Lok Sabha Passes Bill To Slash Corporate Tax Rates [Read Bill]

The Lok Sabha today passed the Taxation Laws (Amendment) Bill, 2019, to slash corporate tax rate to 22% without incentives and tax rate for new manufacturing entities to 15%. The Bill will replace the ordinance promulgated by the Central govt. in this regard on September 20, with certain variations. While introducing the Bill, Finance Minister Nirmala Sitharaman told the house today that the ordinance was promulgated "keeping in mind the trade war between USA and China, with indications that many of these corporates and multinational companies would want to get out of China." BJP MP Dr. Nishikant Dubey said that the Bill was crucial to make the 'Make in India' programme a success. He pointed out that the average corporate tax rate in Asia was merely 20.45% while the entire world's average was only 22%. In such circumstances, he said, the manufacturing companies would not entertain the erstwhile 30% tax levied in India. Salient Features of the Bill Optional Tax Rates For Domestic Companies Currently, the income tax rate for domestic companies with annual turnover of up to Rs 400 crore is 25%. For other domestic companies, the tax rate is 30%. The Bill provides domestic companies with an option to pay income tax at the rate of 22%, provided they do not claim certain deductions under the IT Act. These include deductions provided for: (i) newly established units in Special Economic Zones (SEZs), (ii) investment in new plant or machinery in notified backward areas, (iii) expenditure on scientific research, agriculture extension, and skill development projects, (iv) depreciation of new plant or machinery (in certain cases), and (v) various other provisions in the IT Act under Chapter VI-A. Domestic companies will have to pay surcharge at 7% if their income is between one crore rupees and Rs 10 crore, and at 12%, if income is more than Rs 10 crore. Tax Rates For New Domestic Manufacturing Companies The Bill provides new domestic manufacturing companies with an option to pay income tax at the rate of 15%, provided they do not claim the deductions specified above. These new companies must be set up and registered after September 30, 2019 and should start manufacturing before April 1, 2023. These new manufacturing companies will not include companies: (i) formed by splitting up or reconstruction of an existing business, (ii) engaged in any business other than manufacturing or production, and (iii) using any plant or machinery previously used in India (except under certain specified conditions). Companies opting for the new rates will have to pay a 10% surcharge. The Bill clarifies that the following businesses will not be included in the manufacturing sector for tax reduction purposes: (i) development of computer software, (ii) printing of books, (iii) production of cinematograph film, (iv) mining, and (v) any other business notified by the central government. Minimum Alternate Tax Minimum Alternate Tax (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. This limit is calculated as a certain percentage (MAT rate) of the company's book profit. The Bill reduces the MAT rate from 18.5% to 15% with effect from financial year 2020-21. The Bill specifies that the provisions regarding payment of MAT and MAT credit will not apply to companies opting for the new tax rates. MAT credit is the amount of additional tax a company is required to pay as MAT, in excess of its normal tax liability. Surcharge on capital gains The Bill separates surcharge on capital gains from that on all other income. Capital gains will be subject to surcharge if the total income does not exceed one crore rupees. Otherwise, a flat 15% rate of surcharge will be applicable for capital gains. However, this provision is applicable only to: (i) investments by foreign institutional investors, and (ii) investments by domestic persons in securities where the securities transaction tax is paid. Parliament Debate The Bill was widely opposed by the Members of the house who were concerned by the record low fall in GDP and said that the government should instead focus on increasing the purchasing power of the citizens by reducing personal income tax. This in turn, they said, will increase the demand and will automatically resolve the present economic crisis and increase employment opportunities. "Unemployment is at a 40-year high," TDP MP Jayadev Galla pointed out. On this issue, BJD MP Bhartruhari Mahtab said "we need to focus on increasing the demand, not on altering tax rates." He also pointed out that reduction in corporate taxes could only be beneficial if the companies directed the benefit arising out of such reductions towards resources in India. Strongly resisting the Bill, DMK's A. Raja said, "the govt. is not ready to...

Lok Sabha Passes Bill To Slash Corporate Tax Rates [Read Bill]

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