In an effort to boost investment in the economy, Finance Minister Nirmala Sitharaman announced the lowering of corporate tax, effectively by 10 percentage points for existing companies and 12 basis points for the new companies.
Altogether there are six amendments in the Income Tax Act and Finance Bill 2019 which will cost Rs 1.45 lakh crore. Here are the amendments in Income Tax Act:
- In order to promote growth and investment, a new provision has been inserted in the Income Tax Act with effect from FY 2019-20 which will allow any domestic company an option to pay income-tax at the rate of 22% subject to the condition that they will not avail any exemption/incentive. The effective tax rate for these companies shall be 25.17 % inclusive of surcharge & cess. Also, such companies shall not be required to pay Minimum Alternate Tax (MAT)
- In order to attract fresh investment in manufacturing and thereby provide boost to ‘Make-in-India’ initiative of the Government, another new provision has been inserted in the Income Tax Act with effect from FY 2019-20 which will allow any new domestic company incorporated on or after October 1, 2019 making fresh investment in manufacturing, an option to pay income tax at the rate of 15%.
- This benefit is available to companies which do not avail any exemption/ incentive and commences their production on or before March 31, 2023. The effective tax rate for these companies shall be 17.01% inclusive of surcharge & cess. Also, such companies shall not be required to pay MAT.
- A company which does not opt for the concessional tax regime and avails the tax exemption/incentive shall continue to pay tax at the pre-amended rate. However, these companies can opt for the concessional tax regime after the expiry of their tax holiday/exemption period.
- After the exercise of the option, they shall be liable to pay tax at the rate of 22% and option once exercised cannot be subsequently withdrawn. Further, in order to provide relief to companies which continue to avail exemptions/incentives, the rate of MAT has been reduced from existing 18.5% to 15%.
- In order to stabilise the flow of funds into the capital market, it is provided that enhanced surcharge introduced by the Finance (No.2) Act, 2019 shall not apply on capital gains arising on sale of equity share 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.
- The enhanced surcharge shall also not apply to capital gains arising on sale of any security including derivatives, in the hands of Foreign Portfolio Investors (FPIs).
- In order to provide relief to listed companies which have already made a public announcement of buy-back before 5 July 2019, it is provided that tax on buy-back of shares in case of such companies shall not be charged.