Govt slashes corporate tax rate to 22% from 30%

For all new domestic manufacturing the tax rate has been brought down to 15 per cent along with other fiscal reliefs.

The reduction in corporate tax rate and other reliefs are estimated to cost the government Rs1,45,000 crore in annual revenue foregone.

The Government has brought in the Taxation Laws (Amendment) Ordinance 2019 to make certain amendments in the Income-tax Act 1961 and the Finance (No. 2) Act 2019. 

Announcing this at a press conference in Goa today, minister of finance and corporate affairs Nirmala Sitaraman said a provision has been inserted in the amended Income Tax Act, which allows any domestic company the option to pay income-tax at the rate of 22 per cent subject to the condition that they will not avail any exemption/incentive. 

The effective tax rate for these companies will be 25.17 per cent, inclusive of surcharge and cess. Also, such companies will not be required to pay Minimum Alternate Tax.

In order to attract fresh investment in manufacturing and thereby provide boost to ‘Make-in-India’ initiative of the government, another new provision has been inserted in the Income-tax Act with effect from FY 2019-20, which allows 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 per cent. This benefit is available to companies which do not avail of any exemption/incentive and commences their production on or before 31 March 2023. The effective tax rate for these companies shall be 17.01 per cent, inclusive of surcharge and cess. Also, such companies will not be required to pay Minimum Alternate Tax.

A company which does not opt for the concessional tax regime and avails the tax exemption/incentive shall continue to pay tax at the pre-amended rate. However, these companies can opt for the concessional tax regime after expiry of their tax holiday/exemption period. After the exercise of the option they shall be liable to pay tax at the rate of 22 per cent. This option once exercised cannot subsequently be withdrawn. Further, in order to provide relief to companies which continue to avail exemptions/incentives, the rate of Minimum Alternate Tax has been reduced from existing 18.5 per cent to 15 per cent.

In order to stabilise the flow of funds into the capital market, it is provided that enhanced surcharge introduced by the Finance (No.2) Act, 2019 shall not apply on capital gains arising on sale of equity share in a company or a unit of an equity oriented fund or a unit of a business trust liable for securities transaction tax, in the hands of an individual, HUF, AOP, BOI and AJP.

The enhanced surcharge shall also not apply to capital gains arising on sale of any security including derivatives, in the hands of foreign portfolio investors (FPIs). 

In order to provide relief to listed companies which have already made a public announcement of buy-back before 5 July 2019, it is provided that tax on buy-back of shares in case of such companies shall not be charged.

The government has also decided to expand the scope of CSR 2 per cent spending. Now the 2 per cent CSR fund can be spent on incubators funded by central or state government or any agency or public sector undertaking of central or state government, and, making contributions to public funded universities, IITs, national laboratories and autonomous bodies (established under the auspices  of ICAR, ICMR, CSIR, DAE, DRDO, DST, ministry of electronics and information technology) engaged in conducting research in science, technology, engineering and medicine aimed at promoting SDGs.

The total revenue foregone for the reduction in corporate tax rate and other relief estimated at Rs1,45,000 crore.