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India Announces 22pc Corporate Tax Rate

by Mary Swire,, Hong Kong

27 September 2019

The Indian Government on September 20, 2019, announced that it will reduce the rate of corporate tax to 22 percent, from 30 percent. New domestic manufacturing ventures will benefit from a 15 percent rate.

The rates will be available only for companies that do not avail themselves of exemptions or tax incentives, the Government said.

When surcharges and cess are factored in, the 22 percent headline rate will be 25.17 percent for those accessing the reduced rate. These companies will not be subject to the minimum alternate tax (MAT).

The 15 percent rate will be available to those companies that make fresh investments in manufacturing on or after October 1, 2019, also providing they do not access any tax exemptions or incentives. The overall effective tax rate will be 17.01 percent. The MAT will also not apply. Production must commence before March 31, 2023.

An election to be taxed at these rates may be made for tax years commencing on or after April 1, 2020.

Companies who seek to pay tax under these rates will be locked in to that election, the Government said, without providing additional details.

To provide relief to those taxpayers subject to the MAT, the rate of MAT has been reduced from 18.5 percent to 15 percent.

The Government has further announced that the enhanced surcharge introduced by the Finance (No.2) Act, 2019 will not apply on capital gains arising on sale of equity share in a company or a unit of an equity oriented fund or a unit of a business trust liable for securities transaction tax in the hands of an individual, Hindu Undivided Family (HUF), Association of Persons (AOP), body of individuals (BOI), or an Artificial Judicial Person (AJP). The enhanced surcharge will also not apply to capital gains arising from the sale of any security including derivatives in the hands of Foreign Portfolio Investors (FPIs).

Further, the Government announced that in order to provide relief to listed companies that have already made a public announcement of buy-back before July 5, 2019, tax on the buy-back of shares will not be charged.

The changes are included in the Taxation Laws (Amendment) Ordinance 2019, which will add new sections 115BAA and 115BAB to the Income Tax Act 1961 (ITA).

TAGS: Finance | tax | business | India | corporation tax | manufacturing | transfer pricing | Tax

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