Blog Post

Income Tax Update

Income Tax Update: To boost the economy slowdown, Finance Minister Nirmala Sitharaman today 20th September 2019, announced a big reduction in income tax rate for corporate.

The Finance Minister said in the meeting “Tax concessions will bring investments in Make in India, boost employment and economic activity, leading to more revenue,”

Further added, the revenue foregone on reduction in corporate tax and other relief measures will be Rs 1.45 lakh crore annually to promote investment and growth.

 

Key announcements of amendments in Income Tax

Reduction in tax rates

  • A new provision has been inserted in the Income Tax Act, where, domestic companies are allowed to pay income-tax at the rate of 22 per cent if they don’t want to avail exemption or incentives.
  • Hence, an effective tax rate for the domestic companies shall be 25.17 per cent inclusive of surcharge & cess.
  • Companies can opt for lower tax rate after the expiry of tax holidays and concessions that they are availing now.
  • Such companies are not required to pay MAT (Minimum Alternative Tax)
  • This move of cut in tax rates will help to promote growth and investment.
  • The provisions shall be effective from FY 2019-20.

 

Tax reduction in manufacturing sector

  • A new domestic company making fresh investment in manufacturing has an option to pay income tax at the rate of 15 per cent (Earlier the tax rate was 25%).
  • Thus, the effective tax rate for such companies shall be 17.01 per cent inclusive of surcharge & cess.
  • Companies can opt for lower tax rate after the expiry of tax holidays and concessions that they are availing now.
  • However, for availing such benefit, the domestic company should be incorporated on or after 1st October 2019 and the production shall start before March 2023
  • Such companies are also not required to pay MAT.
  • This initiative has been taken to attract fresh investment in manufacturing and boost to ‘Make-in-India’
  • The provisions shall be effective from FY 2019-20.

 

Reduction in MAT

  • MAT cut to 15 percent from 18.5 percent for the companies that want to use tax exemptions.

 

No levy of Enhanced surcharge

  • It was decided not to levy the enhanced surcharge on capital gain arising from sale of equity shares in a company liable for the securities transaction tax (STT). Enhanced surcharge was introduced in Budget 2019.
  • Also, the enhanced surcharge will not apply to capital gains arising on sale of any security including derivatives, in the hands of Foreign Portfolio Investors (FPIs).
  • This move has been taken to stabilise the flow of funds into the capital market.

 

Exemption from buy back tax

  • Listed companies which have already announced for buy-back before 5 July 2019 shall be exempted from tax on buyback of shares.

 

CSR Expenditure scope extended

  • CSR 2 per cent fund can now 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
  • These bodies should be established under the auspices of ICAR, ICMR, CSIR, DAE, DRDO, DST, Ministry of Electronics and Information Technology.

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