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Cabinet Approves Taxation Laws (Amendment) Bill, 2019

cabinet-approves-taxation-laws-amendment-bill-2019

Cabinet approves Taxation Laws (Amendment) Bill, 2019: On 20th September 2019, the President of India has promulgated an ordinance Taxation Laws (Amendment) Ordinance, 2019 through which income-tax rates on domestic companies and domestic manufacturing companies reduced to 22 per cent and 15 per cent respectively by introducing section 115BAA and section 115BAB. 

Further, the income-tax rate on Book Profit under section 115JB or MAT for on domestic companies and domestic manufacturing companies is reduced to 15 per cent from the existing 18.50 per cent.

On 20th November 2019, the Union Cabinet has approved the proposal for introducing the Taxation Laws (Amendment) Bill, 2019 in order to replace the Ordinance.

The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has approved the proposal for introducing the Taxation Laws (Amendment) Bill, 2019 in order to replace the Ordinance.

Economic developments after the enactment of the Finance (No. 2) Act, 2019 (Finance Act) along with the reduction of the rate of corporate income tax by many countries world over necessitated the provision of additional fiscal stimulus to attract investment, generate employment and boost the economy. As these could have been achieved through an amendment to the Income-tax Act, 1961 (IT Act) or to the Finance Act and the Parliament was not in session, it was done through the promulgation of The Taxation Laws (Amendment) Ordinance 2019 (the Ordinance) in September 2019. 

Salient features of the amendments made by the Ordinance are provided in the following paras.

In order to promote growth and investment, a new provision was inserted in the IT Act to provide that with effect from the current financial year 2019-20, an existing domestic company may opt to pay tax at 22% plus surcharge at 10% and cess at 4%, if it does not claim any incentive/deduction. The effective tax rate for these companies comes to 25.17% for these companies. They would also not be subjected to Minimum Alternate Tax (MAT).

In order to attract fresh investment in manufacturing and provide boost to 'Make-in India' initiative of the Government, another provision was inserted to the IT Act, to provide that a domestic manufacturing company set up on or after 1st October, 2019 and which commences manufacturing by 31st March 2023, may opt to pay tax at 15% plus surcharge at 10% and cess at 4% if it does not claim any incentive/deduction. 

The effective rate of tax comes to 17.16% for these companies. They would also not be subjected to MAT.

A company which does not opt for the concessional tax regime and avails the tax exemption/incentive shall continue to pay tax at the pre-amended rate. However, these companies can opt for the concessional tax regime after the expiry of their tax holiday/exemption period. After the exercise of the option, they shall be liable to pay tax at the rate of 22%. Further, in order to provide relief to companies which continue to avail exemptions/incentive, the rate of MAT was reduced from existing 18.5% to 15%.

In order to provide relief to listed companies, the buy-back tax on shares of listed companies introduced through the Finance Act will not apply to buy-backs in respect of which public announcement was made before 5th July 2019.

In order to stabilise the flow of funds into the capital market, it was provided that the enhanced surcharge introduced through the Finance Act on capital gains arising on account of transfer of listed equity share or certain units which are liable to securities transaction tax will not apply. Further, it was also provided that the enhanced surcharge will not apply to capital gains income of FPIs arising out of the transfer of any security including derivatives, having concessional tax regime.
(Source: PIB India)

Update: The Taxation Laws (Amendment) Bill, 2019 was introduced in the Lok Sabha on 25th November 2019 by the Finance Minister Nirmala Sitraman.

Download the Taxation Laws (Amendment) Bill, 2019 from here.

Also Read:

New Income Tax Rates for Domestic Companies from AY 2020-21


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