The Taxation Laws (Amendment) Ordinance, 2019 was promulgated by President on 20.09. 2019 which has amended the Income Tax Act, 1961, and the Finance (No. 2) Act, 2019.
Compendium of major propositions:
- Income tax rate for domestic companies:
|Particular||Old Tax rate||New Tax rate (optional)|
|Domestic companies with annual turnover of up to Rs 400 crore||25%||22%, provided they do not claim certain deductions under the Income Tax Act. These include deductions provided for: (i) newly established units in Special Economic Zones, (ii) investment in new plant or machinery in notified backward areas, (iii) expenditure on scientific research, agriculture extension, and skill development projects, (iv) depreciation of new plant or machinery (in certain cases), and (v) various other provisions in the Income Tax Act (under Chapter VI-A, except the deductions provided for employment of new employees).
|For other domestic companies||30%|
|For new domestic manufacturing companies*||15%, provided they do not claim certain deductions under the Act (as specified above).|
*New manufacturing companies include companies which will be set up and registered after September 30, 2019 and will start manufacturing before April 1, 2023. These will not include companies: (i) formed by splitting up or reconstruction of an existing business, (ii) engaged in any business other than manufacturing, and (iii) using any plant or machinery previously used in India (except under certain specified conditions).
1 (A) Applicability of new tax rates: Companies can choose to opt for the new tax rate (15% or 22%, whichever is applicable) starting the financial year 2019-20 (i.e. assessment year 2020-21). Once a company has exercised this option, the chosen provision will apply for all the subsequent years.
1 (B) Surcharge on tax payable at new rates: Currently, domestic companies with income between one crore rupees and Rs 10 crore are required to pay a 7% surcharge on tax. Those with an income of more than Rs 10 crore are required to pay a 12% surcharge on tax. The Ordinance provides that companies opting for the new tax rates (15% or 22%, whichever is applicable) are required to pay a 10% surcharge on the tax payable by them under the respective provisions.
|Domestic companies with an income||Old rate||New rate|
|Between one crore rupees and Rs 10 crore||7% surcharge on tax||Companies opting for the new tax rates (15% or 22%, whichever is applicable) are required to pay a 10% surcharge on the tax payable by them under the respective provisions.
|More than Rs 10 crore||12% surcharge on tax|
- Minimum Alternate Tax (MAT): The Ordinance reduces the MAT rate from 18.5% to 15% with effect from the financial year 2019-20.The ordinance specifies that MAT will not apply to the domestic companies opting to pay tax at the new rates.
- Tax on buy-back of shares: Buy-back of shares can be defined as company purchasing its own shares. Presently, tax of 20% is levied on buy-back of shares by listed companies. The Ordinance exempts companies which made a public announcement regarding buy-back of shares before July 5, 2019 (as per the provisions of the Securities and Exchange Board of India (Buy-back of Securities) Regulations, 2018).
The reduced tax rates are Indian government’s endeavours to provide competitive edge to Indian domestic companies with rest of the world.
This content is meant for information only and should not be considered as an advice or opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.
CA Mitika Batta
AKGVG & Associates