In a major relief to all corporates in the country the Finance Minister announced a significant tax reduction. The Government of India has brought in Taxation Laws (Amendment) Ordinance 2019 to make amendments to the Income Tax Act to lower tax rates for Corporate tax payers.

Salient features of these amendments are as under:

  1. A domestic company in India has now 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. In a further relief, it has been announced that such companies shall not be required to pay Minimum Alternate Tax.
  2. A domestic company incorporated on or after 1stOctober 2019 making fresh investment in manufacturing, has now 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.
  3. A domestic 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. 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of the option they shall be liable to pay tax at the rate of 22% and option once exercised cannot be subsequently withdrawn.
  4. 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%

These are very significant announcements which are designed to restart the private investments in the country. The reduction in corporate taxes was due for a while as countries like Singapore & the USA had reduced their corporate taxes.

In order to boost the Make in India initiative the Government has set a tax rate of 15% for manufacturing industries set up on or after 1.10.19. This is a historic move to give a boost to the struggling manufacturing sector. The slowdown in consumption had resulted in massive job losses in this sector.

The Minimum Alternate Tax (MAT) has been removed for domestic companies in the new tax regime. Further, in case of companies opting old rate of taxes, the MAT has reduced to 15%. We only hope that in the future MAT is completely removed and India moves towards taxing only actual profits.

The conditions for availing reduced taxes will have to be looked in detail once they are notified by the Central Board of Direct Taxes.

Final Thoughts

India can boast of an optimal tax rate of 22% and incentive tax rate of 15%. These rates are on par with global corporate tax rates and will provide an incentive for manufacturing firms to shift their supply chains to India.

The most frequent problems that business owners face are to do with accounting & regulatory compliance. Entrepreneurs view time invested in doing both as unproductive time.

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