Form 10-IC

What is Form 10-IC?

Form 10-IC is a crucial income tax form that domestic companies must submit electronically to opt for the concessional tax rate of 22% under Section 115BAA. This tax-saving provision was introduced to simplify the corporate tax structure and align Indian businesses with global taxation standards.

Key Features of Form 10-IC:

• Enables Domestic Companies to Avail the Concessional Tax Rate: Companies opting for Section 115BAA must submit Form 10-IC to the Income Tax Department.
• Mandatory for Claiming Lower Corporate Tax Rate: Companies failing to file this form will continue to be taxed at standard corporate tax rates (which can be significantly higher).
• Applicable Only to Domestic Companies: This tax benefit applies exclusively to companies incorporated in India and does not extend to LLPs or foreign entities.
• E-filing Requirement: Form 10-IC must be submitted via the Income Tax e-Filing Portal and digitally verified.
• Irrevocable Option: Once a company opts for the concessional tax scheme under Section 115BAA, it cannot switch back to the old tax regime.

Filing Form 10-IC is a strategic decision that companies must carefully evaluate based on their financial structure and long-term tax planning objectives.
 

What is Section 115BAA?

Section 115BAA of the Income Tax Act was introduced through the Taxation Laws (Amendment) Ordinance, 2019, with the primary aim of reducing corporate tax rates and stimulating business growth in India. This section provides eligible domestic companies the option to pay income tax at a reduced rate of 22%, thereby offering significant tax savings.

Understanding Section 115BAA and its Tax Benefits

• Lower Corporate Tax Rate: Domestic companies opting for Section 115BAA pay a flat tax rate of 22% (plus applicable surcharge and cess) instead of the traditional corporate tax rate.
• Applicable to All Domestic Companies: This tax benefit applies to all domestic companies, irrespective of their turnover.
• Mandatory Form 10-IC Filing: To claim this reduced tax rate, the company must submit Form 10-IC through the e-filing portal.
• Simplification of Tax Compliance: By opting for this scheme, companies eliminate the need to calculate the Minimum Alternate Tax (MAT) and avoid the complexities associated with various tax exemptions and deductions.
   

Deductions and Exemptions Not Available Under Section 115BAA

While the reduced corporate tax rate is highly beneficial, it comes with certain conditions. Companies choosing Section 115BAA must forgo the following deductions and exemptions,

1. Additional Depreciation: Companies cannot claim additional depreciation on plant and machinery.
2. Investment-Linked Deductions: Exemptions under Section 35AD related to specified businesses are not available.
3. Specified Business Deductions: Incentives related to SEZ units under Section 10AA cannot be claimed.
4. MAT Credit Set-off Not Allowed: Companies opting for Section 115BAA are exempt from Minimum Alternate Tax (MAT), but they also lose the ability to set off MAT credits from previous years.
5. Loss Carry Forward Restrictions: Any brought forward business losses due to unutilised deductions from ineligible exemptions cannot be adjusted against future taxable income under this scheme.

Who Should Opt for Section 115BAA?

Companies that do not rely heavily on tax exemptions and deductions may find Section 115BAA to be an attractive option. Businesses that prioritise lower tax rates over tax-saving incentives will benefit the most from this scheme.

By opting for Form 10-IC and Section 115BAA, domestic companies can significantly reduce their corporate tax liabilities, enhance cash flow, and simplify their tax compliance requirements. However, before making this decision, companies must carefully evaluate their financial structure to ensure that they are not losing out on crucial tax incentives that could outweigh the benefits of a lower tax rate.
 

Who is Eligible to File Form 10-IC?

To qualify for the concessional tax rate under Section 115BAA, a company must fulfill the following eligibility criteria,

1. Must be a Domestic Company
The company must be incorporated and registered in India under the Companies Act, 2013. Foreign companies and Limited Liability Partnerships (LLPs) do not qualify for this tax scheme.

2. Must Opt for Section 115BAA
To avail the lower corporate tax rate of 22%, the company must voluntarily opt for the tax scheme under Section 115BAA and submit Form 10-IC as an official declaration.

3. Must Not Claim Certain Deductions and Exemptions
Companies opting for Section 115BAA must forgo certain tax deductions and exemptions, including:

• Additional Depreciation under Section 32(1)(iia)
• Investment-linked Deductions under Section 35AD
• Incentives for Specified Businesses under Section 10AA
• Set-off of Brought Forward Losses from Earlier Years (if those losses arose due to previously claimed deductions)
• MAT (Minimum Alternate Tax) Credit Set-off

4. Must File Form 10-IC Before the Due Date
Form 10-IC must be submitted before the due date of filing Income Tax Return (ITR) under Section 139(1) of the Income Tax Act. Missing the deadline may result in the company losing eligibility for the lower tax rate for that assessment year.

5. Irrevocable Choice
Once a company opts for the concessional tax regime under Section 115BAA by filing Form 10-IC, it cannot switch back to the old tax regime in future years. Therefore, companies must conduct a thorough cost-benefit analysis before making this decision.
 

