Companies That Can’t Avail 15% Tax Rate
Companies trying to create a new firm by transferring existing assets to avail a lower tax will not be eligible for lower levy.
Only new companies involved in mainstream manufacturing will be entitled for a lower corporate tax rate of 15 percent, according to a bill tabled in the Lok Sabha on Monday.
The Taxation Laws (Amendment) Bill, 2019 clarified that lower corporate tax for new companies will not be applicable for firms that develop computer software, are involved in mining, covert marble blocks into slabs, bottle gas into cylinders, print books and produce cinematograph films.
A company set up after Oct. 1, 2019, that commences manufacturing or production of goods by March 31, 2023 will have to pay 15 percent as corporate tax, according to new tax rates announced by Finance Minister Nirmala Sitharaman in September. These are headline rates, not effective rates that include surcharge and cess.
The bill intends to incentivise a section of manufacturing companies which would push new domestic and foreign investments in the country, said Rohinton Sidhwa, partner at Deloitte India.
The bill, however, clarified that companies trying to create a new firm by transferring existing assets to avail a lower corporate tax will not be eligible for the lower levy.
In case of a merger, a company will not be able to set-off previous losses or unabsorbed depreciation of the pre-merged entity, according to the bill. Unabsorbed depreciation is unclaimed depreciation which a taxpayer cannot claim as an expense, and is allowed to be carried forward, it said.
According to Neha Malhotra, director at Nangia Andersen LLP, the clarification on disallowing set-off for any loss or unabsorbed depreciation on account out of amalgamation will halt any possible litigation arising from the same.
The bill also clarified that short-term capital gains tax on non-depreciable assets would be applicable at 22 percent against 30 percent earlier.
Companies that opt for lower corporate tax regime will not be able to claim their MAT credits, which was also clarified through a circular earlier. This, according to Malhotra, could have led to extensive litigation, since the Central Board of Direct Taxes circulars are primarily binding on tax authorities only.