether the loss accumulated during 115BAB period (normal business loss) shall be carried forward in 115BAA?

5. Whether is it enough to file form 10-IC before 139(1) due date or should we file well before.

Any other relevant compliances wrt this

Kindly request your advice in the above points and thankyou in advance for your clarification.

[YAGAY andSUN]

We are sharing our understanding and inputs on your query.

Section 115BAB option, once exercised through Form 10-ID, is irrevocable. However, if the company subsequently violates conditions prescribed under Section 115BAB(2), including carrying on non-eligible business such as trading beyond permitted limits, the concessional rate under Section 115BAB ceases to apply from the year of violation onwards.

In such case, income becomes taxable at normal applicable rates. The Act does not expressly permit migration from Section 115BAB to Section 115BAA. Since Section 115BAA also requires exercise of a separate irrevocable option under Form 10-IC, a view exists that a company disqualified from 115BAB may still opt for 115BAA prospectively, provided all conditions of Section 115BAA are satisfied. However, there is no direct CBDT clarification on inter-shifting from 115BAB to 115BAA. Hence, the position is arguable but legally supportable.

Procedure:

1. File Form 10-IC electronically on or before due date u/s 139(1) for the relevant AY.
2. Ensure computation complies with all restrictions under Section 115BAA, including non-claim of specified deductions/incentives.
3. Reflect option in ROI for the relevant AY.

No separate approval from CBDT is prescribed.

As regards brought forward business loss accumulated during 115BAB period, normal business losses not attributable to restricted deductions should continue to be eligible for carry forward and set-off, subject to Sections 72 and 79. However, losses linked to deductions/incentives not allowable under Section 115BAA cannot be carried forward.

Form 10-IC must mandatorily be filed on or before due date u/s 139(1). Delayed filing may invalidate the option for that AY. Practically, it is advisable to file Form 10-IC before filing ROI and not wait till the last date.

Additional points:

1. Review whether proposed trading activity breaches "manufacture or production" conditions under Section 115BAB.
2. Maintain segmental books for manufacturing and trading activities.
3. Recompute deferred tax implications under Ind AS/AS.
4. Evaluate MAT implications for pre-option years, if any.
5. Examine impact on carried forward depreciation and unabsorbed losses carefully before transition.

Also discuss it with your IT Consultant for having a second view and more clarity on your query.

AI Summary

115BAB to 115BAA transition: irrevocable option, trading activity, and fresh compliance conditions under the concessional tax regimes. A company that has exercised the 115BAB concessional tax regime through Form 10-ID cannot treat that option as freely reversible, because the election is stated to be irrevocable. If the company later begins trading or otherwise breaches the conditions attached to the 115BAB regime, the concessional rate ceases from the year of violation and the company becomes taxable at the normal applicable rate. The commentary suggests that a separate prospective election under 115BAA may still be arguable if all conditions for that regime are satisfied.