Common Startup Compliance Mistakes & How to Avoid Them
Recent Tax Exemptions For Corporates 2019-20
Modi government has been working towards making India a $5 trillion economy by encouraging corporates and the investors with the introduction of various schemes, benefits under the Income Tax Act and relaxations for ease of doing business. The major focus of both the Budget 2019 as well as the Taxation laws (amendment) Act, 2019 has been to provide benefits to the corporates, new manufacturing companies etc. Here, we have discussed the list of some major relaxations brought in by the government in the recent past.
1. Reduction in corporate tax rates
Finance Minister Shri Arun Jaitley in his budget speech of 2015 stated that basic rate of Corporate Tax in India at 30% is higher than the rates prevalent in the other major Asian economies, making our domestic industry uncompetitive. He proposed in his budget speech to reduce the rate of Corporate Tax from 30% to 25% over the next 4 years. The government kept its promise and reduced the corporate tax rates over the years. At present, a domestic company is taxable at the flat rate of 30%. However, a domestic company is taxable at the concessional rate of 25% in the following two situations: a) Its total turnover or gross receipt in the previous year 2017-18 does not exceed Rs. 400 crores; or b) It opts for taxability under Section 115BA.
2. Reduced tax rate @ 15% under section 115BAB
With a view to provide the much needed stimulus to corporates and push economic growth, the government made reduction in corporate tax rate to 15% in case of new domestic manufacturing companies. Various conditions are provided under the Act fulfilling which, the benefit of lower tax rates can be availed by the companies.
The option to avail the benefit of the reduced tax rate is available only to the domestic manufacturing companies. The option is required to be opted in the prescribed manner (not yet notified) on or before the due date for filing of return under section 139(1). The company should be set up and registered on or after 01/10/2019 and should have commenced manufacturing or production of article or thing on or before 31/03/2023. Additionally the business should not be formed by splitting up or reconstruction of business already in existence and should not use previously used plant and machinery.
The income of the assessee company should be computed without giving effect to various specified deductions and exemptions such as Section 11AA, section 32(1)(iia), Section 32AD, Section 33AB. Section 33ABA, Section 35(2AA), Section 35(2AA), Section 35(2AB) Section 35AD, Section 35CCC, Section 35CCD and deductions under chapter VI-A. Additionally no regard to set off and carry forward of losses and unabsorbed depreciation shall be given but normal depreciation can be allowed under section 32.
Assessee Company can opt out of section 115BAB in any year and opt for either normal regime i.e. income taxable at 30% or 25% if its turnover does not exceed Rs. 400 crore or it can opt for section 115BAA and tax its income at the rate of 22%. But once the company opts out of section 115BAB it can never opt back for this section.
Company will be liable to pay income tax at the rate of 17.16% (15% + 10% surcharge + 4% cess) on income arising from manufacturing activities. Further no MAT will be applicable in case of these companies. Any income arising in the hands of the assessee company from non-manufacturing activity not relating to the business will be taxed at 22% without providing any deduction.
3. Reduced tax rate @ 22% under section 115BAA
Currently, domestic companies are chargeable to tax at the rate of 25% if their total turnover or gross receipt do not exceed Rs. 400 crore during the financial year 2017-18 otherwise tax is charged at the rate of 30% plus applicable surcharge and cess. In order to provide relief to certain domestic companies, a new section 115BAA has been inserted in the Income Tax Act with effect from Assessment Year 2020-21 to provide an option to domestic companies to pay tax at the rate of 22% plus applicable surcharge and cess.
Any domestic company can opt for the reduced tax rates under section 115BAA provided it opts the benefit on or before the due date for filing of return under section 139(1). Benefit is available only with respect to the income of a domestic company only.
Income of the assessee company should be computed without giving effect to deductions and exemptions under section 10AA, Section 32(1)(iia), Section 32AD, Section 33AB, Section 33ABA, Section 35(1)(ii)/(iia)/(iii), Section 35(2AA), Section 35(2AB), Section 35AD, Section 35CCC, Section 35CCD, and deduction under chapter VI-A except section 80LA and section 80JJAA. Set off and carry forward of losses would not be allowed while calculating income of assessee opting for this section.
The assessee company can opt out of section 115BAA and opt for normal taxation regime. Thereafter the income of the assessee will be computed as per the normal provisions of the Act. However, once the assessee has opted out of the section, it can never opt back to this benefit.
Income of the domestic companies computed in accordance with the provisions of this section will be taxed at the rate of 25.17% (22% + 10% surcharge + 4% cess). Income with respect to which special tax rates are prescribed under the Act, respective rates will be applicable in such case.
4. Relief from MAT
MAT rate has been reduced from 18.5% to 15% to all the assessee with effect from assessment year 2020-21. Additionally, the companies opting for the benefit of reduced tax rates either under section 115BAA or 115BAB are kept away from the preview of MAT, meaning thereby, these companies will not be required to pay tax under MAT.
5. Additional depreciation for manufacturing companies
Additional depreciation is the benefit allowed to some manufacturing companies in case of purchase of new plant and machinery to the extent of 20% of its actual cost. As per the amendment brought by Finance Act 2015, enhanced depreciation with respect to the manufacturing concerns incorporating after 1st April, 2015 and acquiring plant and machinery during the period starting from 1st April, 2015 to 31st march, 2020, in any of the following backward area will be 35% instead of 20%: - a) Andhra Pradesh; b) Bihar c) Telangana d) West Bengal However, if the company is claiming the benefit of reduced tax rates i.e. paying tax at the rate of 15% or 22%, then total income of such entities shall be calculated without giving effect to the deduction for additional depreciation. Furthermore, CBDT has issued a notification amending the Income tax rules, 1962 with effect from 23-08-2019 to provide that assessee can claim higher rate of depreciation @ 30% in respect of motor cars used in the business other than used in the business of running them on hire and @ 45% in respect of motor buses, motor lorries and motor taxies used in the business of running them on hire.
© 2024 Startup Movers Private Limited. All rights reserved. | Designed By : The Night Marketer
