India Inc. seeks clarity on new tax regime

In a surprise gift to the corporates ahead of Diwali, Finance Minister Nirmala Sitharaman cut tax rates by almost 10 percent for corporates. Also, new companies in the manufacturing sector will be taxed only at 15 percent from the 25% announced in FY17 budget. These companies do not need to pay MAT either.

The move has boosted market sentiment and stock markets have been rallying since. However, there are certain conditions that a company/manufacturer must keep in mind before availing this exemption:

The Company should be incorporated after October 01, 2019 and should start manufacturing before 2023

Additionally, The government has introduced provisions to ensure that these firms put up new capacity instead of reusing existing equipment or try and avail these benefits via M&A and restructuring

This would mean that the companies have to use new plant and machinery and cannot use an old/ existing one in the new manufacturing plant.

This would also mean that the companies cannot enjoy certain exemptions they availed as per Section 10AA (SEZ Act), accelerated depreciation, no weighted deduction for scientific research and also deduction under section 80IA (infrastructure related exemptions) shall not be allowed.

These provisions are optional and not mandatory in nature but once they are opted for in the income tax return, a company cannot go back to the older regime.

India Inc. still needs clarity on certain aspects and unless such questions are answered, tax consultants are planning to file representations with the government. Some of the points are:

No clarity on usage of existing MAT credit and if it is available for utilisation what is the extent of the usage?

Additionally, there is no clarity w.r.t. the new formula of Minimum Alternate Tax (MAT) calculation

Clarification related to advance tax calculations will have to be seen and whether they will fall under new regime or the older one.

Clarification w.r.t. set off of past year’s accumulated losses

This is what the tax rates would look like post the new tax regime for a company, a manufacturing unit and an LLP