An ordinance was passed by our Finance Minister on the 20th September 2019, where she announced two new corporate tax rates i.e. 22% and 15% and the step was taken so that it encourages the manufacturing industry and also our economy.
There are few conditions which one needs to fulfill to be eligible to pay tax at such lower rate, or else they might have to pay tax at 25% or 30% as applicable. You may read a summary on new corporate tax rate of India here: Summary.
There are few basic conditions which one needs to fulfill to be eligible for such lower tax rate:
- A company must be set up after 1st October 2019 and it must start it’s manufacturing before 31st March 2023.
- It must be a manufacturing company.
- The company must not be formed by splitting up, or the reconstruction, of a business already in existence
The Taxation Laws (Amendment) Bill, 2019 clarified that lower corporate tax for new companies will not be applicable for organization that develop computer software, are involved in mining, convert marble blocks into slabs, bottle gas into cylinders, print books and produce cinematograph films.
The company which fulfills above condition can opt for lower tax rate of 15% but this tax rate doesn’t include cess and surcharge.
According to various Tax experts this bill has been introduced to incentivize few manufacturing companies and encourage manufacturing in India and also encourage more investment in India by foreign investor.
The Ordinance however clarified that company trying to create new firm by transferring existing asset to avail lower corporate tax will not be eligible for the lower levy.
Also, in case of merger a company will not be able to set-off any previous losses or unabsorbed depreciation of the pre-merged entity, according to the bill.
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