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The Taxation Laws (Amendment) Bill, 2019 - Framework & Important Features

Introduction

Finance Minister introduced the Taxation Law (Amendment) Bill in Lok Sabha that seeks to cut the corporate tax rate. The Union Cabinet chaired by the Prime Minister has approved the proposal for introducing the Taxation Laws (Amendment) Bill, 2019 in order to replace the Ordinance.


The Bill aimed to bring in more investment in the manufacturing sector by bringing down the corporate tax rate to 22% without incentives and 15% for new manufacturing entities.

Currently, domestic companies with an annual turnover of up to ₹400 crore pay income tax at the rate of 25%. For other domestic companies, the tax rate is 30%.


Framework
  • The ordinance proposing a reduction of corporate tax rates was promulgated by the President on September 20, 2019. The ordinance proposed lower tax rate options for domestic companies to promote growth and investment and attract fresh investment in the domestic manufacturing sector.


  • The Taxation Laws (Amendment) Bill, 2019 was introduced in the Lok Sabha on November 25, 2019, to replace the Ordinance.

  • The Union Government in September 2019 reduced corporate tax rates up to 10 percentage points to pull up India’s economy. The reduction was the biggest in the last 28 years.

  • The base corporate tax of the domestic companies was reduced to 22 per cent from 30 per cent and to 15 per cent from 25 per cent for the new domestic manufacturing firms, which were established after October 1, 2019, and started operations before March 31, 2023.

  • The companies opting for lower tax rates will, however, not be entitled to claim any rebate or deductions.

Important Features
  1. Currently, domestic companies with an annual turnover of up to Rs 400 crore pay income tax at the rate of 25%. For other domestic companies, the tax rate is 30%.  The Bill provides domestic companies with an option to pay tax at the rate of 22%, provided they do not claim certain deductions under the Income Tax Act.

  2. The Bill provides new domestic manufacturing companies with an option to pay income tax at the rate of 15%, provided they do not claim certain deductions. These new domestic manufacturing companies must be set up and registered after September 30, 2019, and start manufacturing before April 1, 2023.


  1. A company can choose to opt for the new tax rates in the financial year 2019-20 (i.e. the assessment year 2020-21) or in any other financial year in the future. Once a company exercises this option, the chosen provision will apply for all subsequent years.

  2. Provisions regarding payment of Minimum Alternate Tax (MAT) will not apply to companies opting for the new tax rates. MAT is the minimum amount of tax required to be paid by a company, in case its normal tax liability after claiming deductions falls below a certain limit.  The Bill adds that the provisions regarding MAT credit will also not apply to companies opting for the new rates.

  3. The Ordinance reduces the MAT rate (applicable for companies not opting for the new tax rates) from 18.5% to 15% with effect from the financial year 2019-20. The Bill amends this provision by making it effective from the financial year 2020-21.

REFERENCE - 1. https://www.jagranjosh.com/ 2. https://www.prsindia.org/

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