Analysis on reduction of Corporate Tax vide Taxation Laws (Amendment) Ordinance, 2019
1. The Government of India announced reduction in corporate tax rates for domestic companies in India with effect from F.Y. 2019-20.
2. A new section 115BAA has been inserted to reduce tax rate of 22% (excluding surcharge and education cess) for domestic companies. The company has an option to opt this scheme subject to certain conditions.
3. The companies have to compute its total income without availing any incentive/exemption offered under Income Tax Act. Like Additional Depreciation u/s 32(1)(iia), Benefits related to Special Economic Zones u/s 10AA, Investment Allowance on Plant & Machinery u/s 32AD, Expenditure on Scientific Research u/s 35(1), deduction in respect to specified business u/s 35AD, Site restoration fund u/s 33ABA, expenditure on agriculture extension project u/s 35CCC, expenditure on skill development project u/s 35CCD, Tea Coffee Rubber development account u/s 33AB and Deduction u/s 80H to 80TT (except section 80JJAA).
4. Further, if companies adopt section 115BAA, such companies shall not be required to pay Minimum Alternative Tax (MAT).
5. The companies shall have to exercise the option to avail concessional rate before the due date of filling of income tax return. Once availed this scheme, cannot be withdrawn in near future.
Analysis on reduction of Minimum Alternative Tax (MAT)
1. The tax rate of Minimum Alternative Tax (MAT) has been reduced from existing 18.5% to 15% w.e.f. F.Y. 2019-20.
2. Now, MAT is applicable only to those companies who are not adopt section 115BAA (Tax rate of 22%) and section 115BAB (Tax rate of 15% for manufacturing companies).
Analysis on new Tax Rate for Manufacturing Companies
1. A new section 115BAB has been inserted for providing relief in corporate tax rate to newly incorporated domestic manufacturing companies in India on or after 1st October, 2019
2. The companies have an option to pay tax at the rate of 15% subject to certain conditions.
3. The basic conditions for Manufacturing Company are as under:
- Should not have been formed by splitting up, reconstruction of business already in existence
- Should not have in use more than 20% second-hand machinery (except imported plant and machinery)
- Must not use any building previously used as a hotel or convention Centre
- Must not be engaged in any business other than business of manufacture or production of any article or thing and research in relation to article or thing manufactured by it.
4. The companies have to compute its total income without availing any incentive/exemption offered under Income Tax Act. Like Additional Depreciation u/s 32(1)(iia), Benefits related to Special Economic Zones u/s 10AA, Investment Allowance on Plant & Machinery u/s 32AD, Expenditure on Scientific Research u/s 35(1), deduction in respect to specified business u/s 35AD, Site restoration fund u/s 33ABA, expenditure on agriculture extension project u/s 35CCC, expenditure on skill development project u/s 35CCD, Tea Coffee Rubber development account u/s 33AB and Deduction u/s 80H to 80TT (except section 80JJAA).
5. The such companies must commence commercial production on or before 31st March 2023.
6. Further, if companies adopt section 115BAB, such companies shall not be required to pay Minimum Alternative Tax (MAT).
7. The companies shall have to exercise the option to avail concessional rate before the due date of filling of income tax return. Once availed this scheme, cannot be withdrawn in near future.
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Disclaimer: The contents of this article are solely for information and knowledge and do not constitute any professional advice or recommendation.
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