This is a Thought Leadership Article by PrimeGlobal firm UCC & Associates LLP which looks at reductions in income tax for companies in India. 

In a press conference held on 20th September 2019 the announcements made by the Ministry of Finance were cheered for by the INDUSTRY and SENSEX.

Bold and welcome Fiscal Measures announced by Finance Minister Mrs. Nirmala Sitharaman to Promote Growth and Investment in the Country. The main focus of the announcements as said by Finance Minister “We want to have more investments in Make in India. This will mean more investment. This will mean strengthening the economy and boosting employment and economic activity, leading to more revenue.”

Hopefully these big bang reforms will give the necessary boost to the Economy and allowing Indian companies to compete with those in lower tax jurisdictions. A much awaited and required measures for when the growth at 5% in the last quarter has been at the lowest of last 6 years.

Slashed Corporate Tax Rate
The tax rate for domestic company has been reduced to 22% from existing rate of 30%, condition being company not availing any exemption or incentive. Effective tax rate being 25.17% inclusive of surcharge and cess.

The companies will have an option to choose for concessional tax regime after the expiry of the tax holiday/exemption availed by them. 

Manufacturing Companies
With focus being “Made in India” and to provide a surge to the manufacturing sector the tax rates are proposed to be slashed from 25% to 15%.

The benefit is for companies incorporated on or after October 1st 2019 not availing any exemption/incentive and commences production by March 31st 2023

Minimum Alternate Tax

  • Rate of MAT has been reduced from 18.5% to 15% for companies that continues to avail exemption/ incentive
  • Companies opting for Concessional tax regime need not will not be required to pay Minimum Alternate Tax.

S. No

Category of Domestic Company

Exemptions/Incentives Availability

Applicable Tax Rate

 

MAT Rate

1.

Lower Rate - Opted

 

 

No

 

 

22%

 

 

Not applicable

2.

Lower rate - Not Opted

 

No

 

25% or 30%

 

 

18.5%

3.

Continue Availing Exemptions/Incentive

 

Yes

 

25% or 30%

 

 

15%


Example
:

A company ABC Ltd has earned Book profit of Rs 757 crore and the Profit as per Income Tax Act, 1961 is Rs 771 crore. There is deduction u/s 80IA available of Rs 360 crore. The tax payable as per Sec 115JB as per old provisions and New provisions:

S.No.

Tax as per

Profit

Chargeable to Tax

MAT @ 18.5%

Tax @ 30%+

Surc. +

Cess

MAT @ 15%

Tax @ 22%+

 Surc. +

Cess

Difference

1.

Opted to Avail Deduction

i)

MAT

Rs 757 crore

140

-

113.55

-

 

ii).

IT Act

 

 

(771-360) = Rs 411 Crore

-

123.3

-

 

16.7 Crore

2.

Opted for Lower Rate

 

IT Act

 

(771-360) =Rs 411 crore

 

 

 

103.45 Crore

36.55 Crore

 

Section 115QA
Listed companies shall not pay additional tax at the rate of 20% on income distributed by way of buy back of shares u/s 115QA, for the announcement made before 5th July 2019.

Expansion of CSR Spending
CSR fund can be spent on the incubators funded by the Central or the State Govt. or any agency or public sector undertaking of Central or State Govt, making contributions to public funded universities, IITs, Laboratories etc conducting research in science, technology, medicine etc.

 Enhance Surcharge Withdrawn

Enhanced surcharge will not be applicable on capital gains arising on sale of

  • equity shares in a Company/Unit/Equity Oriented Fund/ Unit of Business Trust in the hands of Individuals/HUF/AOP/BOI/AJP
  • Any security including derivatives in hands of FPIs

Content by:

UCC & Associates LLP

UCC & Associates LLP (UCC) commenced operations in India on July 13, 1991. Currently we operate from three locations: Gurgaon, New Delhi, and Noida. These three locations are prominent business centers of India, known as the NCR (National Capital Region). UCC has 6 partners, 8 qualified professional, and about 75 dedicated staff members. UCC is registered with PCAOB – USA, CAG of India for work on public sector enterprises, and Regulatory Bank – RBI for work in the banking sector. The firm has also been favorably peer reviewed by the ICAI of India.

Learn more