Now India, a New Tax Heaven!

India a tax heaven for manufacturing domestic companies! Yes, you read it right, India has brought it tax rates to most competitive rates in the world. The India now one of the lowest tax countries among Singapore and Mauritius with lowest tax corporate tax rates.

The Indian government has introduced a new regime of income tax for domestic companies (i.e. companies incorporated in india) set up and registered with on or after from 01^st October, 2019 and engaged in manufacturing or production activity. The tax rate under this scheme is as low as 16.5% including surcharge of 10%. The various features of the scheme are as under: –

Section 115BAB of the Income Tax Act, 1961 (referred to as Act).

Tax Rates

• 16.50% (incl. mandatory surcharge of 10%) of income from manufacturing business, research and distribution of manufactured article.
• No Minimum Alternate Tax u/s 115JB.
• 15% on STCG on listed units and equity shares. (surcharge as per total income)
• 10% on LTCG on listed equity oriented units and equity shares exceeding INR 100,000 as per section 112A (surcharge as per total income)
• 20% on Long Term Capital Gain. (surcharge as per total income)
• 24.20% (incl. mandatory surcharge of 10%) on any other income for without any deduction of expenditure or allowance.
• 24.20% (incl. mandatory surcharge of 10%) on STCG on capital asset on which no depreciation allowable.
• 33% (incl. mandatory surcharge of 10%) on any income in excess of profits determined by AO at arm’s length.

Conditions

• Company set up and registered on or after 01^st October 2019.
• Commences manufacturing before 31^st March, 2023.
• Business not formed by splitting up or the reconstruction, of business already in existence, except re-establishment, reconstruction or revival of any undertaking as is referred in section 33B
  • Following point are significant while deciding the terms splitting up or reconstruction of business already in existence:-
    • The applicability is checked for the first year of exemption/deduction.
    • Expansion of business would not be considered as splitting up or reconstruction
    • Forward or backward integration of business, provided there is expansion, is not splitting up.
    • Not formed by transfer of major assets/employees/customers.
    • Both units after formation shall be independent commercially viable units
    • Old business not affected due to setting up new business
    • Substantially the same person was not doing the same business.
• No use of old plant or machinery except 20% of total value of plant and machinery.
  • Exception:- any machinery or plant which was used outside India by any other person, if following conditions fulfilled:
    • such machinery or plant was not, at any time previous to the date of installation by person, used in India;
    • such machinery or plant is imported into India; and
    • no deduction of dep. in respect of such machinery or plant has been allowed or is allowable under Income Tax Act in computing Total Income of any person for any period prior to installation.
• No building being hotel or convention centre is used in respect of which deduction claimed u/s 80-ID.
• Should engaged only in the business of manufacturing and related activities.
• Total income computed:-
  • Without any deduction u/s 10AA, 32(1)(iia), 32AD, 33AB, 33ABA or sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) or sub-section (2AB) of section 35 or 35AD or 35CCC or 35CCD or under any provisions of Chapter VI-A under the heading “C” other than 80JJAA.
  • Without set-off loss or unabsorbed depreciation u/s 72A related to above deductions and such loss will be exhausted.
  • Without claiming additional depreciation u/s 32(1)(iia) and unabsorbed additional depreciation to be adjusted in block of assets.
  • If units is in IFSC- deduction u/s 80LA allowed.

If no conditions Satisfied

• Tax at normal rates should apply in previous year and subsequent years also.

Manufacturing meaning.

• Manufacture or production of any article or thing and research in relation to, or distribution of, such article or thing manufactured or produced by it but does not include business of:-
  • development of computer software in any form or in any media;
  • mining;
  • conversion of marble blocks or similar items into slabs;
  • bottling of gas into cylinder;
  • printing of books or production of cinematograph film; or
  • any other business as may be notified by the Central Government in this behalf.

Arm’s Length Profit.

• AO has the power to determine the profits of the company where owing to
  • close connection among transacting parties; or
  • Any other reasons

profits are more than expected in normal course of business.

• Transfer pricing provisions applicable where the aggregate amount of transaction among such parties exceeds INR 20 Crores.

Option to Exercise.

• This option shall be exercised by eligible domestic company before the due date of filing first year return u/s 139(1) of the Act in form 10-ID.

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On May 13, 2020   /   Education, Income Tax, News