Taxation Laws (Amendment) Ordinance 2019
The Taxation Laws (Amendment) Ordinance, 2019 dated September 20, 2019 has introduced new tax regimes for the domestic companies by inserted two new sections – Section 115BAA and 115BAB. Besides existing basic tax rates for domestic companies of 25% and 30%, two new tax rates have been introduced of 15% in case of new domestic manufacturing companies and 22% for all domestic companies not availing of any tax exemptions. The reduce tax rates can be opted by the companies on fulfilment of certain conditions.
Here is a comparison of different corporate tax regimes for the Assessment Year 2020-21.
| Particulars | “Before Amendment”
| “After Amendment” | |||
| Section 115BA | First Schedule to Finance Act | First Schedule to Finance Act | Section 115BAA | Section 115BAB | |
| Ø Basic tax rate | 25% | 25% | 30% | 22% | 15% |
| Ø Surcharge | · 7%, if income is between Rs. 1 crore and Rs. 10 crores; · 12%, if income exceeds Rs. 10 crores | · 7%, if income is between Rs. 1 crore and Rs. 10 crores; · 12%, if income exceeds Rs. 10 crores | · 7%, if income is between Rs. 1 crore and Rs. 10 crores; · 12%, if income exceeds Rs. 10 crores | 10% | 10% |
| Ø Education Cess | 4% | 4% | 4% | 4% | 4% |
| Ø Effective tax Rate | · 26%, if income is less than Rs. 1 crore; · 27.82%, if income is between Rs. 1 crore and Rs. 10 crores; · 29.12%, if income exceeds Rs. 10 crores | · 26%, if income is less than Rs. 1 crore; · 27.82%, if income is between Rs. 1 crore and Rs. 10 crores; · 29.12%, if income exceeds Rs. 10 crores. | · 31.2%, if income is less than Rs. 1 crore; · 33.38%, if income is between Rs. 1 crore and Rs. 10 crores; · 34.94%, if income exceeds Rs. 10 crores. | 25.17% | 17.16% |
| Ø Applicability of MAT | Applicable at the rate of 15% | Applicable at the rate of 15% | Applicable at the rate of 15% | Not Applicable | Not Applicable |
| Ø Condition as to date of incorporation | Should be incorporated on or after 01-03-2016 | – | – | – | Should be incorporated on or after 01-10-2019 |
| Ø Condition as to date of manufacturing | – | – | – | – | Should commence manufacturing on or before 31-03-2023 |
| Ø Turnover limit | – | Turnover should not exceed Rs. 400 crores during the financial year 2017-18 | If turnover exceeds Rs. 400 crores during the financial year 2017-18 | – | – |
| Ø Condition as to the use of assets | – | – | – | – | a) It does not use any building which was previously used as a hotel or a convention centre;
b) It does not use any machinery or plant previously used for any purpose 1
|
| Ø Mode of Incorporation | – | – | – | – | Must not be formed by splitting up or reconstruction of an existing business (Except in case of Section 33B) |
| Ø Nature of Business | Manufacture or production of any article or thing | – | – | – | Manufacture or production of any article or thing |
| Ø Restriction on exemption and deduction | Certain deductions and exemptions shall not be allowed* | – | – | Certain deductions and exemptions shall not be allowed* | Certain deductions and exemptions shall not be allowed* |
| Ø Restriction on unabsorbed losses | Losses linked with the certain exemptions and deductions can’t be set off and carried forward | – | – | Losses linked with the certain exemptions and deductions can’t be set off and carried forward | Losses linked with the certain exemptions and deductions can’t be set off and carried forward |
| Ø Whether optional? | Optional | Mandatory (if optional regimes not opted) | Mandatory (if optional regimes not opted) | Optional | Optional |
| Ø When option can be exercised? | In the first year itself on or before the due date for filing of return of income | – | – | In any year | In the first year itself on or before the due date for filing of return of income |
| Ø Option to opt out of regime | Can switch to Section 115BAA regime | – | – | Not Allowed | Not Allowed |
| Ø Whether covered under Specified Domestic Transactions prescribed under section 92BA | No | No | – | No | If profits are increased artificially |
* Specified exemption and deductions are follows:
| Section | Deduction |
| Section 10AA | Deduction for units established in Special Economic Zones (SEZ) |
| Section 32AD | Deduction for investment in new plant and machinery in notified backward areas |
| Section 33AB | Deduction in respect of tea, coffee or rubber business |
| Section 33ABA | Deduction in respect of business consisting of prospecting or extraction or production of petroleum or natural gas in India |
| Section 35(1)(ii) | Deduction for donation made to approved scientific research association, university college or other institutes for doing scientific research which may or may not be related to business |
| Section 35(1)(iia) | Deduction for payment made to an Indian company for doing scientific research which may or may not be related to business |
| Section 35(1)(iii) | Deduction for donation made to university, college, or other institution for doing research in social science or statistical research |
| Section 35(2AA) | Deduction for donation made to National Laboratory or IITs, etc. for doing scientific research which may or may not be related to business |
| Section 35(2AB) | Deduction for capital expenditure (excluding cost of land and building) on scientific research relating to business of bio-technology or manufacturing any article or thing |
| Section 35AD | Deduction in respect of capital expenditure incurred in respect of certain specified businesses, i.e., cold chain facility, warehousing facility, etc. |
| Section 35CCC | Deduction for expenditure on agriculture extension project |
| Section 35CCD | Deduction for expenditure on skill development project |
| Part C of Chapter VI-A | Deduction in respect of certain incomes other than specified under Section 80JJAA |
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- Any plant or machinery which was used outside India shall not be treated as used for any other purpose, if following conditions are satisfied:
- Before the date of installation, they were not used in India;
- These assets were imported into India;
- No deduction on account of depreciation has been allowed or allowable on such plant and machinery before they were installed be the assesses.
However, this condition shall be deemed to have been complied with if value of plant and machinery previously used does not exceed 20% of total value of plant and machinery.
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