CBDT issues clarifications regarding unabsorbed depreciation and unutilised MAT credit for companies opting for concessional tax rates


The Government of India recently announced significant reduction in corporate tax rates through The Taxation Laws (Amendment) Ordinance, 2019 (‘Ordinance’). The Ordinance provides for a reduced tax rate of 22% for existing domestic companies and 15% for newly set up manufacturing companies. The taxpayer has the option to opt for lower tax rate or to continue under the existing tax regime and avail existing deductions and set-off of losses.

The Ordinance also provides that Minimum Alternate Tax (MAT) shall not apply to any taxpayer opting to be governed by these lower tax rates. One of the conditions for availing the lower tax rates is that the taxpayer shall not be eligible to set-off brought forward tax losses against its taxable income.

The drafting of the Ordinance left open certain key questions. The CBDT through Circular No. 29/2019 dated 2 October 2019, has sought to clarify the following two questions:

  • Whether taxpayers will be eligible to set-off unabsorbed depreciation against taxable income of FY 2019-20 and subsequent years?
  • What will be the position of unutilised MAT credit since the provisions of MAT no longer apply to taxpayers opting for concessional tax rates


Clarification 1:

A company opting for the lower tax rates shall not be eligible to set-off any brought forward business loss on account of additional depreciation

Key Takeaway:

The Clarification provided by the CBDT, with due respect, appears misplaced. Denial of benefit of unabsorbed depreciation will require an amendment in section 32(2) which can be carried out only by approval from the Parliament of India or a Presidential Ordinance and not by the CBDT through issuance of Circular. Therefore, to that extent, the Circular No. 29/2019 may be considered as ultra-vires the powers of CBDT and may not survive judicial review. Please refer the subsequent paragraphs for a discussion on this aspect.

It is pertinent to note that the restriction is only on set-off of unabsorbed additional depreciation. The set-off of normal depreciation should continue unabated

Be that as it may, taxpayers opting to be governed by the Circular will have to carry out active number- crunching to determine the component of unabsorbed additional depreciation comprised in brought forward depreciation

Our reasoning:

  1. The restrictions provided under the newly inserted section 115BAA(2) has three clauses, as under:
  • Clause (i) prohibits claiming specified deductions, including additional
  • Clause (ii) prohibits set-off of brought forward tax losses relating to deductions under Clause (i)
  • Clause (iii) provides for claim of current year depreciation in such manner as may be prescribed

It is a settled position under the Income Tax Act, 1961 (Act) that depreciation is an allowance and not a deduction. Therefore, the restriction under Clause (ii) dealing with losses relating to deductions referred in Clause (i) should not cover additional depreciation.


  1. Under section 32(2) of the Act, unabsorbed depreciation is treated as depreciation of the current year and can be carried forward indefinitely to be set-off against taxable income of future years. As such, when the taxpayer off-sets unabsorbed depreciation, technically, the taxpayer claims off-set of the current year depreciation and not of a brought forward loss. Therefore, any restrictions on brought forward losses should not apply to brought forward depreciation


  1. It is also an established position that unabsorbed tax losses are different than unabsorbed A case in point is the provisions of section 79 of the Act which deny benefit of brought forward losses to closely held companies in cases of change in control. Courts have held that section 79 would not apply to brought forward unabsorbed depreciation as depreciation is not a loss.
  2. The CBDT can issue Circulars only for administrative and procedural guidance. A Circular cannot amend or restrict the operation of the law. It is pertinent to note that the clarification is provided by the CBDT by way of a Circular and has not been announced through a Supplementary Ordinance.


Clarification 2:

A company opting for the lower tax rates shall not be eligible to set-off unutilised MAT credit

Key Takeaway:

Since the provisions of MAT do not apply to taxpayers opting for the lower tax rates, any unutilised MAT credit available with these companies up to 31st March 2019 shall lapse. This could require writing-off of unutilised MAT credit as an expense to the Profit and Loss Account, impacting the Profit after Tax.

