To provide a fillip to current economic slowdown in the country, Finance Minister Nirmala Sitharaman announced cuts in corporate taxes. Thus, the Taxation Laws (Amendment) Ordinance, 2019 was passed to make certain amendments in the Income-tax Act 1961 and the Finance (No. 2) Act 2019. Key highlights of these amendments are listed below.
- Domestic companies that have not availed any concessional tax regime will be allowed to pay corporate tax at the rate of 22% instead of the pre-existing 30%. Conclusively, the effective corporate tax rate for such companies shall be 25.17% inclusive of surcharge and cess. Additionally, such companies shall not be required to pay Minimum Alternate Tax.
- Companies that have availed exemptions or incentives through any tax concessional regime shall be allowed to pay corporate tax at the rate of 22% only after the expiry of such tax concession period. However, as a measure of relief, such companies shall be liable to pay Minimum Alternate Tax at the rate of 15% instead of the pre-existing 18.5%.
- To encourage ‘Make-in-India’ initiative of the Government, domestic companies investing in manufacturing sector which are incorporated on or after 1 October 2019 shall be allowed to pay corporate tax at the rate of 15%. Thereby, companies shall be liable to pay tax at rate of 17.01% effectively after including surcharge and cess. This relief shall be available to such companies that do not avail any concessional tax regime. This benefit shall be available to companies that plan to commence their production on or before 31 March 2023.
- Furthermore, the enhanced surcharge introduced by the Finance (No.2) Act, 2019 shall not apply on capital gains arising on sale of equity shares 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. It shall also not apply to capital gains arising on sale of any security including derivatives, in the hands of Foreign Portfolio Investors (FPIs).
- Listed companies which have already made a public announcement of buy-back before 5 July 2019 are also given tax relief.
- Companies can now spend their CSR 2% fund on incubators funded by Central or State Government or any agency or Public Sector Undertaking of Central or State Government. Similarly, they can also make contributions to public-funded Universities, IITs, National Laboratories and other specified Autonomous Bodies.