NEW DELHI :
The President Ram Nath Kovind on Friday cleared an ordinance to give effect to amendments in the Income Tax Act, 1961 and Finance Act, 2019. To arrest slowdown in the economy and boost growth, the government has cut corporate tax rate for new and domestic manufacturing companies.
For companies that does not avail of any tax incentive, the tax rate will be 22%, while the effective corporate tax rate after surcharge will be 25.17%--inclusive of cess and surcharges, finance minister Nirmala Sithraman said.
The ordinance is called Taxation Laws (Amendment) Ordinance, 2019 and comes into effect immediately.
To attract fresh investment in manufacturing and give boost to the government’s ‘Make-in-India’ initiative, another new provision has been inserted in the Income-tax Act with effect from the financial 2019-20. New manufacturing companies incorporated after October 1, 2019 will have to pay corporate tax rate of 15%.
“Any new domestic company incorporated on or after 1 October 2019 making fresh investment in manufacturing, an option to pay income-tax at the rate of 15%. This benefit is available to companies which do not avail any exemption/incentive and commences their production on or before 31st March, 2023," finance ministry said.
The effective tax rate for these companies will be 17.01% inclusive of surcharge and cess and such companies will not have to pay Minimum Alternate Tax (MAT).
The tax cut is expected to encourage businesses to invest more at a time economic growth rate has slowed down to a six-year low of 5% in the June quarter.
“The rate at which now are going to tax is 22% for old established companies. For newer investments coming, 15% is what the rate is" Sitharaman said.
The tax relief is part of steps the government has been announcing after consultations with the industry, on a weekly basis, to deal with the slowdown, the minister said.
At present, business income is taxed at 30%, exclusive of cess and surcharge, other than the companies with sales of up to ₹400 crore, and new manufacturing companies which are taxed at 25%.
Towards the decision pertaining to tax cuts, the Centre will have to bear revenue loss of ₹1.45 trillion.
Besides, listed companies which had announced share buybacks before 5 July, the day the Union Budget brought share buybacks under the tax net, will be exempt from buyback tax. The government has also cut the minimum alternate tax rate to 15% from 18.5% for companies that continue to avail exemptions and incentives.
The government also rolled back an increase in surcharge introduced in the July budget on capital gains made by individuals and other entities from sale of equity.
Companies that do not avail of the concessional tax regime will continue to pay tax at the pre-amended regime. They can opt for the concessional tax regime after the end of the tax holidays or the exemption period that they currently avail.