This provision, in effect, will make the MAT paid in earlier years a final tax payment. However, since an option has been provided to the taxpayer of not opting for the concessional tax rate and utilise the MAT credit, a constitutional challenge to this clarification may not survive


The changes made by the Ordinance and this recent clarification present a strong case for the taxpayers and tax advisors to sit together for carrying out a tax review of existing business operations to ascertain whether any tax optimisation avenues exist and what would be the opportune time for the taxpayer to opt for the lower headline tax rate of 22%

Contact Us

For any queries and feedback, you may please reach us at [email protected]

Information to Include in Director’s Report

The following information must be mandatorily disclosed in the Director’s Report filed by the Board of Directors:

1 Dividend, if declared & amount, if any, carried forwarded to reserves
2 Details of ESOPs:

a. Options granted

b. Options vested

c. Options exercised, and

d. Total number of Options in force, if any

3 Information about the financial performance / financial position and details of the subsidiaries / associates/ JV
4 Details of loans, investments and guarantees by the company
5 Details relating to deposits, covering the following:

Accepted during the year;
Remained unpaid or unclaimed as at the end of the year;
Whether there has been any default in repayment of deposits or payment of interest thereon during the year and if so, number of such cases and the total amount involved (i) at the beginning of the year (ii) maximum during the year and (iii) at the end of the year.
Details of deposits which are not in compliance with the requirements of Chapter V of the Act

6 Website address
7 Disclosures under the Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act, 2013
8 Borrowing by the company
9 Details of rent paid
10 Electricity expenses
11 Director remuneration (for each director)
12 Details of transfer of shares during the financia year
13 Break up of related party transaction (1. Name of related party and nature of relationship and 2. Duration of the agreement)

Webinar on Prevention of Sexual Harassment At Workplace

Prevention of Sexual Harassment At Workplace

When : August 23, 2019 | Timing: 4.30 p.m to 5.30 p.m.

What Will The Webinar Cover?
Not sure whether you need a POSH Policy or an Internal Complaints Committee (ICC)? Worried about a #metoo situation in your office? Join LexStart for a discussion on the key requirements under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (POSH Law) and understand what the law actually requires.
Who Should Attend?
  • Founders, Promoters, Entrepreneurs
  • Directors
  • Investors
  • HR Personnel


Key Takeaways
  • Understand the law in India on Prevention of Sexual Harassment at Workplace
  • Key terms that should go into a Policy for Prevention of Sexual Harassment at Workplace
  • Constitution of Internal Complaints Committee
  • ABCs of how to respond to a #metoo situation


About the Speaker
Deeksha Singh is a corporate lawyer with more than a decade of experience in corporate laws. She regularly advises on laws relating to prevention of sexual  harassment at workplace. She also regularly conducts sensitization training programs for employees at companies and training programs for ICC members on how to stay compliant with POSH Law and handle complaints addressed to the ICC.

Important Update | Dematerialization of Securities Mandatory from August 1, 2019

Dematerialization of Securities Mandatory from August 1, 2019

As per a recent amendment to the Companies Act, 2013, every private limited company may have to maintain its shares in dematerialised form, w.e.f. August 01, 2019.

While a specific timeline for dematerialisation has not yet been notified, it is important that every private limited company takes steps immediately to dematerialise their securities, before making any fresh offer for issue/buyback/transfer of any securities to any investors or existing shareholders.

