The Taxation Laws (Amendment) Ordinance was promulgated on 20-9-2019 to bring in certain amendments to the Income Tax Act, 1961. An option has been given to domestic industries to avail lower rates of corporate tax at 22% and 15%, subject to conditions. Companies can opt for the lower rate at any time though in case of option for 15% rate, it must commence production or manufacture before 31-3-2023. Further, once the option for lower rate is exercised, it cannot be changed in later years. Significantly, MAT would not be applicable to the companies which opt for lower rates. Certain doubts have however been raised about the carry forward and set-off of accumulated MAT credit.

Companies which are set up on or after 1st October, 2019 and engaged in the business of manufacturing will be eligible for concessional rate of 15%. The term ‘manufacture’ is not new to Indian tax law. But, the interpretation under Income tax law for purposes of this provision is likely to see many shades in the days to come. The lower rate of 15% opens up opportunities for reducing the overall tax burden of corporates. At the same time it also gives rise to some interesting questions as to,

  • What activities would qualify as ‘manufacture’,
  • Who would qualify as ‘manufacturer’,
  • What will be impact of outsourcing, etc. ,
  • What would be the impact of merger of units,
  • Can an existing partnership avail the benefit by starting a new venture

Companies which are not engaged in business of manufacture can exercise the option for corporate tax rate of 22%. Given that the government has a stated policy of doing away with various exemptions and those like the SEZ are approaching sunset date, the rate of 22% is also an attractive option. However, it is essential to evaluate the benefits of opting for the lower rate and also to ensure compliance with the conditions laid down therein.