What is corporate tax, What is corporate tax, Corporate tax news
Corporation tax is a direct tax imposed on the net income or profit that businesses derive from their activities. Companies, both public and private registered in India under the Companies Act 1956 are liable to pay corporation tax. This tax is levied at a specific rate in accordance with the provisions of the Income Tax Act 1961.
In a major move, Finance Minister Nirmala Sitharaman announced deep corporate tax cuts in September 2019 among a series of announcements. The government has decided to reduce the national corporate tax to an effective rate of 25.17%, including all surcharges and taxes, with the aim of promoting growth and investment in the context of an economic slowdown. The move would cost the Treasury 1.45 trillion rupees.
The government has proposed to reduce the corporate tax rate from 30-25% (depending on turnover thresholds) to 22% (effective rate of 25.17% including surcharge and tax) for all companies national, provided that they do not avail themselves of a precise list of exemptions. These include, among others, exemptions available for units in special economic zones, deductions for certain scientific research expenses, additional depreciation available on new investments, and losses, if any, attributable to such deductions.
The alternative minimum tax (MAT), introduced to facilitate the taxation of companies with zero taxation, will also not be applicable to companies benefiting from the reduced tax rate.
Companies claiming exemptions could continue to benefit from them and pay taxes at pre-modified rates, i.e. 25 to 30 percent. They could choose to pay taxes at lower rates at a later date. However, the option to pay taxes at the reduced rate of 22%, once selected, could not be changed. Significantly, where companies continue to benefit from exemptions, the MAT rate has been reduced from 18.5% to 15%.
Any new domestic manufacturing company, incorporated on or after October 1, 2019, must be allowed to pay corporation tax at the rate of 15% (effective rate of 17.01%). No MAT should be imposed on these companies either.
The increased surtax will not apply to capital gains on the sale of securities, including derivatives, in the hands of foreign portfolio investors (REITs).
The Minister of Finance also announced an expansion of the scope of corporate social responsibility (CSR) activities. Companies can now spend 2% of the money on state or union government incubators, PSUs, state universities, IITs, state-funded entities.