Mandatory POSH filing under Prevention of Sexual Harassment Act

Constitution of your Internal Committee, POSH ACT
The Government of Maharashtra has issued a letter requiring employers of workplaces in the District of Mumbai City employing 10 or more employees to report details of constitution of their Internal Committee (IC) under Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.
The Form on Page 3 of the letter needs to be filled in and mailed by July 20, 2019, failing which a penalty of INR 50,000 will apply.
The Form and its attachments have to be sent to the address below:
1. District Collector or Deputy District Collector, Office of District collector, Old Customs House, Shahid Bhagat Singh Rd, Marg, Fort, Mumbai, Maharashtra 400001.
2. Copy to- (a)Deputy Commissioner(Women Development), Department of Development of Women and Child, Pune.
(b) Departmental Deputy Commissioner, Department of Women and Child, Konkan Division, Mumbai.
To know more contact us at [email protected]

Budget 2019




  1. Tax Relief for Investors in Startups: Measures are proposed to carry forward and set off losses for startups & increase in period of exemption of capital gains from sale of residential house for investment in startups up to March 2021.
  2. Angel Tax Clarification: Startups and investors who file requisite declarations will not be subjected to any kind of scrutiny in respect of valuation of share premium. A mechanism of e-verification will be put in place and with this, the funds raised by startups will not require any angel tax scrutiny.
  3. Helping Skilled Entrepreneurs: 80 Livelihood business incubators and 20 technology business incubators to be set up in 2019-20 under ASPIRE to develop 75,000 skilled entrepreneurs in agro-rural industries.
  4. TV Channel: Finance Minister is to start a TV channel exclusively for start-ups.
  5. Social Enterprises Startups: Electronic funding platform for social enterprises is to give necessary impetus to the startups.



  1. Loan incentive to MSMEs: Government to provide INR 1 Crore loan to MSMEs.
  2. Incremental loans: In continuation to bolstering MSME sector growth, interest subvention of 2% has been announced for fresh or incremental loans.



  1. Angel Tax Relief for Cat II AIFs: Valuation of shares issued to Cat II AIFs shall also now be out of scrutiny of Income Tax evaluation (earlier it was only for Cat I AIF).
  2. TDS above 1 crore: The government proposes to levy TDS of 2% on cash withdrawal exceeding INR 1 Crore in a year from a bank account.
  3. Surcharge on Individuals: In view of rising income levels, a surcharge will be levied on individuals with taxable income of INR 2 to 5 Crore, and INR 5 Crore and above.
  4. Corporate Tax Rate: Lower rate of 25% corporate tax rate shall now be applicable to companies with a turnover of up to INR 400 Crore (increased from previous threshold of INR 250 Crore).



  1. PAN and AADHAR to be interchangeable: PAN and Aadhar to be interchangeable; now Aadhar can be quoted instead of PAN, wherever PAN is required. It is ok to not have a PAN.
  2. Labour Laws: Proposal to streamline multiple labour laws into a set of ‘four labour codes’.
  3. Rental Housing: Current archaic rental laws to be updated to assess relation between lessor and lessee in a fair manner.
  4. Annual Global Meet: The Government is contemplating organising an annual global meet to get all three sets of global players: Industrialists, corporate leaders, corporate sovereign and venture funds.
  5. Platform to Raise Capital: The Government proposes to work on a platform for listing social enterprises and voluntary organisations to raise capital as equity, debt or units like mutual fund.

Important Deadline — Form filing for loans and deposits — June 30

If your company has taken loans or deposits, this form filing requirement applies to you!

Every company having outstanding money/loan received shareholders or directors or any other person has to file Form DPT-3 by June 30, 2019 with respect to deposits/exempted deposits accepted by the Company and the amount of loan/money outstanding as on March 31, 2019.

In case, no amount/loan has been received by the Company which can be considered a deposit or exempted deposit, the filing of form DPT-3 with ROC is not applicable.

Also, in case there are deposits accepted by the Company, you also require a certificate from the statutory auditor certifying the details of the same.

In case of default in filing of form, the Company shall be liable to pay a penalty of Rs. 5,000 and Rs. 500 per day in case of a continuing default. If the Company is non-compliant then it shall be chargeable with fine of Rs. 1 Crore to Rs. 10 Crore. Every officer who is in default shall be chargeable with fine of Rs. 25,000 to Rs. 2 Crore and imprisonment up to 7 years.