Section 115BAA of the Income Tax Act is a provision that provides for certain tax benefits to individual taxpayers with income up to Rs. 5 lakhs. It was introduced in the Union Budget 2018-19, following the recent reductions of corporate tax rates. It is primarily directed towards individuals’ with incomes up to Rs. 5 lakhs and enables them to save income tax.
The main advantage of this provision is that the income tax applicability has now been reduced to 5%. Previously this was 10%, which means that individuals can now save up to 5% of income tax if they are eligible to claim the benefit. There are two conditions to be eligible for this reduced rate of 5% tax: the individual’s total income must not exceed Rs. 5 lakhs and they must not be claiming any other deductions/ exemptions as per Section 87A of the Income Tax Act.
Furthermore, if the total income exceeds Rs. 5 lakhs, then the tax slab rate which is applicable to the individual would be applicable on the income amount that exceeds Rs. 5 lakhs. This means that any income which is above Rs. 5 lakhs would still be liable for tax under the normal slabs and not under the reduced rate of 5%.
Analyzing the Importance of Section 115BAA of the Income Tax Act
Section 115BAA of the Income Tax Act is one of the most important sections of the entire taxation system. It is a section that has been designed to provide relief to individuals and Indian companies who have suffered losses due to the COVID-19 pandemic and its related economic strife.
Under Section 115BAA, taxpayers can benefit from income tax exemption on specified income for FY 2020-21. The exemption arises from two types of income- income from an eligible business and dividends received from a domestic company. Additionally, no minimum alternative tax (MAT) is applicable for this section. In order to avail of this tax relief, the taxpayers must submit proof of losses and other documents to the relevant assessee officer.
This section of the Income Tax Act helps taxpayers in the current pandemic situation, who are struggling to make ends meet. This relaxation of taxation helps them to support themselves during the difficult times.
Furthermore, Section 115BAA encourages investors to invest in the capital markets. It reduces their burden as they do not have to bear any taxation on the profits or dividends made through such investments. This stimulates capital flow and, in turn, helps the economy to recover quickly.
Therefore, it can be concluded that Section 115BAA of the Income Tax Act is a significant step taken by the Government to provide relief to individuals and companies affected by the pandemic, and to encourage investments in the capital markets. This section helps to revive the economic activity in the market, while protecting taxpayers’ interests and helping them to sustain during these difficult times.
Reviewing the Relevance of Section 115BAA of the Income Tax Act
The Section 115BAA of the Income Tax Act. 1961 is a major point of debate in economic circles. This section deals with the taxation of the companies or their profits that are registered in India or overseas. This section is of particular importance because it applies to any profits earned by companies outside the purview of the Indian income tax laws. The main aim of the act is to lay down guidelines to ensure that companies registered outside India do not miss out on their tax obligations.
The section deals with the detailed mechanism for taxation of companies which are incorporated or established outside India but transact business in the Indian territory. According to this section, the companies will have to pay income tax in the same manner as it is paid by individuals or companies incorporated inside India.
This section also emphasizes the need to foster a cordial relationship between the Indian and global corporate sector. This makes it quite a significant and important part of the Income Tax Act. The section is applicable to both foreign and Indian companies operating in the Indian territory.
Section 115BAA has been widely debated mainly due to its complex nature. Many experts feel that the section is too complex to understand and follow. This has led to endless arguments between the Government and the foreign companies which feel that the section
is biased against them.
It has also been observed that the section does not put the same emphasis on transparency and disclosure which is vital for proper functioning of the corporate sector. This has led to an increase in the disputes between the Indian tax department and the foreign companies.
Despite all these drawbacks, Section 115BAA is extremely relevant to the Indian economy. This section is essential in order to ensure that foreign companies are paying their taxes and also to maintain an appropriate balance between the Indian and international corporate sector. Therefore, it is important to properly review the section and adjust the regulations in a manner that serves both the Indian and the international business community.