Cos opting for new lower tax can't claim MAT credit, other deductions: CBDT

The finance ministry on Wednesday said companies opting for the lower corporate tax rate of 22 per cent will not be allowed to reduce their tax liability by claiming deductions towards additional depreciation and Minimum Alternative Tax (MAT) credits.

The Central Board of Direct Taxes (CBDT), in a clarification, said companies will be allowed to utilise such credits only against regular taxes under the old regime and may opt for lower corporate tax regime in the subsequent assessment years.

There is no timeline within which the option under newly inserted 115BAA in the Income Tax Act can be exercised, it added.

Under Section 115BAA, it was stated that companies opting for lower tax rate of 22 per cent will not be allowed to claim any deduction or exemption. It gave the companies right to exercise the option before furnishing the income tax return. It was also stipulated that the option, once exercised, cannot be withdrawn in subsequent years.

The section does not provide any timeline for companies to opt for the new regime of lower tax rate.

Responding to clarification sought by companies if they would be allowed to reduce their tax liability by adjusting losses on account of additional depreciation and take advantage of MAT credit, the CBDT said, " 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."
As regards MAT, the CBDT said "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 (relating to lower tax rate)."
In the biggest reduction in 28 years, the government last month slashed corporate tax by almost 10 percentage points as it looked to pull the economy out of a six-year low growth and a 45-year high unemployment rate by reviving private investments with a Rs 1.45-lakh crore tax break
Base corporate tax for existing companies has been reduced to 22 per cent from the current 30 per cent; and for new manufacturing firms, incorporated after October 1, 2019 and starting operations before March 31, 2023, to 15 per cent from the current 25 per cent