Budget 2022 has reduced the Surcharge not only on Long Term Capital Gains (LTCG) tax but also on the income tax in the case of AOP where all the members are corporates and Cooperative societies if not opted section 115BAD from 1st April 2023 or Assessment Year 2023-24.
The surcharge is an additional tax which is calculated as a percentage of the tax amount.
There has been no change in the rates of Surcharge for the A.Y. 2023-24 except for the following where the Finance Bill 2022 has reduced it-
1. Reduction of Surcharge on all the Long Term Capital Gains tax which is chargeable under section 112
2. Reduction of Surcharge on Income-tax for AOPs where all the members are company
3. Reduction of Surcharge for cooperative societies which does not opt for concessional rate regime under section 115BAD
The first category of the reduction of surcharge on LTCG tax is applicable for individual or HUF or every association of persons or body of individuals, whether incorporated or not, or every artificial juridical person where such surcharge is greater than 15% in some cases. whereas the last two categories of reduction in surcharge are assessee specific.
While presenting the Finance bill, 2022, the Finance Minister announced the measures undertaken by the government to rationalize the surcharge on income-tax. She announced that in the globalized business world, there are several works contracts whose terms and conditions mandatorily require formation of a consortium. The members in the consortium are generally companies. In such cases, the income of these AOPs has to suffer a graded surcharge upto 37 per cent, which is a lot more than the surcharge on the individual companies. Accordingly, she proposed to cap the Surcharge of these AOP’s at 15 per cent.
Further, the long-term capital gains on listed equity shares, units etc. are liable to maximum surcharge of 15 per cent, while the other long term capital gains are subjected to a graded surcharge which goes up to 37 per cent. She proposes to cap the surcharge on long term capital gains arising on transfer of any type of assets at 15 per cent. This step will give a boost to the start up community and along with my proposal on extending tax benefits to manufacturing companies and start-ups reaffirms our commitment to Atma Nirbhar Bharat.
I. Proposed Surcharge for Individuals, HUF, AOP*, BOI, Artificial Judicial Person, resident and non-resident
Note: Though the Surcharge on all the Long Term Capital Gains chargeable u/s 112 is capped at 15%, in case of Short Term Capital Gains (STCG), only those STCG chargeable u/s 111A are subject to Surcharge capping at 15%. Other STCG will continue to be subject to higher Surcharge.
* In case of the association of persons (AOP) consisting of only companies as its members, the rate of surcharge on the amount of Income-tax shall not exceed 15%.
II. Proposed Surcharge for AOP consisting of only companies as its members
In case of the association of persons (AOP) consisting of only companies as its members, the rate of surcharge on the amount of Income-tax shall not exceed 15%.
As seen from the above table, prior to the proposed amendment, the surcharge increased to 37%. Now it is capped at 15%. This capping of 15% rate of surcharge is only for AOP of Companies only. Other AOPs (having non-corporate members) shall continue to be subject to a high rate of surcharge.
In the Budget Speech, Finance Minister stated that the surcharge of AOP of companies is proposed to be capped at 15% in order to bring it at par with the maximum surcharge rate of individual companies as in some cases, companies are required to form a consortium mandatorily.
However, in the case of a domestic company, the maximum rate of surcharge is 12% (and not 15%) whereas it is 5% for foreign companies.
III. Proposed Surcharge for Co-operative Society
In the case of co-operative societies, the rates of income-tax have been specified in Paragraph B of Part III of the First Schedule to the Bill. These rates will continue to be the same as those specified for FY 2021-22. However, there is a change in the rate of surcharge for the co-operative society. The amount of income-tax shall be increased by a surcharge at the rate of 7% of such income-tax in case the total income of a co-operative society exceeds Rs. 1 crore but does not exceed Rs. 10 crore.
Prior to the proposed reduction, the surcharge of cooperative society was 12% if the Total Income exceeds Rs. 1 crore.
Surcharge at the rate of 12% shall continue to be levied in case of a co-operative society having a total income exceeding Rs. 10 crore.
This reduction in surcharge shall apply only in case where the co-operative society does not opt for the concessional tax rate regime under section 115BAD.
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