Highlights of Key Income Tax Amendments by Taxation Laws (Amendment) Bill, 2019: In this article the key highlights of key Income Tax amendments in the Income Tax Act, 1961 and Finance (No. 2) Act, 2019 are mentioned.
The Loksabha has passed the Taxation Laws (Amendment) Bill, 2019 on 02.012.2019 to replace the Taxation Laws (Amendment) Ordinance, 2019. The Bill seeks to amend the provisions of the Income Tax Act, 1961 and Finance (No. 2) Act, 2019.
The main highlight of the amendment is the reduction of the corporate tax rate from the existing 25 percent or 30 percent to 22 percent or 15 percent.
Further, the enhanced surcharge introduced by the Finance (No. 2) Act, 2019 on Individuals, HUF, AoPs and BoIs are abolished in respect of capital gains arising from the transfer of listed shares and/or units.
Subsequent to the enactment of the Finance (No. 2) Act, 2019 and in view of various developments, it was felt that there is an urgent need to take additional fiscal measures so as to boost the investment and growth in the economy for which the Government had already announced certain measures. Some of these measures related to amendments to the Income-tax Act, 1961 (the Income-tax Act) and to the Finance Act, 2019.
By the reduction of corporate taxes, the government has provided fiscal stimulus to domestic companies so as to attract investment, generate employment and boost the economy of the country which is otherwise passing through a slow growth phase.
The highlights of the key Income-tax amendments by the Taxation Laws (Amendment) Bill, 2019 are listed below:
Presently, domestic companies are required to pay income tax @ 25 percent if its turnover does not exceed Rs. 400 crore in Financial Year 2017-18. In other cases, the rate of income-tax is 30 percent. Moreover, if the total income of a domestic company exceeds Rs. 1 crore but does not exceed Rs. 10 crore then, in addition to income-tax, surcharge @ 7 percent is payable. If the total income exceeds Rs. 10 crore, the rate of surcharge is 12 percent.
In the Bill, an option is given to a domestic company to opt for payment of a lower income-tax of 22 percent on its total income if it foregoes certain deductions. Further, the rate of surcharge is kept at a flat rate of 10 percent.
It may be noted that this is an option given to a domestic company which it may or may not exercise. It can be exercised in the AY 2020-21 or in any subsequent assessment year. Once a company exercises this option, the opted provision will apply for all subsequent years.
This option would become invalid if the prescribed conditions are not fulfilled in any assessment year. In such a case, the normal provisions of the Act will apply.
The Bill provides an option to pay a lower corporate tax rate of 15 percent to new domestic manufacturing companies provided they do not claim certain deductions.
These new domestic manufacturing companies must be set up and registered on or after 1st October 2019 and must commence the manufacturing or production of any article or thing on or before 31st March 2023.
Further, such a manufacturing company is liable to pay income tax at different rates for certain other incomes as prescribed in section 115BAB.
Income from the non-manufacturing activity will be taxed at 22 percent and no deduction or allowance will be allowed from such income. Short Term capital gains from non-depreciable assets shall also be charged to income-tax @ 22 percent.
Any excess profit over the normal profit, as computed by the AO, shall be charged to income-tax @ 30 percent in respect of transactions with related parties.
Similar to provisions of section 115BAA, this is an option given to domestic manufacturing companies which may or may not be exercised. It can be exercised in the AY 2020-21 or in any subsequent assessment year. Once a company exercises this option, the opted provision will apply for all subsequent years.
This option would become invalid if the prescribed conditions are not fulfilled in any assessment year. In such a case, the normal provisions of the Act will apply. However, it can opt for section 115BAA.
The Bill provides certain activities shall not be considered as manufacture or production.
The Bill provided that the provisions of MAT and MAT credit shall not apply to such companies that opted for a lower rate of corporate tax. It further provides that this shall apply from the AY 2020-21.
The Bill has reduced the rate of MAT for other companies from 18.50 percent to 15 percent. This is effective from AY 2020-21.
The Ordinance promulgated on 20th September provided that the reduced rate of MAT of 15 percent shall apply from the AY 2020-21. However, the Bill as presented in the Loksabha on 25th November deferred the same by one year. However, the Bill passed by the Lok Sabha on 02.12.2019 restored the provision of the Ordinance and provided the effective assessment year as 2020-21.
The Bill has given relaxation to pay tax on buy-back of listed shares by the company in case the public announcement was made on or before 5th July 2019.
The Bill has reduced the enhanced surcharge on capital gains arising from the transfer of listed shares or certain units from peak 37 percent to a maximum of 15 percent.
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