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04 December 2019

Corporate tax cut - Taxation Laws (Amendment) Bill, 2019 passed by Lok Sabha

Taxation Laws (Amendment) Bill, 2019 which seeks to amend the Income Tax Act, 1961 to incorporate the changes relating to reduction of corporate tax rates for domestic companies and new companies, has been passed by the Lok Sabha (lower house of the Indian Parliament) on 2nd of December. The Bill was introduced on 25-11-2019.

According to the Taxation Laws (Amendment) Ordinance dated 20-9-2019, which is sought to be replaced by the Bill, domestic companies have an option to pay corporate tax at 22% provided they do not claim certain deductions under the Income Tax Act. Further, newly set up manufacturing companies which are set up or registered on or after 1-10-2019 and commence manufacturing on or before 31-3-2023 have an option to pay tax at 15%.

It may be noted that certain significant modifications have been made in the Bill as passed by the Lok Sabha and the Ordinance issued earlier. Few of these changes are highlighted below.

Key changes:

  • Section 115JAA will not apply in case of companies availing 22% corporate tax rate.
  • In case a company becomes disentitled for the 15% rate, on non-fulfilment of conditions of exclusively being engaged in manufacturing, use of used plant and machinery, etc., it can opt for 22% rate.
  • Explanation has been inserted stating that certain activities would not constitute manufacture. According to the provisions of Section 115BAB (providing 15% tax on new manufacturing companies), development of computer software in any form or in any media, mining, conversion of marble blocks or similar items into slabs, bottling of gas into cylinder, printing of books or production of cinematograph film, are not included in the business of manufacture or production of any article or thing. Further, Government has also been empowered to notify other businesses which would not qualify as manufacture or production.
  • Specific provisions have been made to tax income not incidental to or derived from manufacture at 22% where no rate is specified in the Income Tax Act.
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