Taxation Laws (Amendment) Ordinance, 2019 – Analysis

V Vivek Rajan

Introduction

The, TAXATION LAWS (AMENDMENT) ORDINANCE, 2019 (hereinafter ‘Ordinance’), is an ordinance to further amend the Income-tax Act, 1961 and the Finance (No.2) Act, 2019.

Since the parliament is not in session and the President of India is satisfied that circumstances exist which render it necessary for him to take immediate action, this Ordinance has come into force with effect from 20^th September 2019.

Amendments made by the Ordinance

1. Insertion of new sections 115BAA and 115BAB

These sections are introduced so as to give a big boost to the corporate sector and provide the required fillip to the manufacturing sector.

With these reduced rates, India’s rate of corporate tax is on par with nations that typically attract investments and the following table has the corporate tax rate of few countries

2. Section- 115BAA- Tax on income of certain domestic companies

Every domestic company, from FY 2019-20, shall have the option of Getting taxed at the base rate of 22% and an effective rate of 25.17% ( after surcharge) subject to following conditions-

1. No deductions to be availed u/s 10AA, 32(1)(iia), 32AD, 33AB or 33ABA.
2. No deductions to be availed under specified clauses of Section 35(2AA), 35(2AB)
3. No deductions to be availed u/s 35AD, 35CCC, 35CCD
4. No deductions under Chapter VI-A under heading “C” except Section 80JJAA( In other words deduction u/s 80JJAA is permissible)
5. No set-off of any loss carried forward from earlier AY if such loss is attributable to any of the deductions referred above. The loss is deemed to have been already given full effect to and no further deduction shall be allowed
6. Depreciation u/s 32 is eligible other than u/s 32(1)(iia) ( Additional Depreciation)
7. The option has to be exercised by filing the ROI within 139(1).
8. The option once exercised shall apply to subsequent AY’s and once exercised , it cannot be subsequently withdrawn

3. Section- 115BAB- Tax on income of certain new domestic manufacturing companies

Specific power to the AO

The AO has the power to make appropriate additions where it appears that the company and any other person have taken steps to claim more benefit under this section than what is normally expected to arise. This power extends to cases involving a specified domestic transaction u/s 92BA and in that scenario the principles of section 92F would come into play.

4. Amendment of Section 115JB

With effect from AY 2020-2021, the rate of tax u/s 115JB has been reduced from 18.5% to 15%.

The provisions of Section 115JB shall not apply to

a. Any income accruing or arising to a company from life insurance business u/s 115B

b. A company who has exercised the option referred u/s 115BAA or 115BAB (covered above)

5. Amendment of Section 115QA

The Central Government as part of its budget in July 2019 had announced 20% tax on buy-back of shares by listed companies. The Government vide this ordinance has exempted such tax on buy-back of shares in respect of which public announcement has been made before the 05^th of July 2019, in accordance with the regulations of SEBI Act, 1992.

This one time offer would benefit major IT companies and few examples are as under

6. Withdrawal of enhanced surcharge

The enhanced surcharge introduced by Finance (No.2) Act, 2019 shall not apply on capital gains arising on sale of equity share in a company or unit of equity oriented fund or unit of business trust liable for STT, in the hands of individual, HUF, AOP, BOI , AJP

Conclusion

The above measures would cost the Central Government Rs.1,45,000 crore a year in terms of revenue foregone. The dividend received from the Reserve Bank of India of Rs. 1,76,000 crores is a cushion and this would help in offsetting this loss of revenue of Rs.1,45,000 crores.

As a final remark, the onus is on the corporate sector now to deliver not only in terms of fresh investments but also in the form of passing of this benefit of lower taxes to the consumers and investors.

(The author is a Chennai based Chartered Accountant in Practice. He can be reached at vvr@vvrcas.com)

Also Read relevant Press Releases and Notifications

Taxation Laws (Amendment) Ordinance, 2019