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FM announces big RELIEF on corporate tax

Sep 25, 2019 | Blog, Direct Taxation

“This initiative will prove to be an economy booster..”
The government has promulgated the Taxation Laws (Amendment) Ordinance 2019 to make amendments in the Income-tax Act and the Finance (No. 2) Act 2019. With a $20 billion stimulus to reboot India, Finance Minister Nirmala Sitharaman addressing her fourth press conference held on Friday (20th Sep, 2019) announced a slew of fresh measures to prop up slowing economic growth and boost consumption.
It will give a great stimulus to “Make In India”, attract private investment from across the globe, improve competitiveness of our private sector, create more jobs and result in a win-win situation. These amendments shall be effective retrospective from April 1, 2019. The key measures taken are as under:

1) Corporate tax rate slashed

  • The government slashed basic corporate rate tax to 22% from 30% for domestic companies that don’t avail any exemption/incentive. The effective tax rate for these companies shall be 25.17% inclusive of surcharge and cess. Also, such companies shall not be required to pay Minimum Alternate Tax or MAT.
  • To boost manufacturing and the ‘Make-in-India’ initiative, the government has slashed corporate tax rate to 15%, from 25%, for domestic companies incorporated on or after 1st October 2019 making fresh investment in manufacturing. Such companies shall not avail any exemption/incentive and commence their production on or before 31st March, 2023. The effective tax rate for these companies shall be 17.01% inclusive of surcharge & cess. Also, such companies shall not be required to pay Minimum Alternate Tax.
  • A company which does not opt for the concessional tax regime and avails the tax exemption/incentive can continue to pay tax at the pre-amended rate. After expiry of their tax holiday/exemption period, these companies can opt for the new concessional tax regime.

2) 15% MAT for companies seeking exemption
To provide relief to companies which continue to avail exemptions/incentives, the government has reduced the rate of Minimum Alternate Tax or MAT to 15%, from 18.5%.

3) Rolling back enhanced surcharge on Capital Gains
To increase the flow of funds into capital markets, the government rolled back increased surcharge introduced in this year’s Budget on capital gains arising on sale of equity share in a company or a unit of an equity oriented fund or a unit of a business trust liable for securities transaction tax, in the hands of an individual, HUF, AOP (Association of Persons), BOI (Body of Individuals) and AJP (Artificial Juridical Person).

4) Tax relief for FPIs on capital gains
The enhanced surcharge will also not apply to capital gains arising on sale of any security including derivatives, in the hands of Foreign Portfolio Investors (FPIs).

5) Tax on share buyback withdrawn
To provide relief to listed companies that had announced share buyback before 5th July 2019, the government exempted such companies from buyback tax announced in the Budget.

6) Scope of CSR activities expanded
Now CSR 2% fund can be spent on incubators funded by Central or State Government or any agency or Public Sector Undertaking of Central or State Government, and, making contributions to public funded Universities, IITs, National Laboratories and Autonomous Bodies engaged in conducting research in science, technology, engineering and medicine aimed at promoting SDGs.

The new rates brings India closer, in some cases lower, to the rates prevalent in many of the emerging and industrialised countries. The new corporate income tax rates in India will be lower than USA (27 percent), Japan (30.62 percent), Brazil (34 percent), Germany (30 percent) and is similar to China (25 percent) and Korea (25 percent). New companies in India with an effective tax rate of 17 percent is equivalent what corporates pay in Singapore (17 percent).

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