View: Before abandoning the old regime of corporate tax, exercise cautio... https://economictimes.indiatimes.com/news/economy/policy/view-befor...

corporate tax, exercise caution

As the finance minister cut the rate of corporate tax to 22 per cent from 30 per cent base rate,
here's how the introduction of the new regime will affect the companies with turnover of less
than Rs 400 crore that are already getting taxed at the rate of 25% and whether the impact on
the revenue collection of the government will be as severe as is being projected.

What Sections 115BAA and 115BAB mean

The Taxation Laws (Amendment) Ordinance, 2019
introduced two new taxation regime for the domestic
companies - Section 115BAA and Section 115BAB.
Currently, a domestic company is chargeable to tax at the rate of 25% if its turnover or gross
receipt does not exceed Rs. 400 crore during the financial year 2017-18 or it opts for Section
115BA. In all other cases, a domestic company is chargeable to tax at the rate of 30%.
The Taxation Laws (Amendment) Ordinance, 2019 introduced two new taxation regime for
the domestic companies - Section 115BAA and Section 115BAB.

As per Section 115BAA, domestic companies will have an option to pay tax at the reduced rate of 22% plus applicable surcharge and cess.
However, this benefit shall be available when total income of the company is computed without claiming specified deductions, incentives,
exemptions and additional depreciation available under the Income-tax Act.

New Section 115BAB provides for reduced tax rate of 15% for the domestic companies but this regime shall be available only for the
manufacturing companies incorporated in India on or after 01-10-2019. Hence, old companies will not be able to take the benefit of this
section.

As per August Bulletin of MCA, as on 31-08-2019, 11.86 lakh companies are active in India. The Finance Minister, Smt. Nirmala
Sitharaman, during her budget speech mentioned that out of total companies incorporated in India, a whopping number of 99.3%of the
companies have a turnover of less than 400 crore. Thus, it can be judiciously concluded that most of the domestic companies are paying tax
at the rate of 25% (plus surcharge and cess) under Section 115BA or under First Schedule of the Finance Act. Hence, there are just 50,000
to 80,000 domestic companies which may be paying tax at

2 of 13 30/09/2019, 01:48
View: Before abandoning the old regime of corporate tax, exercise cautio... https://economictimes.indiatimes.com/news/economy/policy/view-befor...

Corporate tax rate cuts: New contract

manufacturing units eligible for 15 per cent
tax benefit
Companies opting for 22% tax regime won’t be eligible for minimum alternate tax credit.
By Deepshikha Sikarwar, ET Bureau | Updated: Sep 30, 2019, 07.19 AM IST

NEW DELHI: New contract manufacturing

outfits can avail of the 15% corporate tax
scheme but companies that opt for the 22%
tax regime won’t be eligible for accumulated
minimum alternate tax (MAT) credit, a senior
government official said.

The finance ministry will clearly specify what

constitutes reorganisation or reconstruction
of an entity and new manufacturing eligible
Representative Image
for the 15% rate as part of detailed
clarifications on the new corporate tax
framework to clear the air on a number of issues that have been raised by industry.
Companies that opt for the reduced corporate tax rate of 22% cannot claim any exemption
or incentives, including accumulated MAT credit.

“Contract manufacturing will be eligible,” the official said. “Natural meaning of

manufacturing that has emerged out of several Supreme Court judgments will apply.”

The clarification has become necessary as the ordinance issued to implement the tax cut
does not define manufacturing.

Finance minister Nirmala Sitharaman slashed the corporate tax rate to 22% without any
exemptions or incentives and to 15% from the current 25% for new manufacturing
companies on September 20 as the government looks to spur investment, revive growth
and boost job creation. The effective tax rate, including surcharge and education cess, will
be 25.17% and 17.16%, respectively.

Growth slumped to a six-year low of 5% in the first quarter of the current financial year.

30/09/2019, 01:48