The Finance Minister announced certain bold measures to give boost to the ailing Economy of the country, a fortnight ago. New Sections 115 BAA & 115 BAB were introduced in the Income Tax Act with the aim of reducing Income Tax on the Corporate Sector to enable the Companies to boost production, bring in new investment, create new employment opportunities and above all to boost the much hyped ‘Make in India ‘ campaign. There was a buzz before the FM made these announcements on September 20, 2019 that the FM is coming out with unparalleled measures to pull out the economy from its sluggishness by trimming the Income Tax rates for all assessees & abolishing the ‘Super Rich Tax’ but there were sops announced for the Corporate Sector alone leaving the MSME’s & the Common man dismayed, disappointed & singled out.
It cannot be refuted that the Government has full authority & power to impose Tax as per its choice, to give benefits and incentives to a particular class but the exercise of power should be rational & judicious and in no way arbitrary or perverse. Exercise of power in favour of Companies by reducing Corporate Tax and neglecting the MSME sector & the Common Man is highly discriminative. Is the Corporate Sector being benefitted at the cost of the MSME’s & the Common Man at the behest of the IMF and/or the World Bank? It cannot be denied that there is Global Pressure on our Government to bring down the Corporate Tax to make the companies globally competitive. But the Finance Minister has failed to consider the negative & humiliating impact these new provisions will have on the assessees, other than the Corporate.
Let us first see the Corporate Tax structure before the changes brought in by the FM. The Domestic Companies having turnover up to Rs. 400 crores were subjected to Income Tax @ 25%. However, the Domestic Companies having turnover of over Rs.400 Crores were to pay Income Tax @ 30%. The Company’s were liable for surcharge @ 7% if their Income was between Rs. 1 crore to 10 crore while the surcharge for Income above Rs. 10 crore was 12%. A cess of 4% was further payable on the Income Tax & the Surcharge combined. With the new insertion of S 115 BAA all Domestic Companies, irrespective of Turnover shall be liable to pay Income Tax @22%. This rate coupled with 10% surcharge & 4% cess works out to nett effective rate of 25.17%. However this rate is applicable only when such company does not avail exemptions/ incentives under the Income Tax Act. Newly inserted S 115 BAB is applicable to new companies incorporated on or after October 1, 2019. Such companies shall be taxed under the Income Tax Act @ 15%. After the mandatory 10% surcharge & 4% cess, the nett Income Tax rate works to 17.16%. It is pertinent that MAT provisions are not applicable to companies which opt for Section 115 BAA/115 BAB. This is a big saving to the Corporate which opt for being taxed under these new provisions. Besides for Corporate who opt for being taxed as per the earlier provisions, the rate of MAT has been reduced from existing 18.5% to 15%. Summing up, the FM has tried to pamper the Corporate as the conviction of the present Government is that the Corporate alone can transform the Indian Economy to a Rs.5 trillion Economy.
Now let us analyse the Income Tax rates for partnership firms and LLPs. They are being taxed @ 30% flat. The Partnership Firms & LLP’s having income above Rs. 1 crore are required to pay surcharge of 12% besides cess of 4%. No incentives have been announced for partnerships & LLP’s. Similarly, the Individual, HUF, BOI, AOP & AJP are being taxed @30% above the Income slab of Rs. 10 lacs. The entities having Income above Rs. 50 lacs but less than Rs. 1 crore are liable to Surcharge @ 10%, while for Income above Rs. 1 crore but less than Rs. 2 crores they are to pay Surcharge @ 15%. For Income above Rs.2 crores but below Rs. 5 crores, super rich surcharge@25% is payable while for the assessees having Income above Rs. 5 Crores shall be liable for Super Rich Surcharge of 37%. Thus after statutory cess of 4%, the nett rate for assessees earning above Rs. 5 Crores works out to a whopping 42.75%. Thus, there is a lot of discrimination between the new Corporate Tax & the Income Tax on other entities. Probably the FM missed the role of the MSME’s in the Economic development of our country. It would not be out of place to mention that the MSME’s give employment to more than 11 crores of our countrymen, contribute to 50% of our exports & 30% to our GDP. It is also noteworthy that there are 40 million MSME’s in India & most importantly, only 0.1% of the MSME’s are Corporate. Thus the tax sops announced by the FM are only for the rich Corporate and not for other assessees. If the manufacturing sector is to be promoted, tax sops should be given to all units established after October 1,2019 irrespective of their constitution- whether proprietorship, partnership, LLP, HUF, BOI, AOP or AJP. Similar to the Corporate Tax cut, there should be lower Income Tax for the other assessees, other than the Corporate.
Respected FM Madam, this is a festive season and it is the right & opportune time to give a festive gift to all the other entities in line with the sops given to the Corporate Sector. Hopefully, the learned FM will announce some corrective measures to alleviate the discrimination to MSME’s and the Common Man to enable them to contribute their mite to fulfill Modi’s dream of a Rs. 5 Trillion Economy for India.