Government has brought in the Taxation Laws (Amendment) Ordinance 2019 and announces major relief in corporate tax for domestic companies, in order to boost the Make in India initiative. Corporate tax reduced to 22% (Effective Tax Rate 25.17% inclusive of Surcharge and Cess) for domestic firms while for new manufacturing companies, tax rate has been brought down to 15% (Effective Tax Rate 17.01% inclusive of Surcharge and Cess). Further Minimum alternate Tax Rate been reduced to 15% from 18.5% for Company availing exemptions. Article discusses Impact of recent changes on Tax rate and MAT.

Bench marking of Most Appropriate

Particulars Section 115BAA
Tax on income of certain domestic companies.
Section 115BAB Tax on income of certain new domestic manufacturing companies.
Applicability At the Option of the Assessee, option once exercised, cannot be withdrawn At the Option of the Assessee, option once exercised, cannot be withdrawn
Applicable  Assessment Year AY 2020-21 onwards AY 2020-21 onwards
Timing of exercising option On or before the due date specified u/s 139(1) for furnishing the returns On or before the due date specified u/s 139(1) for furnishing the returns
Basic Tax Rate 22% 15%
Surcharge Rate 10% 10%
Cess 4% 4%
Effective Rate 25.17% 17.16%
Whether MAT applicable u/s 115JB Not Applicable Not Applicable
Conditions for Applicability No Condition Company has been registered on or after the 01/10/2019, and has commenced manufacturing on or before 31/03/2023
No Condition The company is not engaged in any business other than the business of manufacture or production of any article or thing
Restrictive Conditions
No deduction u/s Section 10AA Section 10AA
No deduction u/s Section 32(1)(iia)
Additional Depreciation
Section 32(1)(iia)
Additional Depreciation
No deduction u/s Section 32AD

Section 33AB

Section 33ABA or

Section 35(1)(ii),(iia) & (iii)

Section 35(2AA), (2AB)

Section 35AD

Section 35CCC

Section 35CCD

Section 32AD

Section 33AB

Section 33ABA or

Section 35(1)(ii),(iia) & (iii)

Section 35(2AA), (2AB)

Section 35AD

Section 35CCC

Section 35CCD

No set off of loss If such loss is attributable to any of the deductions referred to above If such loss is attributable to any of the deductions referred to above
Special Conditions No Condition AO can verify whether the transaction with close connection parties, resulted in more than the ordinary profits.

These transactions to be considered as Specified Domestic Transactions subject to Arm’s Length Price

Analysis of Savings in Tax Rates, if option u/s 115BAA if exercised 

Income Slabs PreAmendment Scenario Tax Rate
as per
New
option given u/s
115BAA
Savings in Tax Rates
Companies having turnover Below Rs 400 cr Companies having turnover of Rs 400 cr or more Companies having turnover Below Rs 400 cr Companies

having turnover of Rs 400 cr or

more

total income upto Rs 1 Crore 26.00% 31.20% 25.17% 0.83% 6.03%
total income exceeding Rs 1 Crore but not exceeding Rs 10 crore 27.82% 33.38% 25.17% 2.65% 8.21%
total income exceeding Rs 10 crore 29.12% 34.94% 25.17% 3.95% 9.77%

Above rates are including of Applicable Surcharge and Cess’s

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2 Comments

  1. Pooja Shah says:

    Whether Surcharge is applicable on income below 1Cr? Whether rate of 25.17% is uniform for category of domestic companies earning income below 1Cr, between 1Cr and 10Cr, 10Cr and above?

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