Corporate tax rates slashed to 22% for domestic companies and 15% for new domestic manufacturing companies and other fiscal reliefs

Corporate tax rates slashed to 22% for domestic companies and 15% for
new domestic manufacturing companies and other fiscal reliefs
The Government has brought in the Taxation Laws (Amendment)
Ordinance 2019 to make certain amendments in the Income-tax Act 1961 and the
Finance (No. 2) Act 2019. The salient features of these amendments are as under:-
a) In order to promote growth and investment, a new provision has
been inserted in the Income-tax Act with effect from FY 2019-20
which allows any domestic company an option to pay income-tax at
the rate of 22% subject to condition that they will not avail any
exemption/incentive. The effective tax rate for these companies shall
be 25.17% inclusive of surcharge & cess. Also, such companies shall
not be required to pay Minimum Alternate Tax.
b) In order to attract fresh investment in manufacturing and thereby
provide boost to ‘Make-in-India’ initiative of the Government,
another new provision has been inserted in the Income-tax Act with
effect from FY 2019-20 which allows any new domestic company
incorporated on or after 1st October 2019 making fresh investment
in manufacturing, an option to pay income-tax at the rate of 15%.
This benefit is available to companies which do not avail any
exemption/incentive and commences their production on or before
31st March, 2023. The effective tax rate for these companies shall
be 17.01% inclusive of surcharge & cess. Also, such companies
shall not be required to pay Minimum Alternate Tax.
c) A company which does not opt for the concessional tax regime and
avails the tax exemption/incentive shall continue to pay tax at the
pre-amended rate. However, these companies can opt for the
concessional tax regime after expiry of their tax holiday/exemption
period. After the exercise of the option they shall be liable to pay tax
at the rate of 22% and option once exercised cannot be subsequently
withdrawn. Further, in order to provide relief to companies which
continue to avail exemptions/incentives, the rate of Minimum
Alternate Tax has been reduced from existing 18.5% to 15%.
d) In order to stabilise the flow of funds into the capital market, it is
provided that enhanced surcharge introduced by the Finance (No.2)
Act, 2019 shall not apply on capital gains arising on sale of equity
share in a company or a unit of an equity oriented fund or a unit of a
business trust liable for securities transaction tax, in the hands of an
individual, HUF, AOP, BOI and AJP.
e) The enhanced surcharge shall also not apply to capital gains arising
on sale of any security including derivatives, in the hands of Foreign
Portfolio Investors (FPIs).
f) In order to provide relief to listed companies which have already
made a public announcement of buy-back before 5
th July 2019, it is
provided that tax on buy-back of shares in case of such companies
shall not be charged.
g) The Government has also decided to expand the scope of CSR 2
percent spending. Now CSR 2% fund can be spent on incubators
funded by Central or State Government or any agency or Public
Sector Undertaking of Central or State Government, and, making
contributions to public funded Universities, IITs, National
Laboratories and Autonomous Bodies (established under the
auspices of ICAR, ICMR, CSIR, DAE, DRDO, DST, Ministry of
Electronics and Information Technology) engaged in conducting
research in science, technology, engineering and medicine aimed at
promoting SDGs.
The total revenue foregone for the reduction in corporate tax rate and other relief
estimated at Rs. 1,45,000 crore.