Cabinet had approved Taxation Laws (Amendment) Bill, 2019

The Union Cabinet which was headed by Prime Minister Narendra Modi had approved the proposal for presenting the Taxation Laws (Amendment) Bill, 2019 with the intention of replacing the Ordinance.

The new Bill would replace an ordinance promulgated towards reducing corporate tax to 22% for domestic corporations. It is going to be presented in the Parliament during the continuing winter session. On 20th September 2019, Finance Minister Nirmala Sitharaman had said that the revenue foregone on reduction relating to the corporate tax as well as other relief measures shall be Rs.1.45 trillion yearly. Subsequent the decision, the rate of corporate tax had come down to 22% for domestic corporations in case they do not avail any incentive or concession. Also, corporations opting for 22% income tax slab shall be not required to pay minimum alternate tax (MAT). The rate of tax was reduced to 15% for new domestic manufacturing corporations which have been incorporated after 1st October 2019.

The economic developments after the enactment of the Finance (No. 2) Act, 2019 (Finance Act) as well as the reduction of rate of corporate income tax through many nations over the world had necessitated the provision of added fiscal inducement towards attracting investment, generate service and lift the economy. As these may have been attained through making amendment in the Income Tax Act, 1961 (IT Act) or to the Finance Act as well as the Parliament was not in session, it was completed through announcement of The Taxation Laws (Amendment) Ordinance 2019 (the Ordinance) in September 2019.

The salient features of the amendments made through the Ordinance are:

By means of the Ordinance, so as to promote growth as well as investment, a new clause was introduced in the Income Tax Act to furnish that with effect from the current fiscal year 2019-20, an existing domestic corporation might opt to pay tax at the rate of 22% plus surcharge at the rate of 10% and cess at the rate of 4%, in case it doesn’t claim any incentive or deduction. The effective rate of tax for these corporations comes to 25.17%. They shall also not be subjected towards Minimum Alternate Tax (MAT).

Also to attract fresh investment in manufacturing and in order to boost the ‘Make in India’ initiative of the Government, an additional provision has been inserted to the Income Tax Act, to furnish that a domestic manufacturing corporation that was set up on or after 1st October, 2019 and which starts manufacturing by 31st March, 2023, might opt to pay tax at the rate of 15% plus surcharge at the rate of 10% as well as cess at the rate of 4% in case it doesn’t claim any incentive or deduction. The effective tax rate comes to 17.16% for these corporations. They shall also not be subjected to Minimum Alternate Tax (MAT).

A corporation which doesn’t choose for the concessional tax regime as well as avails the tax exemption or incentive shall be able to continue to pay taxes at the pre amended rate. Though, these corporations could choose for the concessional tax regime after the expiration of their tax holiday or exemption period. After exercising the option they would be liable to pay tax at the rate of 22%. Furthermore, with the purpose of providing relief to corporations which continues to avail exemptions or incentive, the rate of MAT has been reduced from existing 18.5% to 15%.

To furnish relief to listed corporations, the buy-back tax on shares of listed corporations that have been introduced through the Finance Act would not be applicable towards buy-backs relating to which public announcement was made before 5th July 2019.

Also towards stabilizing the flow of funds into the capital market, it was furnished that the enhanced surcharge that has been introduced through the Finance Act relating to capital gains arising on account of transfer of listed equity share or certain units which are responsible towards securities transaction tax shall not be applicable. Furthermore, it also provided that the enhanced surcharge shall not be applicable towards capital gains income of FPIs arising out of transfer of any security which includes derivatives, having concessional tax regime.

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eStartIndia Team