Reduction of 1% in rate of taxation in case of company assessees with total turnover/ gross receipts of up to Rs. 5 crore– Reduction in rate may be made applicable to Firms/ Limited Liability
Issue/Justification
The Finance Act, 2016 introduced a tax rate of 29% of total income to (domestic) company assessees provided its total turnover or the gross receipts in the previous year 2014-15 does not exceed five crore rupees. This reduction in corporate tax rate is a step in the direction of implementing the proposal in Finance Minister’s Budget Speech during the Union Budget 2014-15 on 10th July, 2014 wherein he had indicated reduction in rate of corporate tax along with gradual phasing out of deductions & exemptions.
It may be noted that the rate of tax applicable to firms including limited liability partnerships is 30%. Most of the deductions and exemptions where phasing out has been made by provision of sunset clause as per the Finance Act, 2016 are applicable to both companies as well as firms/ LLPs. Therefore, the benefit of reduction of 1% in rate of tax may be passed on to such assessees as well. Further, if the said rate of 29% is also made applicable to firms and LLPs, it would facilitate ease of doing business in any form and not particularly restrict such facility to the small corporates.
Further, it may be noted that firms and LLPs are also incorporated under a statute and are subject to certain compliance requirements as provided in the Partnership Act, 1932 and Limited Liability Partnership Act, 2008, respectively.
It is also suggested that the prescribed turnover of Rs 5 crore may be considered for previous year 2015-16, being the previous year immediately preceding the P.Y. 2016-17, relevant to A.Y. 2017-18.
Suggestion by ICAI
It is suggested that the benefit of reduced rate of tax of 29% of total income for small domestic companies may also be extended to firms and Limited Liability Partnerships as well since most of the deductions and exemptions phased out as per Finance Act, 2016 via sunset clause are applicable to both companies as well as firms/ LLPs, so as to provide a level playing field among-st these forms of business.
Further, the limit of Rs 5 crore for determining the eligibility to avail the reduced rate may be with reference to P.Y. 2015-16, being the previous year immediately preceding the current previous year, namely, P.Y. 2016-17, relevant to A.Y. 2017-18.
