Centre cuts Corporate Tax Rate for domestic investors
The Government has brought in the Taxation Laws (Amendment) Ordinance 2019 to make certain amendments in the Income-tax Act 1961 and the Finance (No. 2) Act 2019. This has cut the effective corporate tax rate for existing domestic companies to 25.17% (from 34.94% now) and for new domestic companies, it will be 15% now.
➢ The announcement was in this regard was made by Union Minister for Finance and Corporate Affairs Nirmala Sitharama ahead of 37th GST council meeting in Goa. The new domestic manufacturing companies will have to pay 15% tax.
➢ Existing Domestic Company: A new provision has been added in Income-tax Act with effect from Financial Year 2019-20, which allows any domestic company an option to pay income-tax at rate of 22% if they do not avail any exemption or incentive. Now, the corporate tax rate for domestic companies shall be 25.17% (inclusive of surcharge & cess), which was earlier nearly 35% as well as such companies shall not be required to pay Minimum Alternate Tax (MAT).
➢ New Domestic Company: Under the new provision a new domestic company incorporated on or after 1 October 2019 making fresh investment in manufacturing and commences their production on or before 31 March, 2023, will have to pay income tax at rate of only 15%.
➢ Finance Minister has also announced the government decision to expand the scope of 2% CSR (corporate social responsibility) spending. Fin Min also expressed confidence that the move is well studied whereby industrial growth and investment which is due to increase with this move will compensate revenue forgone for reduction. Also, total revenue foregone for reduction in corporate tax rate and other relief are estimated to be at Rs.1.45 lakh crore.