India Announces Major Tax Cuts To Boost Investment

In order to promote growth and investment in India, the Union Minister for Finance & Corporate Affairs Nirmala Sitharaman announced on September 20 that the Government of India has brought in the Taxation Laws (Amendment) Ordinance 2019 to make certain amendments in the Income-tax Act 1961 and the Finance (No. 2) Act 2019.

- Narayan Kulkarni

The Finance Minister at a press conference in Goa, a rare event to share such major decisions elaborated the salient features of these amendments. The minister said “a new provision has been inserted in the Incometax Act with effect from FY 2019-20 which allows any domestic company an option to pay income-tax at the rate of 22% subject to condition that they will not avail any exemption/incentive. The effective tax rate for these companies shall be 25.17% inclusive of surcharge & cess. Also, such companies shall not be required to pay Minimum Alternate Tax (MAT).”

She also noted that in order to attract fresh investment in manufacturing and thereby provide boost to ‘Make-in-India’ initiative of the government, another new provision has been inserted in the Income-tax Act with effect from FY 2019-20 which allows any new domestic company incorporated on or after October 1, 2019 making fresh investment in manufacturing, an option to pay income-tax at the rate of 15%. This benefit is available to companies which do not avail any exemption/incentive and commences their production on or before March 31, 2023. The effective tax rate for these companies shall be 17.01% inclusive of surcharge & cess. Also, such companies shall not be required to pay MAT.

The minister also said that 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 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of the option they shall be liable to pay tax at the rate of 22% and option once exercised cannot be subsequently withdrawn. Further, in order to provide relief to companies which continue to avail exemptions/incentives, the rate of MAT has been reduced from existing 18.5% to 15%.