Government Slashes Corporate Tax Rates

On 20 September, 2019, the Finance Minister announced a reduction in corporate tax rates estimated to provide cumulative tax relief of INR 1,45,000 Crore (approx. USD 21 billion) to corporate tax-payers.

A Press Note issued by the Ministry of Finance on 20 September 2019 (Press Note) highlights the key amendments to the corporate tax regime introduced by the Taxation Laws (Amendment) Ordinance, 2019 (Ordinance) and further proposes increased avenues for corporate social responsibility spending.

Some of the key features of the Press Note and the Ordinance are as follows:

  • Reduction of income tax from 30% to 25.17% (inclusive of surcharge and cess) on domestic companies subject to the condition that no exemption or incentive is availed.
  • Companies which avail of the reduced income tax rate shall also be exempted from paying minimum alternate tax.
  • Companies that do not opt for this reduction can continue to avail of the exemption or incentives and pay tax at the earlier pre-Ordinance rate and can opt for the reduced tax rate once their tax exemption period has expired.
  • The reduced tax rate, once opted for, cannot be withdrawn.
  • For companies that avail of exemptions or incentives, the threshold for payment of minimum alternate tax to be reduced from existing 18.5% to 15% of book profits.
  • To boost the ‘Make in India’ initiative, domestic manufacturing companies, incorporated on or after 1 October 2019 can opt to pay income tax at the rate of 17.01% (inclusive of surcharge and cess), provided they commence their production on or before 31 March 2023 and do not avail any exemptions or incentives.
  • The new 17.01% tax rate would not apply to manufacture companies established by way of reconstruction/splitting up of a pre-existing business.
  • Enhanced surcharge introduced by the Finance (No.2) Act, 2019 shall not apply to capital gains arising on the sale of any security including derivatives, in the hands of Foreign Portfolio Investors or on the sale of equity shares in a company or a unit of an equity oriented fund or a unit of a business trust liable for a securities transaction tax, in the hands of an individual/Hindu undivided family/ association of persons/ body of individuals and artificial juridical person.
  • There will be no tax on buyback of shares of listed companies which made a public announcement of buyback before 5 July 2019.
  • Corporate Social Responsibility funds can now be spent on incubators sponsored by Central and State Governments and Public Sector Undertakings, public-funded universities and government-funded institutions engaged in science and technology research.

The Press Note can be accessed through the following link

The Ordinance can be accessed through the following link