Important pointers of The Taxation Laws (Amendment) Ordinance, 2019

As we all know about the recent announcement made by the FM – Nirmala Sitaraman. I am sharing the important pointers of the Direct tax law as amended.

1. For existing Companies – (Whether Manufacturing or not)

1. Rate of tax – 22% + applicable surcharge and cess
2. Conditions – Have not availed any deduction under
   1. Additional allowance on scientific research,
   2. Section 32AD, 32AB, 35CCC, 35CCD
   3. Additional Depreciation of Plant & Machinery
   4. Chapter VI-A (Except Section 80JJAA i.e. employment increase)
   5. Setoff of loss carried forward from earlier assessment years, if loss is attributable to point (i) to (iii) above.
3. Loss to be carried forward would be deemed to be fully setoff
4. Option needs to be exercised before filing of return. Once exercised, it cannot be revoked ever.
5. MAT will be not be applicable to such companies

2. For new companies – Only manufacturing companies

1. Rate of tax – 15%
2. Conditions
   1. Company has been setup and registered on or before 1st October 2019
   2. Commenced manufacturing on or before 1st October 2023
   3. Should note be formed by splitting up or the reconstruction of a business already in existence
   4. Does not use any plant & machinery previously used for any purpose
      • Used Imported plant & machinery is allowed if never such machinery has been installed in India and never depreciation has been claimed on the same previously in India
      • If 25% of plant and machinery is used, this would be considered as compliance of such section
   5. Company should not have used any building used a hotel or convention center
   6. Company is not engaged in any business other than manufacturing or production of any article of thing and research in relation to, or distribution of such article or thing manufactured or produced by it
   7. Have not availed any deduction under
      • Additional allowance on scientific research,
      • Section 32AD, 32AB, 35CCC, 35CCD
      • Additional Depreciation of Plant & Machinery
      • Chapter VI-A (Except Section 80JJAA i.e. employment increase)
      • Setoff of loss carried forward from earlier assessment years, if loss is attributable to point (i) to (iii) above.
3. Loss to be carried forward would be deemed to be fully setoff
4. Option needs to be exercised before filing of return. Once exercised, it cannot be revoked for future years .
5. MAT will be not be applicable to such companies
6. Assessing officer will check the arm’s length nature of transaction. If the company produces more than reasonable amount of profit, the that extra profit will be taxed at higher rate. In case transaction is more than 20 crore, Transfer pricing methodologies to be used to benchmark the transaction

3. MAT –

• Rate reduced from 18.5 % to 15% plus applicable surcharge
• MAT not applicable to companies option for Option 1 or 2 as above

4. Buy Back of shares – Section 115QA not applicable to announcement before 5th July 2019.

Preliminary Issues

• Bifurcation of carried forward loss into loss originating from above mentioned sections and otherwise. Which loss will be deemed to setoff in previous years.
• Usage of MAT credit for companies because of reduced corporate tax and not applicability of MAT now.
• High tax rates for other vehicles of business like partnership, LLP and individuals
• Differential tax regime for companies operating in same environment leading to non competitiveness for some companies.

Clearly last word has not been written this context and this is a new chapter in taxation history of corporate.