When it comes to managing taxes for your business, especially as a domestic company, there’s no one-size-fits-all approach. With evolving tax regulations, one of the most talked-about sections in recent years is 115BAA of Income Tax Act. Introduced as part of the Taxation Laws (Amendment) Act, 2019, this section offers a lower corporate tax rate, but with certain caveats.
If you’re wondering whether opting for Section 115BAA is the right move for your business, this article will break down the pros and cons in simple terms. We’ll also touch upon how using tools. online billing software and accounting software, MargBooks can help you make the most of your tax planning decisions.
What is Section 115BAA of the Income Tax Act?
Section 115BAA is a provision in the Income Tax Act that allows domestic companies to pay tax at a concessional rate of 22% (plus surcharge and cess) instead of the standard rate of 30%. However, this comes with the condition that the company must forego certain exemptions and deductions.
This section is part of the Indian government’s broader strategy to attract investment and simplify tax compliance for companies operating within the country.
Who Can Opt for 115BAA?
- Any domestic company, regardless of its size or turnover.
- The company must not avail any specified exemptions or incentives like those under Section 10AA, Section 35AD, and others.
- It must also not claim additional depreciation or deductions like 80JJAA or 32(1)(iia).
Once a company opts for 115BAA, it cannot switch back to the regular tax regime in future years.
Pros of Choosing 115BAA of Income Tax Act
Let’s look at the key benefits of opting for this section:
1. Lower Tax Rate
- The headline benefit is, of course, the 22% tax rate, which significantly reduces the tax liability for many companies.
- When surcharge (10%) and cess (4%) are added, the effective tax rate comes to around 25.17%, still much lower than the previous effective rate of 34.94% for companies not availing any benefits.
2. No MAT (Minimum Alternate Tax)
- Companies opting for 115BAA are not subject to MAT, which used to be a burden for companies with lower book profits but high taxable income.
3. Simplicity in Compliance
- Since many deductions and exemptions are not available under this regime, compliance becomes simpler.
- Businesses don’t have to track or calculate complex incentive schemes.
4. Good for Businesses with Few Deductions
- If your business doesn’t rely on deductions or accelerated depreciation, this flat rate can be highly beneficial.
- This is especially useful for newer companies or startups that don’t yet qualify for many tax benefits.
Cons of Choosing 115BAA of Income Tax Act
While the lower tax rate is appealing, the section has its drawbacks, too:
1. No Exemptions or Incentives
- If your business currently benefits from deductions under 80IA, 80JJAA, 10AA, or 35AD, you’ll lose those by opting for 115BAA.
- Companies investing in R&D, for example, may lose significant tax benefits.
2. No Carry-Back Option
- Once you opt for this section, you cannot switch back to the old tax regime through our accounting software. It’s a permanent decision.
3. Not Suitable for All Business Models
- Companies that heavily invest in capital-intensive projects or spend heavily on employee welfare might not find this beneficial due to the loss of associated deductions.
The Role of Technology: Online Billing and Accounting Software
Choosing the right tax regime is just one part of efficient financial planning. The other major piece is maintaining accurate, real-time records.
Why Online Billing Software Matters?
- Helps you generate GST-compliant invoices quickly and easily.
- Provides a clear view of income, which is essential for projecting tax liabilities.
- Reduces manual errors that could lead to penalties.
Why Accounting Software is a Must-Have?
- Automates your ledger management, cash flow statements, and expense tracking.
- Ensures accuracy in profit calculations, which directly impacts your tax choice.
- Makes audit preparation and compliance seamless.
Why Choose MargBooks ?
MargBooks is an integrated accounting and billing platform designed specifically for Indian businesses. Here’s how it can help you:
- Easy reconciliation of accounts with our online billing software, and also get real-time GST updates.
- Built-in features for automated tax calculations, so you always know where you stand.
- Role-based access and cloud storage for secure, collaborative financial management.
- Insightful reports that help you decide if 115BAA of Income Tax Act works in your favour.
Final Verdict: Should You Opt for Section 115BAA?
There’s no universal answer, as it depends on your company’s financial structure. Here’s a quick checklist:
- Do you not avail any major tax exemptions or incentives?
- Is your business looking for a simplified compliance model?
- Do you have consistent taxable income without relying on deductions?
If yes, then opting for 115BAA might be a smart move.
But if you currently enjoy deductions, R&D credits, or SEZ benefits, it’s worth crunching the numbers before making the switch. Using tools such as online billing software and accounting software, MargBooks can help you model both scenarios with accuracy.
Wrap Up
Tax planning doesn’t need to be overwhelming. Whether you’re a small business or a growing enterprise, understanding the implications of Section 115BAA of the Income Tax Act can help you make informed choices. Pairing smart tax planning with robust tools, MargBooks ensures that your compliance stays on track while your business keeps growing.
