Seeing the increasing corporate tax concerns in the country, the finance minister, Nirmala Sitaraman has announced some amendments to the Income Tax Act, 1961 and the Finance (No.2) Act 2019 on 20 September 2019 via The Taxation Laws (Amendment) Ordinance, 2019. The changes have been made to ease out the liquidity concerns of corporate and provide their tax relief. Reduction in GST rates for various sub-sectors – FMCG, automobiles, etc. has also been an announcement to prevail the current economic slowdown.
A. The major tax amendments and decisions made during 37th GST Council meeting have been enumerated are present below:
| S. No. | Nature of Domestic Company | Current ETR (%) | ETR on exercise of the option | Effective reduction in tax liability |
|---|---|---|---|---|
| 1. | Basic condition: Turnover < INR 400 million in tax year 2017-18 or new companies established between 1st March 2016 to 30th Sept. 2019 | |||
| In case of income less than INR 10 million | 26% | 25.17% | 0.83% | |
| In case of income above INR 10 million but below INR 100 million | 27.82% | 25.17% | 2.65% | |
| In case income more than 100 million | 29.12% | 25.17% | 3.95% | |
| 2. | Key Condition: Optional tax rate for new manufacturing companies set up in India starting October 2019 and initiated production before 2023 | |||
| Income less than INR 10 million | 26% | 17.16% | 8.84% | |
| Income more than INR 10 million, but less than INR 100 million | 27.82% | 17.16% | 10.66% | |
| Income above INR 100 million | 29.12% | 17.16% | 11.96% | |
| 3. | Other Domestic Companies | |||
| Income before INR 10 million | 31.2% | 25.17% | 6.03% | |
| Income more than INR 10 million and below INR 100 million | 33.38% | 25.17% | 8.21% | |
| Income more than INR 100 million | 34.94% | 9.77% |
For the effective tax rate (ETR) applied on corporate, it was decided the domestic companies would not be allowed to claim any tax exemption or incentives under the Income Tax Act. Companies who exercise such option cannot subsequently withdraw from it and are also not required to pay Minimum Alternate Tax (MAT) so that the revised ETR remains the same.
Only after the expiry of the tax incentive period, the domestic companies enjoying tax incentives will also be allowed to avail such option.
In the case of new domestic companies, established on or after 1st October 2019, following conditions should be met:
- The company should not be formed due to splitting up/reconstruction of an already existing business.
- Any plant or machinery previously used in value exceeding 20% of the total value of plant or machinery or any building previously used as hotel/convention centre cannot be used by the newly appointed company to claim lower ETR.
- The company cannot utilize any specified tax incentive
- The company in its first of the returns filed should apply for the option to claim the benefit of lower tax rate and such option, once exercised cannot be withdrawn
B: MAT Rates Reduction
The MAT rate for other companies ( including domestic ones, who are already claiming some tax incentives) has been curtailed to 15% from the base rate of 18.5% (before applying a surcharge or cess).
C: Removal of Excessive Surcharge on Capital Gains
The Finance (No. 2) Act, 2019 had increased surcharge for an individual, HUF, AOP, BOI and artificial juridical person to 25% (for total income between INR 2 crore to INR 5 crore) and 37% (for total income exceeding INR 5 crore) from the earlier rate of 15%. Subsequently, the FM in her press conference on 23 August 2019 announced a partial rollback of the enhanced surcharge for:
As per the Finance (No. 2) Act, 2019, the surcharge has been increased to 25% for an individual, HUF, AOP, BOI and artificial juridical person (having total income between INR 2 to 5 crores) and 37% for ones having total annual income more than INR 5 crores from the earlier lower rate of 15%.
A partial rollback of the enhanced surcharge has also been announced by the finance minister in her press conference for:
- Individuals, HUFs, AOPs, BOIs and Artificial Juridical Persons receiving capital gains income due to the transfer of listed equity shares as well as equity-oriented fund units, and business trust, liable to Securities Transaction Tax;
- Foreign Portfolio Investors (FPIs), receiving capital gains income due to the transfer of above-given capital assets along with derivatives (which are also counted as capital assets in their hands).
Although it is still unclear whether the enhanced surcharged applied to FPIs against capital gains due to other securities other than those given above, i.e., debentures, government securities, etc. have been reduced or not.
D: Transitional Relaxation on Buy-backs Tax Against Listed Companies
Before the amendment by the Finance (No.2) Act 2019, the tax on income distributed by companies to its shareholders by exercising the buy-back of shares option was limited to unlisted companies only. However, now this option has also been extended to listed companies also under the Finance Act (No. 2) 2019. This has created difficulties for listed companies who have publicly announced buy-backs before 5 July 2019 but have been unable to complete the same till the given date.
Now, through the Ordinance, relaxation has been given by finance minister concerning tax buy-backs against listed companies, even if the public announcement of the buy-back has been made before 5 July 2019. Now, the buy-back tax will apply to listed companies for public buy-back announcement made on or after 5 July.
Amendment in GST Rules
A: Relaxation From Filing Annual Return to Taxpayers
- Composition Taxpayers have been given relief from filing form GSTR 9A for FY 2017-18 and 2018-19
- For Taxpayers having an aggregate turnover up to INR 20 Million, filing of GSTR 9 annual return form has been made optional for FY 2017-18 and 2018-19.
B: Restriction on availing of Input Tax Credit (ITC)
In order to compel taxpayers for timely filing of outward supplies statement, the idea to impose restrictions on availing of ITC in cases where outward supplies statement have not been submitted by suppliers in GSTR 1 has been proposed.
C: Delay in Launch of New Return System
As per the recent amendments, the new return system launch has been delayed until April 2020 from October 2019. This action has been taken to give ample opportunity to taxpayers as well as taxman to adapt according to new GST return system practices.
D: Integrated refund system ready to launch on 24 September 2019
The decision to reduce corporate tax rates is a bold and critical decision taken by the government to counter the slow economic growth. This decision will benefit all domestic companies across multiple sectors immensely if they decide to sacrifice additional tax incentives.
The special concessional effective tax rate of 17.16% for domestic manufacturing companies will provide a major edge to India compared to other emerging markets and will also give an adrenaline boost to “Make in India” government policy. Both reduction and non-applicability of MAT in specific cases will ensure that the decision of reduction in corporate tax rates gets applied properly.
The new GST measures proposed during the 37th GST council meeting concerning annual return will benefit the MSME sector immensely with increased compliance.
The restriction enforced against availing ITC in case of non-submission of outward supplies details is a matter of debate as of now. For now, the recipients would be required to continuously engage with the suppliers to check the return filing status to avoid any credit loss.
