Dec 30, 2019

Taxation Laws (Amendment) Act, 2019

The Indian Finance Minister had introduced the Taxation Laws (Amendment) Ordinance, 2019 (‘Ordinance’) in September 2019 introducing sweeping amendments to the Income-tax Act, 1961 (‘IT Act’)[1]. Government has now introduced the Taxation Laws (Amendment) Act (‘Amendment Act’) making certain changes to the Ordinance as described below-

i.       The Ordinance introduced an optional regime providing for reduced corporate tax rate of 25.17% (from 35.94%) for all Indian companies (as long as no tax exemptions/ holidays/ deductions are availed, even if available, such as those available to special economic zone (SEZ) units or provision of additional depreciation, or those under Section 35AD, Chapter VI-A etc.). Further, such company would not be entitled to set off of any brought forward loss attributable to such tax incentives or deductions. The Amendment Act additionally stipulates that: (i) a company would not be entitled to set off of any unabsorbed depreciation attributable to such tax incentives or deductions, and (ii) the restriction on set off of tax losses and depreciation must include losses and depreciation acquired by the company from a transferor entity under a tax neutral merger or demerger.

ii.      The Ordinance had introduced an optional regime providing for reduced corporate tax rate of 17.16% (from 35.94%) for all new-Indian manufacturing companies set up and registered on or after October 1, 2019 and commencing manufacturing on or before March 31, 2023 (provided they do not avail of any tax deductions/ exemptions/ holidays), subject to fulfillment of prescribed conditions. The Amendment Act has provided that the benefit of this tax rate will not be available to the following businesses: (a) development of computer software in any form or in any media; (b) mining; (c) conversion of marble blocks or similar items into slabs, (d) bottling of gas into cylinder; (e) printing of books or production of cinematograph film, or (e) any other notified business.

iii.     The companies opting for the above referred regimes were also provided an exemption from minimum alternate tax (‘MAT’). For all other Indian companies not opting for the above regimes, Ordinance had reduced the effective MAT rate from 21.55% to 17.47%. The Amendment Act has now clarified that such reduced MAT rate will apply with effect from April 1, 2019. The Amendment Act has clarified that the brought forward MAT credit will not be available to an Indian company exercising the option to avail the reduced corporate tax rate of 25.17%.

[1] Please refer AZB – Special Inter Alia Edition dated September 21, 2019

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