‘Acche din’ back for Indian Economy after recent Recent Reliefs in Income Tax and GST?

In yet another surgical strike on bears and negative sentiments of the economy, the FM has tried to create an environment of surplus in the hands of corporates for making investments and ease their liquidity concerns. The Taxation laws (Amendment) Ordinance, 2019 was broadcasted by the President of India on 20th September 2019 to make certain amendments to the Income Tax Act, 1961 and the Finance (No.2) Act 2019. Apart from these amendments under Income Tax, there has been reduction in the GST rates for various sectors-from biscuits to automobiles and FMCG to hotels-in the wake of economic slowdown.

Major highlights of these amendments and decisions of the 37th GST Council meeting have been enumerated as under:

Income Tax

A: Reduction of corporate effective tax rates (ETR) for domestic companies

S. No Nature of domestic company Current ETR

(%)

ETR on exercise of the option Effective reduction in tax liability
1 Basic condition: Turnover does not increase INR 4000 million in tax year 2017-18 or new manufacturing companies incorporated between 1st March 2016 and 30th September 2019  

 

 

 

 

 

 

 

 

 

 

• Income less than INR 10 Million 26% 25.17% 0.83%
• Income more than INR 10 Million but less than INR 100 Million 27.82% 25.17% 2.65%
• More than INR 100 Million 29.12% 25.17% 3.95%
2 Basic condition: Optional tax rate for new companies that set up manufacturing facilities in India starting in October 2019 and commence production before the end of March 2023
• Income less than INR 10 Million 26% 17.16% 8.84%
• Income more than INR 10 Million but less than INR 100 Million 27.82% 17.16% 10.66%
• More than INR 100 Million 29.12% 17.16% 11.96%
3 Other domestic companies
• Income less than INR 10 Million 31.2% 25.17% 6.03%
• Income more than INR 10 Million but less than INR 100 Million 33.38% 25.17% 8.21%
• More than INR 100 Million 34.94% 9.77%

This ETR is subject to the condition that the domestic companies will not avail tax exemption or incentives under the Income Tax Act. Such an option once exercised cannot be subsequently withdrawn. Companies exercising such option will not be required to pay Minimum Alternate Tax (MAT), so that the revised ETR remains intact.

Domestic companies claiming any tax exemptions or incentives shall be eligible to exercise such option after the expiry of the tax incentive period.

For the new domestic companies, to be incorporated on or after 1st October 2019 should fulfill the following conditions:

  • It is not formed by splitting up/reconstruction of a business already in existence.
  • It should not use any plant or machinery previously used in India in value exceeding 20% of total value of plant or machinery or any building previously used as hotel/convention centre.
  • It should not claim any specified tax incentive
  • It should exercise option to claim benefit of lower tax rate in the first of the returns to be filed by it and such option once exercised cannot be withdrawn

B: Reduction of MAT Rates

The rate of MAT for other companies (including domestic companies continuing to avail any tax incentives) is reduced from base rate of 18.5% to 15% (before application of surcharge and cess).

C: Withdrawal of enhanced surcharge on capital gains

The Finance (No. 2) Act, 2019 had increased surcharge for an individual, HUF, AOP, BOI and artificial juridical person to 25% (for total income between INR 2 crore to INR 5 crore) and 37% (for total income exceeding INR 5 crore) from the earlier rate of 15%. Subsequently, the FM in her press conference on 23 August 2019 announced a partial roll back of the enhanced surcharge for:

  • Individuals, HUFs, AOPs, BOIs and Artificial Juridical Persons on capital gains income arising on transfer of listed equity shares, units of equity-oriented fund and business trust, which are liable to Securities Transaction Tax; and
  • Foreign Portfolio Investors (FPIs) on capital gains income arising on transfer of above referred capital assets as also on derivatives (which are deemed to be capital assets in their hands).

There was lack of clarity on withdrawal of enhanced surcharge to FPIs in respect of capital gains arising on securities other than those referred above (e.g. debentures, government securities, etc.).

The Ordinance implements the withdrawal of enhanced surcharge as announced earlier. Further, it also clarifies that, in case of FPIs, the enhanced surcharge shall not apply to capital gains on any ‘securities’.

D: Transitional relaxation on tax on buy­backs by listed companies

Prior to amendment by Finance (No.2) Act 2019, tax on income distributed by a company to its shareholders by way of buy-back of shares applied only to unlisted companies. The Finance (No.2) Act 2019 extended it even to listed companies with effect from 5 July 2019. This created hardships for listed companies who had publicly announced buy-backs before 5 July 2019 but not completed it by that date. The Ordinance relaxes the applicability in respect of buy-backs by listed companies in respect of which public announcement of buyback as per regulatory norms has been made before 5 July 2019. Thus, the buy-back tax will apply in case of listed companies where public announcement of buy­back is made on or after 5 July 2019.

GST

A: Relaxation of filing of Annual Return

  • Waiver of requirement of filing form GSTR-9A for Composition Tax payers for FY 2017-18 and 2018-19
  • Filing of GSTR 9 for those tax payers who have aggregate turnover up to INR 20 Million has been made optional for FY 2017-18 and 2018-19

B: Imposing restriction on availment of Input Tax Credit (ITC)

In order to nudge taxpayers to timely file their statement of outward supplies, imposition of restrictions on availment of input tax credit by the recipients in cases where details of outward supplies are not furnished by the suppliers in GSTR 1 has been proposed.

C: New return system delayed

New return system now to be introduced from April, 2020 (earlier proposed from October, 2019), in order to give ample opportunity to taxpayers as well as the system to adapt and accordingly specifying the due date for furnishing of return in FORM GSTR-3B and details of outward supplies in FORM GSTR-1 for the period October, 2019 – March, 2020.

D: Integrated refund system will be introduced from 24th September 2019

Comments:

  • The reduction in corporate tax rates for domestic companies is a bold and radical measure implemented by the Government to tackle the slow-down in the economy. All domestic companies across all sectors will stand to benefit from the reduction if they opt to sacrifice the tax incentives.
  • The special concessional effective tax rate of 17.16% for new domestic manufacturing companies will make India more competitive when compared to some of the other emerging markets and give a boost to ‘Make in India’ policy of the Government.
  • The non-applicability of MAT in above cases and reduction in MAT rate in other cases ensure that the reduction in corporate tax rates is truly effective.
  • Measures recommended by the GST council, particularly, with respect to annual return are likely to provide relief to MSME sector and facilitate easy compliance
  • Restriction on availment of ITC for non-furnishing of details by supplier has always been a matter of debate. Recipients will need to continuously engage with suppliers to check their return filing status in order to curb the credit loss.

Also Read relevant Press Releases and Notifications

Taxation Laws (Amendment) Ordinance, 2019

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5 Comments

  1. Narayan Jain says:

    The write up by CA Ruhi Kalra is admirable cenompassing both i,e, Reliefs through the Taxation laws (Amendment) Ordinance, 2019 as well as changes in GST.
    Narayan Jain, LL.M.
    Advocate & Author of the book
    Email npjainadv@gmail.com
    HOW TO HANDLE INCOME TAX PROBLEMS

  2. Naveen Kumar says:

    if no MAT for Companies who doesn’t claim benefit under Chapter C deductions, what they have to do with MAT credit available . Kindly clarify.

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