Benefits of Opting for Section 115BAA

Choosing Section 115BAA by filing Form 10-IC offers multiple benefits, helping domestic companies reduce their tax burden and simplify compliance. Here are the key advantages,

1. Lower Corporate Tax Rate
Instead of paying the standard corporate tax rate of 25% or 30%, companies opting for Section 115BAA enjoy a flat tax rate of 22% (plus applicable surcharge and cess). This results in significant tax savings and enhances overall profitability.

2. Simplified Tax Compliance
By forgoing deductions and exemptions, companies eliminate complex tax calculations, leading to a more straightforward tax filing process and reduced compliance costs.

3. Increased Cash Flow & Business Expansion
Lower tax payments mean companies have more funds available for reinvestment, business expansion, and operational improvements, thereby fostering long-term growth and sustainability.

4. Elimination of Minimum Alternate Tax (MAT)
Companies opting for Section 115BAA are not subject to Minimum Alternate Tax (MAT). This removes an additional tax burden that many businesses struggle with under the regular corporate tax structure.
 

What is the Tax Rate under 115BAA?

Under Section 115BAA, a domestic company opting for the concessional regime is taxed at a base corporate tax rate of 22%.

In addition:

• Surcharge is applied at the applicable rate under this regime, and
• Health & Education Cess is applied on the tax plus surcharge.

As a result, the effective tax rate becomes higher than 22% after surcharge and cess are included, but it is still generally lower than the regular regime for companies that are not heavily dependent on deductions and incentives.

The key trade-off is important: the lower rate is available only if the company forgoes certain exemptions/deductions and complies with the conditions of 115BAA.

Step-by-Step Guide to Filing Form 10-IC

Filing Form 10-IC is a mandatory requirement for companies opting for Section 115BAA. The process is completely online and must be completed via the Income Tax e-Filing Portal.

Step 1: Log in to the e-Filing Portal

• Visit the Income Tax e-Filing Portal (www.incometax.gov.in).
• Log in using your company’s PAN (Permanent Account Number) credentials.

Step 2: Navigate to ‘File Income Tax Forms’

• Under the ‘e-File’ section, select ‘Income Tax Forms. ’
• Choose Form 10-IC from the list of available forms.

Step 3: Select the Relevant Assessment Year

• Choose the correct assessment year for which the company is opting for the concessional tax regime under Section 115BAA.

Step 4: Fill in the Required Details
Provide the necessary details, including,

• Company Name
• PAN (Permanent Account Number)
• Assessment Year
• Declaration confirming compliance with Section 115BAA conditions

Step 5: Verify the Form Using a Digital Signature Certificate (DSC)

• The form must be e-verified using a valid Digital Signature Certificate (DSC) registered with the Income Tax portal.

Step 6: Submit the Form

• After verification, click Submit.
• The receipt of confirmation will be generated upon successful submission.
   

Key Considerations and Compliance Requirements

1. Irrevocability of the Choice
Once a company opts for Section 115BAA by filing Form 10-IC, it cannot revert to the older tax regime. This decision must be carefully analysed in the context of the company's long-term tax planning strategy.

2. Loss of Certain Tax Benefits
Companies must forgo tax deductions like additional depreciation, MAT credit, and investment-linked deductions under this regime. Before opting for Section 115BAA, businesses should perform a detailed cost-benefit analysis to ensure they are not losing out on valuable tax incentives.

3. Mandatory Timely Filing
Form 10-IC must be filed before the due date of filing the Income Tax Return (ITR) under Section 139(1). Late submissions can disqualify the company from availing of the concessional tax rate.

4. Accurate Tax Computation
Companies must ensure that their taxable income is computed correctly by excluding disallowed deductions under Section 115BAA. Any errors may lead to tax reassessments, penalties, or loss of eligibility for the concessional rate.
 

Common Challenges and How to Overcome Them?

1. Complexity in Tax Computation

• Challenge: Companies may find it challenging to compute taxable income without deductions.
• Solution: Consult with a tax professional or use tax compliance software to ensure accurate tax calculations.

2. Filing Errors

• Challenge: Errors in Form 10-IC can lead to rejection or delays in tax benefits.
• Solution: Double-check all details, including PAN, company name, and assessment year, before submission.

3. Digital Signature Certificate (DSC) Issues

• Challenge: A valid Digital Signature Certificate (DSC) is required for filing.
• Solution: Ensure that the DSC is active and registered on the Income Tax e-Filing portal.

Conclusion

Form 10-IC plays a very important role for domestic companies looking to reduce their corporate tax liabilities under Section 115BAA. By opting for a lower corporate tax rate of 22% (plus surcharge and cess), companies can get the benefit of significant tax savings, improve cash flow, and simplify tax compliance requirements.

However, given the irrevocable nature of this decision, businesses must conduct a thorough analysis of their tax planning strategy to determine whether they stand to gain more from Section 115BAA or from continuing under the regular tax regime with deductions .

By understanding the eligibility criteria, filing process, and compliance requirements, companies can ensure a smooth and error-free submission of Form 10-IC, helping them take full advantage of the corporate tax benefits available under this scheme.