The President of India promulgated the Taxation Laws (Amendment) Ordinance, 2019 when the parliament is not in session on 20th September 2019 to make certain amendments in Income Tax Act, 1961 and Finance Act, 2019. The ordinance provides major relief to existing domestic companies in the form of reduction in corporate tax rate.
Key highlights of the amendment:
Tax Rates
Under section 115BA for the marginal heading Tax on income of certain domestic companies the marginal heading “Tax on income of certain domestic manufacturing companies” has been substituted.
For Existing domestic companies:
- A new provision 115BAA & 115BAB has been inserted which shall be effect from April 1st 2020.
- The new provision allows options to any domestic companies to pay income tax at the rate of 22% based on the condition that they have not availed any deduction under, making the effective corporate tax rate at 25.17% inclusive of all surcharge and cess:
- Additional allowance on scientific research,
- Section 32AD, 32AB, 35CCC, 35CCD
- Additional Depreciation of Plant & Machinery
- Chapter VI-A (Except Section 80JJAA i.e. employment increase)
- Setoff of loss carried forward from earlier assessment years, if loss is
attributable to point (i) to (iii) above.- Loss to be carried forward would be deemed to be fully setoff
- Option needs to be exercised before filing of return. Once exercised, it cannot be revoked ever.
- They are not required to pay Minimum Alternate Tax (MAT).
For New domestic companies:
Any new domestic company incorporated on or after October 1, 2019 making fresh investment in manufacturing will be given an option to pay income-tax at the rate of 15% (effective tax of 17.01% inclusive of surcharge and cess) based on the following conditions:
- Company has been setup and registered on or before 1st October 2019
- Commenced manufacturing on or before 31st March 2023
- Should note be formed by splitting up or the reconstruction of a business already in existence
- Does not use any plant & machinery previously used for any purpose
- Company should not have used any building used as hotel or convention centre
- Company is not engaged in any business other than manufacturing or production of any article of thing and research in relation to, or distribution of such article or thing manufactured or produced by it
- These companies will also not be required to pay minimum alternative tax
If a company which does not opt for the concessional tax regime mentioned above and if it avails any tax exemptions/ tax holiday it can pay tax at pre-amended tax rate. These companies can avail tax exemption or tax holiday, and after such period, these companies can opt for concessional tax regime as mentioned above. Further in order to provide relief of companies – MAT tax rates has been reduced from 18.5% to 15%.
Other Amendments
- Under section 92BA which elaborates the meaning of specified domestic transaction a new clause (Va) has been introduced. Clause Va covers any business transacted between domestic manufacturing companies.
- As per the latest amendment the minimum Alternate tax rate has been reduced from 18.5% to 15%
- In order to stabilise the flow of funds into the capital market, the enhanced surcharge introduced by the Finance Act No 2 (2019) shall not apply on capital gains arising on sale of equity share in a company, or a unit of equity oriented fund or a unit of a business trust liable to Securities Transaction Tax in the hands of Individual, HUF, AOP, BOI, and AJP.
- The enhanced surcharge shall also not apply to sale of any security including derivates in the hands of Foreign Portfolio Investors.
- In order to provide relief to listed companies which have already made a public announcement of buy-back before July 5, 2019, tax on such buy-back of shares for such companies will not be charged.
- The Finance Act (2) of 2019 had raised the surcharge on income between ₹ 50 Lakhs – ₹ 1 crore to 10% and income between Rs 1-2 crore as 15% and 15% to 25% for incomes in the range of ₹2-5 crore, and from 15% to 37% for those earning more.
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