On the clear tax website, for section 115BAA, I read the following:
Applicability: This option for concessional tax is applicable only for the domestic companies, who distribute their taxable income in the form of dividend in India.
I feel this is a wrong statement. Can someone please clarify if this is true?
No, that statement is not accurate. The concessional tax option under Section 115BAA is not limited to companies that distribute their taxable income as dividends in India. Let’s break this down clearly.
Section 115BAA was introduced by the Government of India through the Taxation Laws (Amendment) Act, 2019. It allows any domestic company to pay income tax at a concessional rate of 22% (plus a 10% surcharge and 4% health and education cess), resulting in an effective tax rate of about 25.17%.
Applicable to all domestic companies, regardless of whether they distribute dividends or not.
The company must forego certain deductions and incentives (like under Sections 10AA, 32AD, 35, 80-IA to 80QQB, etc.).
No requirement to distribute dividends to shareholders for eligibility.
The company must opt for this scheme by filing Form 10-IC before the due date of filing its return of income.
Earlier, under the Dividend Distribution Tax (DDT) regime, companies were required to pay additional tax on distributed profits. That might have caused confusion linking dividend distribution with concessional tax benefits.
However, after the Finance Act, 2020, the DDT was abolished, and dividends are now taxed in the hands of shareholders — not the company. Therefore, the distribution of dividends has no connection to the applicability of Section 115BAA.
Any domestic company (public or private) incorporated in India.
Companies that do not claim specified deductions or incentives.
Companies that exercise the option under this section once cannot withdraw it in subsequent years.
The concessional tax option under Section 115BAA applies to all domestic companies meeting the prescribed conditions — not only to those distributing dividends. The statement you mentioned is incorrect.