India’s cabinet has approved a proposal for introducing the Taxation Laws (Amendment) Bill, 2019 in the parliament to replace the September ordinance related to it that was promulgated as the parliament was not in session then. The ordinance was needed for providing additional fiscal stimulus to attract investment, generate employment and boost the economy. Economic developments after the enactment of the Finance (No. 2) Act, 2019, along with reduction of rate of corporate income tax by many countries world over necessitated the provision of additional fiscal stimulus.
As these could have been achieved through amendment to the Income-tax Act, 1961 (IT Act) or to the Finance Act and the parliament was not in session, it was done through promulgation of The Taxation Laws (Amendment) Ordinance 2019 in September this year, according to a report.
To promote growth and investment, a new provision was inserted in the IT Act to provide that with effect from the fiscal 2019-20, an existing domestic company may opt to pay tax at 22 per cent plus surcharge at 10 per cent and cess at 4 per cent, if it does not claim any incentive or deduction. The effective tax rate for these companies comes to 25.17 per cent. They would also not be subjected to Minimum Alternate Tax (MAT).
To attract fresh investment in manufacturing and boost the government’s ‘Make-in India’ initiative, another provision was inserted in the IT Act: A domestic manufacturing company set up on or after October 1, 2019, and which commences manufacturing by March 31, 2023, may opt to pay tax at 15 per cent plus surcharge at 10 per cent and cess at 4 per cent if it does not claim any incentive or deduction. The effective rate of tax comes to 17.16 per cent for these companies. They would also not be subjected to MAT.
A company that does not opt for the concessional tax regime and avails the tax exemption or 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, these shall be liable to pay tax at the rate of 22 per cent. Further, to provide relief to companies which continue to avail exemptions/incentive, the rate of MAT was reduced from existing 18.5 per cent to 15 per cent.
To stabilise the flow of funds into the capital market, the enhanced surcharge introduced through the Finance Act on capital gains arising on account of transfer of listed equity share or certain units that are liable to securities transaction tax will not apply. Further, the enhanced surcharge will not apply to capital gains income of foreign portfolio investments arising out of transfer of any security including derivatives, having concessional tax regime.