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Conditions for Availing Reduced Corporate Taxes

Conditions for Availing Reduced Corporate Taxes

by Sanjeev Archak

The Government has introduced the Taxation Laws (Amendment) Ordinance, 2019 for reducing the corporate taxes. Now domestic companies can now opt to pay taxes at 22%  or at 15% subject to conditions which are as under:

1.Reduced rates of taxes shall be applicable from 1.4.2020.

2.Company shall not avail deductions under:

a.Section 10AA: deductions for newly established Special Economic Zones

b.Section 32(iia):additional depreciation for machinery

c.Section 32AD: additional depreciation for machinery used in special states

d.Section 33AB: investments in specified deposits

e.Section 33ABA: deposits into site restoration fund

f.Section 35(2AA)(2AB): expenditure on scientific research

g.Section 35AD: Deduction in respect of expenditure on specified business

h.Section 35CCC: Expenditure on agricultural extension project

i.Section 35CCD: Expenditure on skill development project

3.Further, company shall not avail any deductions under Chapter VIA except the deduction under:

a.Section 80JJA: Deduction in respect of employment of new employees

4.The loss arising from deductions under point 2 shall not allowed to be allowed for any subsequent year.

5.The tax payer has to opt for paying taxes at 25% +cess or 15%+ cess, once the option is availed it cannot be rolled back.

Particulars

Tax on Domestic Companies

Tax on New Domestic Manufacturing Companies

Applicable  Financial Year

2019-20

2019-20

Timing of exercising option for lower tax

On or before the due date specified for filing returns

On or before the due date specified for filing returns

Basic Tax Rate

22%

15%

Surcharge Rate

10%

10%

Cess

4%

4%

Effective Rate

25.17%

17.16%

Applicability of Minimum Alternate Tax

Not Applicable

Not Applicable

Conditions

None

Company has been registered on or after the 01/10/2019, and has commenced manufacturing on or before 31/03/2023

None

The company is not engaged in any business other than the business of manufacture or production of any article or thing

6.Savings in Tax Rates:

Income Slabs

Pre–Amendment Scenario

 

Savings in Tax Rates

Companies having turnover Below Rs 400 cr

Companies having turnover of Rs 400 cr or more

Tax Rate
as per
New
option given u/s
115BAA

Companies having turnover Below Rs 400 cr

Companies
having turnover of Rs 400 cr or
more

total income upto Rs 1 Crore

26.00%

31.20%

25.17%

0.83%

6.03%

total income exceeding Rs 1 Crore but not exceeding Rs 10 crore

27.82%

33.38%

25.17%

2.65%

8.21%

total income exceeding Rs 10 crore

29.12%

34.94%

25.17%

3.95%

9.77%

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 document shall not be construed as professional advice or an opinion

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