The Taxation Laws (Amendment) Act, 2019, which replaces the Taxation Laws (Amendment) Ordinance, 2019, has recently come into force. An option has been given to domestic industries to avail lower rates of corporate tax at 22% and 15%, subject to conditions. Companies can opt for the lower rate at any time though in case of option for 15% rate, it must commence production or manufacture before 31-3-2023. Further, once the option for lower rate is exercised, it cannot be changed in later years.
Companies which are set up on or after 1st October, 2019 and engaged in the business of manufacturing will be eligible for concessional rate of 15%. The term ‘manufacture’ is not new to Indian tax law. But, the interpretation under Income tax law for purposes of this provision is likely to see many shades in the days to come. The lower rate of 15% opens up opportunities for reducing the overall tax burden of corporates. At the same time it also gives rise to some interesting questions as to,
- what activities would qualify as ‘manufacture’,
- who would qualify as ‘manufacturer’,
- what will be impact of outsourcing, etc. ,
- what would be the impact of merger of units,
- can an existing partnership avail the benefit by starting a new venture
Companies which are not engaged in business of manufacture can exercise the option for corporate tax rate of 22%. Given that the government has a stated policy of doing away with various exemptions and those like the SEZ are approaching sunset date, the rate of 22% is also an attractive option. However, it is essential to evaluate the benefits of opting for the lower rate and also to ensure compliance with the conditions laid down therein.
In order to examine the finer nuances of the provisions and to understand interpretation of ‘business of manufacture’, Lakshmikumaran & Sridharan is organizing a breakfast meeting on ‘Corporate Tax cut – An analysis of Taxation Laws (Amendment) Act 2019’.
Mr. S. Vasudevan
Mr. Puneet Jain
Joint Partner, L&S
Ms. Neetu James
Joint Partner, L&S