Analysis of Corporate tax cuts and changes in Income tax

Finance Minister Nirmala Sitharaman announced concessional corporate tax rate, giving a stimulus aimed at reviving private investment and lifting growth from a six-year low.

The government has promulgated an ordinance to make amendments in the Income-tax Act and make them effective from retrospective from April 1st. The President Ram Nath Kovind on Friday cleared an ordinance to give effect to amendments in the Income Tax Act, 1961 and Finance Act, 2019.

What are the two Concessional rates announced by Government?

1. The government announced the concessional corporate tax rate of 22% for all domestic companies that don't avail any exemption/incentive.

Tax Head General Tax Rate Concessional Rate
Income Tax for turnover up to Rs. 400 crores 25% 22%
Income Tax for turnover above Rs. 400 crores 30% 22%
Surcharge as % of income tax

7% of tax in case income is more than Rs. 1 crore but less than Rs. 10 crores.

12% of tax in case income is more than Rs. 10 crores.

10% of tax, irrespective of income.
Cess as % of tax and surcharge 4% of tax plus surcharge Remains Same

Effective tax rate, invariable of Income for Domestic Companies for FY 2019-20

2. Government has announced concessional tax rate of 15%, for domestic manufacturing companies incorporated on or after 1st October 2019 and before 31st March,2023.

Income Tax Rate Slab for newly Setup manufacturing Companies for FY 2019-20

General Tax Rate Concessional Tax Rate
Income Tax 25% 15%

What are conditions to avail the new Concessional rates ?

There is a misinterpretation in understanding the announcement of Finance minister. The government has not reduced the existing corporate Tax of 25% and 30% to 22%.But it has inserted two new sections 115BAA and 115BAB to give concessional rates. The new concessional rates are optional and not mandatory.

The new concessional rates has been bundled along with the conditions. What are they?

The above Concessional Tax rates are optional to companies.

Company which does not opt for the concessional tax regime and avails the tax exemption/incentive can continue to pay tax at the general rate. After expiry of their tax holiday/exemption period, these companies can opt for the new concessional tax regime.

What are the other benefits to those companies who opt for Concessional rate?

Companies were required to pay Marginal Alternative Tax(MAT) at the rate of 18.5%(exclusive of surcharge and cess).But as per the amendment if any company choose any of the above concessional tax rates then it will be exempted from Marginal Alternative Tax(MAT).

Does the new concessional rate reduce the tax burden of companies in big margins ?

The new concessional tax rate announced by the government doesn’t reduces the tax burden of companies in big margin. The analysis of the same can be found below:

Domestic Companies whose turnover does not exceed Rs.400 Crores

These companies constitute 99.3 per cent of the total companies.

The real gainers of new provision introduced by this Ordinance will be the companies whose turnover exceeded Rs. 400 crores.

Reduction in MAT for companies which do not opt for Concessional tax rate

To provide relief to companies which continue to avail existing exemptions/incentives, the government has reduced the rate of Minimum Alternate Tax or MAT to 15%, from 18.5%

Those companies which are availing tax benefits as per existing law such as SEZ companies won’t be able to avail the new concessional tax rates. But good news for such companies is that the MAT which was earlier payable at 18.5% has been reduced to 15%

How we can help you ?

The new Concessional rates cannot be blindly opted by the companies. To get the net tax saving of 0.83%, companies cannot loose the other tax incentives or benefits. Here in B.C Shetty & Co. we help you to take a sound decision after considering the various pros and cons attached with new concessional rates.

Disclaimer:"The information contained herein is only for informational purpose and should not be considered for any particular instance or individual or entity. We have obtained information from publicly available sources, there can be no guarantee that such information is accurate as of the date it is received or it will continue to be accurate in future. No one should act on such information without obtaining professional advice after thorough examination of particular situation."

Prepared By

Vinay Kumar N

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Contact :

Ankit C Shetty