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India Expands 40% Depreciation Rate Restriction for Taxpayers Opting for Reduced Tax Rate — Orbitax Tax News & Alerts

India's Central Board of Direct Taxes has published Notification No. 82/2020, which expands the rules regarding the depreciation rate restriction for taxpayers that opt for a reduced tax rate. The restriction generally provides that where a reduced tax rate is claimed, any block of assets entitled to a rate of depreciation greater than 40% will be restricted to 40% on the written down value of the block of assets.

Previously limited to domestic companies that have exercised the option under section 115BA of the Income Tax Act 1961(manufacturing companies), Notification No. 82/2020 expands the restriction to:

  • Domestic companies under section 115BAA and section 115BAB, from the assessment year 2020-21 (in addition to section 115BA);
  • Individuals and Hindu undivided families under section 115BAC, from assessment year 2021-2022; and
  • Cooperative societies under section 115BAD, from assessment year 2021-2022.

Note, 115BAA and section 115BAB provide the optional 22% corporate tax rate for domestic companies and the optional 15% corporate tax rate for domestic manufacturing companies introduced for assessment years commencing on or after 1 April 2020.

In addition to the expanded scope of the restriction, Notification No. 82/2020 also introduces additional administrative requirements. This includes that companies that exercise an option for lower tax rates must provide additional information in Form No. 3CD and Form 3CEB, and individuals and Hindu undivided families and cooperative societies must provide additional information in Form No. 10-IE or Form No. 10-IF.