On Friday, 20th September, 2019 everyone was ready for some announcement regarding discontinuance of GSTR 9 etc from our Finance Minister Nirmala Sitharam. However, to everyone’s surprise the meeting turned out to be an announcement on change in corporate tax rate in India and the headlines were that Corporate Tax rate has been reduced to 15% for manufacturing company and 22% for non-manufacturing company and also many people have addressed this meeting as a mini budget announcement and the changes made in this meeting has been brought into effect by an ordinance, so let’s discuss the ordinance in brief in this post.
The key highlights of the ordinance are as follows:
- Title of section 115BA has been changed from “Tax on income of certain domestic companies” to “Tax on income of certain domestic manufacturing companies.”
- New section 115BAA has been added after section 115BA, where companies would be allowed to pay tax at 22% plus surcharge and cess, if certain conditions are satisfied.
- New section 115BAB has been added after section 115BA, where companies which are into manufacturing and has been set up after 01st October 2019 would be allowed to pay tax at 15% plus surcharge and cess, if certain conditions are satisfied.
- Rate of MAT has been reduced from 18.5% to 15% and MAT won’t be applicable on companies covered under section 115BAA and 115BAB.
So now technically after above amendment there are in total 5 tax rate for domestic companies in India:
|Basic tax rate||15%||22%||25%||25%||30%|
|Governed by section||115BAB||115BAA||115BA||Budget/ Finance Bill||Budget/ Finance Bill|
|Date of incorporation of company||On or after 01st October 2019||No date||On of after 01st March 2016||No date||No date|
|Limit of turnover||No limit||No limit||No limit||Turnover of Rs. 400 crore in FY 2017-18||No limit|
|Type of Industry/ Company||Manufacturing||No restriction||Manufacturing||No restriction||No restriction|
Few of my concerns with regard to these changes are:
- The heading of section 115BA has been changed and now this section has been made applicable only for manufacturing companies and earlier there was no such condition so if any non-manufacturing company had taken it’s benefit will they continue to take such benefit or they have to let go such benefit however according to the proviso of this section once the benefit of this section has been taken it cannot be withdrawn so how will a non-manufacturing company take it’s benefit.
- The new manufacturing company will pay tax @15% while the one opened before will pay tax @25% or 30%, why?
- Many people spread the news that effective tax rate after considering cess and surcharge in case of two new section i.e. 115BAB and 115BAA would be 17.01% and 25.17% respectively however the calculation of same was not explained and we are not able to reach this tax rate using the regular surcharge rate on domestic companies.
There will be a detailed post with regard to two new sections introduced.
You can read the whole ordinance here: //www.incometaxindia.gov.in/Lists/Latest%20News/Attachments/339/TheTaxation_Laws_Amendment_Ordinance_2019_20_9_19.pdf
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