Tax credit in respect of tax paid on deemed income relating to certain companies
Unlocking Tax Relief for Eligible Companies
Within the intricate tapestry of the Indian Income Tax Act 1961, Section 115JAA holds the potential to alleviate tax burdens for certain companies. This section, often overlooked, offers a valuable tax credit mechanism, empowering eligible companies to offset tax liabilities and streamline their financial strategies.
Understanding the Cornerstones of Section 115JAA
Eligibility:
- Applies exclusively to companies.
- Extends to companies paying tax under either Section 115JA or Section 115JB.
Tax Credit Mechanism:
- The credit arises when tax paid under Section 115JA or Section 115JB surpasses the tax payable based on the company’s total income computed under other provisions of the Act.
- The credit amount is calculated as the difference between these two tax amounts.
Carry Forward and Set-Off:
- The tax credit can be carried forward for a period of five assessment years (for credit under Section 115JA) or fifteen assessment years (for credit under Section 115JB).
- Set-off is permitted in a year when tax liability arises on the company’s total income, computed in accordance with Act provisions other than Section 115JA or Section 115JB.
- Set-off is limited to the difference between the tax on the company’s total income and the tax that would have been payable under Section 115JA or Section 115JB for that assessment year.
Key Exclusions:
- The section’s provisions do not apply to limited liability partnerships converted from private or unlisted public companies under the Limited Liability Partnership Act, 2008.
- Companies exercising the option under Section 115BAA are also excluded.
Illuminating Examples within the Indian Context:
Scenario 1:
ABC Corporation, a manufacturing company, pays tax of Rs. 10 lakhs under Section 115JB in a particular assessment year. However, its tax liability based on total income computed under other provisions amounts to Rs. 8 lakhs. ABC Corporation can claim a tax credit of Rs. 2 lakhs (10 lakhs – 8 lakhs), which can be carried forward and set off in subsequent assessment years.
Scenario 2:
PQR Limited, a software development company, operates under Section 115JA. In an assessment year, it pays tax of Rs. 15 lakhs under this section, whereas its tax liability calculated under other provisions stands at Rs. 12 lakhs. PQR Limited can avail a tax credit of Rs. 3 lakhs, eligible for carry forward and set-off in future assessment years, as per the provisions of Section 115JAA.
Harnessing Section 115JAA for Strategic Tax Planning:
By understanding and effectively utilizing Section 115JAA, companies can optimize their tax management strategies, potentially leading to significant financial benefits. Collaborating with tax professionals is crucial to navigate the complexities of this section and ensure compliance with applicable regulations.
| Provision | Explanation |
| Eligibility | Companies paying tax under Section 115JA or Section 115JB |
| Tax Credit | Difference between tax paid under Section 115JA/115JB and tax payable on total income |
| Carry Forward | 5 years for Section 115JA credit, 15 years for Section 115JB credit |
| Set-Off | Allowed in years with tax liability on total income (excluding Section 115JA/115JB) |
| Set-Off Limit | Difference between total income tax and tax payable under Section 115JA/115JB for that year |
| Exclusions | Limited liability partnerships converted from private/unlisted public companies, companies opting for Section 115BAA |
Provision of Section 115JAA of Income Tax Act 1961
(1) Where any amount of tax is paid under sub-section (1) of section 115JA by an assessee being a company for any assessment year, then, credit in respect of tax so paid shall be allowed to him in accordance with the provisions of this section.
(1A) Where any amount of tax is paid under sub-section (1) of section 115JB by an assessee, being a company for the assessment year commencing on the 1st day of April, 2006 and any subsequent assessment year, then, credit in respect of tax so paid shall be allowed to him in accordance with the provisions of this section.
(2) The tax credit to be allowed under sub-section (1) shall be the difference of the tax paid for any assessment year under sub-section (1) of section 115JA and the amount of tax payable by the assessee on his total income computed in accordance with the other provisions of this Act:
Provided that no interest shall be payable on the tax credit allowed under sub-section (1).
(2A) The tax credit to be allowed under sub-section (1A) shall be the difference of the tax paid for any assessment year under sub-section (1) of section 115JB and the amount of tax payable by the assessee on his total income computed in accordance with the other provisions of this Act:
Provided that no interest shall be payable on the tax credit allowed under sub-section (1A):
Provided further that where the amount of tax credit in respect of any income-tax paid in any country or specified territory outside India, under section 90 or section 90A or section 91, allowed against the tax payable under the provisions of sub-section (1) of section 115JB exceeds the amount of such tax credit admissible against the tax payable by the assessee on its income in accordance with the other provisions of this Act, then, while computing the amount of credit under this sub-section, such excess amount shall be ignored.
(3) The amount of tax credit determined under sub-section (2) shall be carried forward and set off in accordance with the provisions of sub-sections (4) and (5) but such carry forward shall not be allowed beyond the fifth assessment year immediately succeeding the assessment year in which tax credit becomes allowable under sub-section (1).
(3A) The amount of tax credit determined under sub-section (2A) shall be carried forward and set off in accordance with the provisions of sub-sections (4) and (5) but such carry forward shall not be allowed beyond the fifteenth assessment year immediately succeeding the assessment year in which tax credit becomes allowable under sub-section (1A).
(4) The tax credit shall be allowed set off in a year when tax becomes payable on the total income computed in accordance with the provisions of this Act other than section 115JA or section 115JB, as the case may be.
(5) Set off in respect of brought forward tax credit shall be allowed for any assessment year to the extent of the difference between the tax on his total income and the tax which would have been payable under the provisions of sub-section (1) of section 115JA or section 115JB, as the case may be for that assessment year.
(6) Where as a result of an order under sub-section (1) or sub-section (3) of section 143, section 144, section 147, section 154, section 155, sub-section (4) of section 245D, section 250, section 254, section 260, section 262, section 263 or section 264, the amount of tax payable under this Act is reduced or increased, as the case may be, the amount of tax credit allowed under this section shall also be increased or reduced accordingly.
(7) In case of conversion of a private company or unlisted public company into a limited liability partnership under the Limited Liability Partnership Act, 2008 (6 of 2009), the provisions of this section shall not apply to the successor limited liability partnership.
(8) The provisions of this section shall not apply to a person who has exercised the option under section 115BAA.
Explanation.—For the purposes of this section, the expressions “private company” and “unlisted public company” shall have the meanings respectively assigned to them in the Limited Liability Partnership Act, 2008 (6 of 2009).
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