In an unprecedented move, with a view to boost the slowing Indian economy, the Government of India passed an ordinance substantially reducing corporate tax rates with immediate effect. The salient features and conditions of these changes are as follows:
There are two different rate structures for companies, one for the existing domestic companies and another for new domestic companies engaged in manufacturing activities.
Existing Domestic Companies – Section 115BAA:
- Any existing domestic company can exercise option to avail benefit of reduced rate of corporate tax under this section, subject to common conditions mentioned below.
- The rate of tax will be 22%. Education cess and surcharge at applicable rates will apply
New domestic Manufacturing Companies – Section 115BAB:
- Any domestic company set up and registered on or after 1st October 2019 can exercise option to avail benefit of reduced rate of corporate tax under this section.
- The rate of Corporate tax will be 15%. Education cess and surcharge at applicable rates will apply
- The Company is engaged in the business of manufacturing or production of any article or thing and has commenced manufacturing or production on or before 31st March 2023
- The company is not formed by splitting up or reconstruction of business already in existence
- It does not use Plant and Machinery previously used for any purpose in India.
- If such used plant & Machinery does not exceed 20% of the total value of Plant & Machinery used by the Company, then the condition shall be deemed to have been satisfied.
- The Company does not use any building previously used as a hotel or a convention centre.
Common conditions for both the type of companies:
- Both the sections are applicable from Assessment 2020 – 21 and onwards
- The company do not claim any exemption under Section 10AA ie. exemption available to units set up in Special Economic Zones
- The Company do not claim any 'additional depreciation' as available under section 32(1)(iia)
- The Company do not claim any deduction under Chapter VI-A except for the deduction available in respect of additional cost of new employees under section 80JJAA
- Brought forward losses from earlier years will not be allowed to be set-off against current years' income if such loss is attributable to any of the deductions as stated above
- Provisions of Section 115JB on Minimum Alternative Tax (MAT) shall not apply to such companies
- Consequently, MAT credit, if any, shall lapse
- The company shall apply in a prescribed manner to exercise this option on or before the due date of filing tax return under section 139(1)
- The option may be exercised by a company in the current assessment year or any of the subsequent assessment years
- However, once this option is exercised, the same cannot be withdrawn by the company in any subsequent assessment years.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.