New Corporate Tax Rates – What are the new provisions and who will benefit?

The government of India, by its announcement made on 20^th September 2019, has decided to slash the corporate tax rates. This decision was made to prevent the current situation of a slowdown in the economy of India. Due to a fall in the growth rate of the economy, the rate of unemployment is also rising in India. Hence, it is a matter of concern. The slashing of corporate tax rates will help to protect the net profit and boost the economy of the companies.

Decisions made by the Government:

The Finance Minister of India has made many smart decisions that will provide relief and encouragement to the corporate. Two new sections have been inserted in the Income Tax Act by the Government to promote growth of the companies.

Section 115BAA:

• Under this section, the domestic companies will be liable to pay corporate tax @ 22% instead of 30%. This rate is exclusive of any surcharge and education cess.
• To opt for this scheme, the companies must not avail any exemption or incentive under the Income Tax Act.
• Such companies are liable to pay an effective tax rate of 25.17% (inclusive of surcharge and cess).

Section 115BAB

This section has been inserted for such domestic manufacturing companies that are incorporated on or after 1^st October 2019. The scheme will support and boost ‘Make in India’ campaign but subjected to the following conditions:

• Rate of Corporate tax for such companies has been slashed from 25% to 15%.
• These companies must commence their commercial production on or before 31^st March 2023.
• The company must not come into formation by the splitting up/ reconstruction of a business already in existence.
• Second-hand machinery should not form more than 20% part of the total machinery being used in the company. However, this condition is not applicable to imported plant and machinery.
• The premises of the company must not have been previously used as a hotel or any convention centre.
• Such companies must not avail any exemption or incentive under the Income Tax Act.
• The effective tax rate for such companies is 17.01% inclusive of any surcharge or cess.

Companies opting for the above schemes do not have to pay Minimum Alternate Tax. This option can be exercised before the expiry of the due date of filing income tax return by the company. Also, if the scheme is once availed by an assessee, it cannot be withdrawn.

Companies not adopting section 115BAA and section 115BAB:

Companies not willing to opt the above concessional tax regime will be liable to pay tax at the pre-amended rates. The same is also applicable to companies availing any tax exemption or incentive under the Income Tax Act. To enhance growth and financial position of such companies, the rate of Minimum Alternate Tax has been declined from 18.5% to 15%.

However, once the exemption period of the company is expired, it becomes eligible to adopt the above sections.