The Taxation Laws (Amendment) Ordinance, 2019

Purpose:-

The main purpose behind Ordinance provides domestic companies  an option to opt for Lower tax rates, provided further that  they would not claim any certain deductions

The ordinance is presented as mentioned below:-

[section 115BAA]

Any domestic company has an option to pay tax at 22%, subject to the following conditions:

• − The total income is computed without claiming prescribed deductions or set-off of loss [See note 1 for the computation mechanism]

These include deductions provided for: 

(1) depreciation of new plant or machinery (in certain cases), and

 (2) various other provisions in the Income Tax Act (under Chapter VI-A, except the deductions provided for the employment of new employees)

• The option needs to be exercised within the prescribed time for filing the return of income (ROI) under section 139(1) of the Act for assessment year (AY) 2020-21.

• Once exercised, such an option cannot be withdrawn for the same or subsequent AYs

[section 115BAB]

 The tax rate applicable to certain NEW domestic manufacturing companies:-

Any domestic manufacturing company has an option to pay tax at 15%, subject to the following conditions:

• The total income is computed without claiming prescribed deductions or set-off of loss (As mentioned above for  the computation mechanism)
• Such company − Is incorporated on or after 1 October 2019, and commences production on or before 31 March 2023. − It does not use plant and machinery previously used for any purpose in India and no depreciation has been claimed on the same (relaxation up to 20% allowed). − It does not use any building previously used as a hotel or convention center. –provided also further that it will not be engaged in any business other than the manufacturing or production of any article or thing and research in relation to or distribution of such article or thing manufactured or produced by it.
• The option needs to be exercised before the due date as per section 139(1) of the Act for furnishing the first of the return of income for any previous year starting from AY 2020-21…
• Once exercised, such an option cannot be withdrawn for the same or subsequent AYs.

Provisions similar to section 80IA(10) of the Act are made applicable for transactions between connected parties which has the effect of producing more than the ordinary profit that might be expected to arise.

[section 115JB]

Minimum Alternate Tax 

• Companies exercising the option under sections 115BAA or 115BAB of the Act have been excluded from the applicability of MAT.
• The tax rate under section 115JB of the Act has been reduced from 18.5% to 15%.

Surcharge rates specified for sections 115BAA or 115BAB – 

For the purpose of advance tax, the applicable surcharge rate on incomes chargeable to tax under sections 115BAA or 115BAB of the Act shall be at 10%.

Amendments to existing section 115BA 

• Corresponding amendments made to section 115BA of the Act to provide that it would apply to companies other than those mentioned in sections 115BAA and 115BAB of the Act. 
• For a person exercising option under section 115BAB of the Act, the option under section 115BA of the Act may be withdrawn.

Amendments on the applicability of the enhanced surcharge rates on certain incomes 

• The surcharge rate of 25%/ 37% introduced by the Finance (No.2) Act, 2019, shall not apply to capital gains arising on sale of equity share in a company or a unit of an equity-oriented fund or unit of business trust referred to in sections 111A or 112A of the Act. 
• The enhanced surcharge rate of 25%/ 37% shall also not apply to the income of foreign institutional investors (FIIs) from securities as referred to in section 115AD of the Act.