HIGHLIGHTS OF THE TAXATION LAWS (AMENDMENT) ORDINANCE, 2019

  • The President has promulgated an Ordinance dated 20 September, 2019 to amend the Income-tax Act, 1961 and the Finance (No.2) Act, 2019.
  • The Ordinance promulgated is THE TAXATION LAWS (AMENDMENT) ORDINANCE, 2019, hereafter referred to as “the Ordinance”.
  • The Ordinance shall come into force at once unless it is specifically provided otherwise.
  • The brief overview of the amendments brought about by the Ordinance is discussed as under:

KEY INCOME-TAX AMENDMENTS BY THE TAXATION LAWS (AMENDMENT) ORDINANCE, 2019

CORPORATES

Tax on income of certain domestic manufacturing companies.

[Amendment in Section 1 15BA]

– The heading of Section 11 5BA has been amended to clarify its applicability to domestic manufacturing companies. The word “Manufacturing” was not there earlier.

– Section 115BA(1) has been amended and states that it is subject to the provisions of Chapter XII, other than those mentioned under section 115BAA and section 115BAB of the Income-tax Act, 1961 (the Act).

– Further, a new proviso has been inserted to section 11 5BA(4), which stipulates that in case the asses see exercises the option under section 115BAB, the benefit of section 11 5BA would be withdrawn.

VTPA Comments – Section 1 15BAB(1) clearly provides that to avail the option of lower rate of tax of 15%, the domestic company must fulfill the provisions of section 11 5BAB(2)(a), which states that only companies set up and registered on or after 01 October 2019….. are eligible for the said benefit.

– Thus, in which manner, the company covered under section 11 5BA can avail of the benefit of the new section 11 5BAB, needs to be clarified.

– The question is whether the intention of the legislature was that the domestic manufacturing companies presently availing benefit of section 115BA, cannot avail benefit under section 1 15BAB.

– Considering the reason for the ordinance, namely, to give fillip to the economy, such intention would be a disincentive to the manufacturing sector, and will create two classes of manufacturing companies.

Tax on income of certain domestic companies

[Insertion of new Section 115BAA]

– Section 115BAA prescribes that the tax rate of the domestic company shall at its option, and apart from the provisions of section 11 5BAB and section 11 5BA, be computed at the rate of 22%. The concessional rate of tax of 22% is subject to fulfilment of certain conditions:

– Deductions as well as loss under sections 10AA, 32(1)(iia), 32AD, 33AB, 33ABA or sub-clauses (ii) or sub-clause (iia) or subclause (iii) of sub-section (1) or sub-section (2AA) or sub-section (2AB) of section 35 or section 35AD or section 35CCC or section 35CCD or under any provisions of Chapter VI-A under the heading of “Deductions in respect of certain incomes” other than the provisions of section 80JJAA.

– Depreciation under section 32 would be allowed as may be prescribed.

– The assessee should file his return of income before the due date prescribed under section 139(1).

– The option, once exercised cannot be withdrawn and would be applicable for subsequent years also.

VTPA Comments – The amendment does not give clarity in which case a company covered
under section 11 5BA can opt for being covered under section 115 BAA.- Proviso to section 11 5BA(4) clearly states that Provided that “once the option has been exercised for any previous year, it cannot be subsequently withdrawn for the same or any other previous year.”Thus, in which manner, the company covered under section 11 5BA can avail of the benefit of the new section 11 5BAA needs to be clarified.- This so, as the amendment by the ordinance, to section 11 5BA(4) by way of inserting a new proviso, as discussed above, does not cover section 11 5 BAA.
Tax on income of certain new domestic manufacturing companies

[Insertion of new Section 115BAB]

 

– Section 11 5BAB prescribes that the tax rate of the domestic company shall at its option, and apart from the provisions of section 11 5BAA and section 11 5BA, shall be computed at the rate of 15%. The concessional rate of tax of 15% is subject to fulfilment of certain conditions:

– The company is formed or set up on or after 1 October 2019 and has commenced manufacturing on or before 31 March 2023.

– It is not formed by splitting up, or the reconstruction, of a business already in existence subject to exceptions. It does not use any machinery or plant previously used for any purpose. It does not use any building previously used as a hotel or a convention centre, as the case may be.

– The company is not engaged in any business other than the business of manufacture or production of any article or thing and research in relation to, or distribution of, such article or thing manufactured or produced by it.

– Deductions as well as loss under sections 10AA, 32(1)(iia), 32AD, 33AB, 33ABA or sub-clauses (ii) or sub-clause (iia) or subclause (iii) of sub-section (1) or sub-section (2AA) or sub-section (2AB) of section 35 or section 35AD or section 35CCC or section 35CCD or under any provisions of Chapter VI-A under the heading of “Deductions in respect of certain incomes” other than the provisions of section 80JJAA.

– Depreciation under section 32 would be allowed as may be prescribed.

– The ordinance also provides that where it appears to the Assessing Officer that, owing to the close connection between the company and any other person, course of business between them is so arranged that the business transacted between them produces to the company more than the ordinary profits which might be expected to arise, the computation shall take the amount of profits as may be reasonably deemed to have been derived therefrom.

– However, in case the aforesaid arrangement involves a specified domestic transaction referred to in section 92BA, the same would be computed accordingly.

– The assessee should file his return of income before the due date prescribed under section 139(1) and the option, once exercised, cannot be withdrawn and would be applicable for subsequent years also.

