The government on Friday slashed basic corporate tax rate to 22 per cent, from 30 per cent earlier, in a bid to promote growth and investment. It also reduced the tax rate for new domestic manufacturing companies to 15 per cent, and also reduced the Minimum Alternate Tax from 18.5 per cent to 15 per cent.
The government would forego total revenue of Rs 1.45 lakh crore due to reduction in corporate tax rate and some other relief measures.
The changes were made by through an ordinance to amend the Income Tax Act and the Finance Act, Finance Minister Nirmala Sitharaman said.
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According to the new provision inserted in the Income-tax Act with effect from FY20, any domestic company would have an option to pay income-tax at the rate of 22 per cent, subject to the condition that they will not avail any exemption or incentive, the Finance Minister said.
The effective tax rate for these companies shall be 25.17 per cent inclusive of surcharge and cess. Also, such companies shall not be required to pay Minimum Alternate Tax, she added.
Also, in order to attract fresh investment in manufacturing, the government allowed new domestic companies incorporated on or after October 1, 2019 making fresh investment in manufacturing, an option to pay income-tax at the rate of 15 per cent.
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“This benefit is available to companies which do not avail any exemption or incentive and commences their production on or before March 31, 2023,” Sitharaman said.
The effective tax rate for these companies shall be 17.01 per cent inclusive of surcharge and cess. They won’t have to pay Minimum Alternate Tax either.
The government added that a company which does not opt for the concessional tax regime and avails the tax exemption and incentives shall continue to pay tax at the pre-amended rate.
“However, these companies can opt for the concessional tax regime after 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the option they shall be liable to pay tax at the rate of 22 per cent and option once exercised cannot be subsequently withdrawn,” it said in a statement.
“Further, in order to provide relief to companies which continue to avail exemptions or incentives, the rate of Minimum Alternate Tax has been reduced from existing 18.5 per cent to 15 per cent,” it added.