Definition of ‘specified domestic transaction’

[Section 92(BA)(va)]

– Section 92BA has been made applicable to transactions between persons referred to in section 1 15BAB(4). The amendment has been brought about by introducing a new sub-section (va) to section 92BA.

– The amendment is as under:

“any business transacted between the persons referred to in sub-section (4) of section 115BAB.”

– The aggregate of the transactions mentioned under section 92BA of the Act entered into by the assessee exceed INR twenty crores.

VTPA Comments – The amendment tends to equate availing tax holiday with domestic manufacturing companies availing lower rate of tax of 15%.
Special provision for payment of tax by certain companies

[Amendment to Section 115JB]

– Section 11 5JB( 1) has been amended to provide that for the words “eighteen and one-half per cent”, occurring at both the places, the words “fifteen per cent” are substituted. Thus, the rate of tax applicable under the MAT provisions has been reduced to 15%.

– Further, a new clause has been added to 115JB(5A), as per which a person who has exercised the option referred to under section 11 5BAA or section 1 15BAB would not be liable for MAT under section 1 15JB.

VTPA Comments – One needs to look into whether the MAT credit brought forward from earlier years shall be allowed to be set off against regular tax liability of the companies availing concessional tax regime under section 115BAA or section 11 5BAB of the Act.
Tax on distributed income to shareholders

[Amendment to Section 115QA]

– Section 115QA(1) was amended to provide that a domestic company shall be liable to pay additional income-tax at the rate of twenty percent on the distributed income on buy-back of shares including those listed on a recognized stock exchange from a shareholder.

– The said amendment was to take effect from 5 July, 2019.

– The Ordinance has inserted a proviso to exempt buyback of shares listed on recognized stock exchange in respect of which a public announcement regarding the buyback has been made before 5 July, 2019 in accordance with the SEBI regulations.

VTPA Comments – The aforesaid amendment clarifies that section 115QA will not apply to the companies who had already announced the buyback on the basis of the erstwhile provisions of the Act.

RATES OF TAX

1.1. For Individuals, Hindu Undivided Families, Association of Persons, Body of Individuals and Artificial judicial person

Existing* Amended**
Income (INR) Rate (%) @ Income (INR) Rate (%) @
0 – 2,50,000# Nil 0 – 2,50,000# Nil
2,50,001 – 5,00,000# 5 2,50,001 – 5,00,000# 5
5,00,001 – 10,00,000 20 5,00,001 – 10,00,000 20
10,00,001 and above 30 10,00,001 and above 30

@ Health and Education cess of 4% is leviable on the amount of income-tax.

# The basic exemption limit is INR 250,000 in case of every individual below the age of 60 years, INR 300,000 in case of resident individuals of the age of 60 years or more, and INR 500,000 for ‘very senior citizen” in case of resident individuals of age 80 years and above.

* Where total income does not exceed INR 350,000, the assessee shall be entitled to a credit on the income-tax payable, not exceeding of an amount equal to hundred percent of the Income-tax payable or INR 2,500, whichever is less.

** Where total income does not exceed INR 500,000, the assessee shall be entitled to a credit on the income-tax payable, not exceeding of an amount equal to hundred percent of the Income-tax payable or INR 12,500, whichever is less.

The amendments made to surcharge on income-tax, for Individuals, Hindu Undivided Families, Association of Persons, Body of Individuals and Artificial judicial person, are as follows:

Existing Amended
Total Income (INR) Surcharge
(%)
Total Income (INR) Surcharge
(%)
5 million – 10 million 10 5 million – 10 million 10
10 million – 20 million 15
Above 10 million 15 20 million – 50 million 25*
Above 50 million 37*

*The Finance (No. 2) Act has been amended to withdraw the enhanced surcharge, i.e., 25% or 37%, as the case may be, from income chargeable to tax under section 111A, 1 12A and 1 15AD and as a result the surcharge on such income is restricted to 15%

1.2. For Others

Description Existing Rate (%) Amended Rate (%)
Having Income
from INR 10
million to 100
million
Having Income
more than INR
100 million
Having Income
from INR 10
million to 100
million
Having Income
more than INR
100 million
(Including Health and Education Cess @ 4%)
A) Domestic company
Regular tax (Turnover < 2500 mn) 27.82* 29.12** 27.82* 29.12**
Regular tax

(2500 mn < Turnover < 4000 mn)

33.384* 34.944** 27.82* 29.12**
Regular tax

(Turnover > 4000 mn)

33.38* 34.94** 33.38* 34.94**
115BAB NA 17.16*** 17.16***
115BAA NA 25.17*** 25.17***
MAT 20.587
(of book profits)*
21.545
(of book profits)**
16.69
(of book profits)*
17.47
(of book profits)**
DDT 17.472** 17.472**
Dividend Received from Foreign subsidiary company 17.472** 17.472**
B) Foreign company
Regular tax 42.432$ 43.68# 42.432$ 43.68#
C) Firm and LLP
Regular tax 34.944 34.944
Alternate Minimum Tax (AMT) 20.587 20.587

* Inclusive of surcharge @ of 7 %

** Inclusive of surcharge @ of 12 %

*** Inclusive of surcharge @ of 10 %. Also MAT provisions are not applicable.

$ Inclusive of surcharge @ of 2 % # Inclusive of surcharge @ of 5 %

Disclaimer: The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Also Read relevant Press Releases and Notifications

Taxation Laws (Amendment) Ordinance, 2019

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