Every Year, the Finance Minister of Government of India Introduces Finance Bill in the Parliament Budget Session. When Finance Bill is passed by both the Houses of Parliament and gets the permission of the President, it becomes the Finance Act. Amendments are made every year to the Income Tax Act 1961 and other Tax Laws by the Finance Act. In a move that surprised many, in September 2019, the Central Government announced significant changes in corporate tax rates via the Taxation Laws (Amendment) Ordinance, 2019. The Ordinance sees sweeping tax cuts for companies in India, and substantial reductions for new manufacturing companies. The Ordinance seems to be a measure to stimulate growth as well as encourage domestic production. In this blog, we will discuss the complete Analysis of Finance Act 2019 with respect to the variations in Income Tax rates and changes made by Taxation Ordinance 2019.

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Some Important Points related to Income Tax Rates

  • Income tax is covered under entry no 82 of the union list, i.e. List 1 of Seventh Schedule to Article 246 of Constitution of India has given the power to parliament to make laws on taxes on Income other than Agricultural Income
  • Agriculture Income is covered under Entry no 46 to State List.
  • Notification is the communication of any change in Act/Rules. It is issued by Central Board of Taxes (CBDT) u/s 119. Notification override Act
  • Circulars are clarifications issued by Dept. It is published by Central Board of Taxes (CBDT) u/s 119
  • As per Sec 2(31) Person includes Individual; HUF; Company; Firm; AOP; Local Authority; AJP
  • As per Sec 2(7) Assessee means Person liable to pay tax, a deemed assessee; a person who is in default.

Income Tax Rates for Individual(I)/Hindu Undivided Family(HUF)/Association of Persons(AOP)/Body of Individuals(BOI)/Artificial Judicial Person(AJP)

Individual

In case of every individual i.e. Male, female, & below the age of 60 years on the last day of PY, any AOP, BOI, HUF, AJP, Non-Resident (Irrespective of Age)

Total Income Amount of tax
Upto 2,50,000 Nil
Exceeding 2,50,000 but upto  5,00,000 5% of (total income less  2,50,000
Exceeding  5,00,000 but upto 10,00,000 12500 + 20% of (TI less 5,00,000)
In excess of  10,00,000 112500 + 30% of TI

Senior citizens

Individual [Resident] 60 years or more but not more than 80 years

Total Income Amount of tax
Upto 3,00,000 Nil
Exceeding 3,00,000 but upto 5,00,000 5% of (total income less 3,00,000)
Exceeding 5,00,000 but upto 10,00,000 10,000 + 20% of (TI less 5,00,000)
In excess of  10,00,000 1,10,000 + 30% of TI

Super Senior Citizens

Individual [R] who is of the age of 80 years or more

Total Income Amount of tax
Upto  5,00,000 Nil
Exceeding 5,00,000 but upto10,00,000 20% of (TI less 5,00,000)
In excess of  10,00,000 1,00,000 + 30% of TI

**HEC is applicable @ 4%. [After surcharge or Rebate]

Rebate U/S 87A

One can claim Rebate under section 87A of the Income Tax Act if he/she meets the following conditions

  • One Must be Resident Individual
  • Total Income of an Individual minus Deductions (under section 80) must be equal to or less than 5 Lakh
  • The Income Tax Rebate can be up to Rs. 12500 or 100% of tax payable, whichever is lower

Surcharge applicable to individual, HUF, AOP, BOI, AJP as per Taxation Law Amendment Ordinance 2019 (20.09.2019)

The Finance (No 2) Act 2019 introduced increased surcharges of 25% and 37% of income tax if the total income exceeds Rs 2 Cr or Rs 5 Cr, respectively. The Ordinance provides relief from these increased surcharges in case of foreign institutional investors, as referred to in Section 115AD of the IT Act, in respect of income from capital gains which arise on the sale of securities.

The surcharge in respect of capital gains covered by Sections 111A and 112A of the IT Act is capped at 15%. The revised surcharge rate is as follows.

SNO Income u/s 111A and 112 A Other Income
1 TI [Including Income u/s 111A & 112A does not exceed 50L Nil Nil
2 TI [Including Income u/s 111A & 112A exceed 50L but not 1cr 10% 10%
3 TI [Including Income u/s 111A & 112A exceed 1cr but not 2cr 15% 15%
4 TI [Excluding Income u/s 111A & 112A exceed 2cr but not 5cr. 15% 25%
5 TI [Excluding Income u/s 111A & 112A exceed 5cr 15% 37%
6 TI [Including Income u/s 111A & 112A exceed 2cr but not covered by situation 4 & 5 15% 15%

Marginal Relief

A provision has been made to provide for relief in limited cases. To avoid hardship in case of a taxpayer whose income is slightly higher than the amount on which surcharge is applicable.

  • According to the Income-tax provisions, a marginal relief will be provided to individual taxpayers up to the amount of the difference between the excess tax payable (including surcharge) on the income above Rs.50 lakhs and the amount of income that exceeds Rs.50 Lakhs.

Suppose, an individual has a total income of Rs.51 Lakhs in an FY, he will have to pay taxes inclusive of a surcharge of 10% on the tax computed, i.e., the total tax payable will be Rs. 14,76, 750. But, if he would have earned only Rs.50 lakhs, then the tax liability would have been Rs.13,12,500 only.

Accordingly, in such a case Tax Liability shall be restricted to Rs. 14,12,500 (Tax On Rs. 50 Lakh plus 1 Lakh) and Marginal Relief shall be Rs. 64250 (1476750-1412500)

Income Tax Rates for Other Entities

Domestic Co Turnover not exceeding 400Cr in PY 17-18[FA’19] 25%
Other Companies 30%
Foreign Companies 40%
Firm & LLP 30%
Local Authority 30%
Co-Operative Society:
For First 10,000
For Next 10,000
For Balance
10% 20% 

30%

Tax Applicable for Certain Domestic Companies [Section 115 BAA] w.e.f Annual Year 2020-21

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
  • 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 or subsequent AYs
  • Once exercised, such an option cannot be withdrawn for the same or subsequent AYs.
  • Tax rate = 22%+10% Surcharge [irrespective of quantum of Income] + 4% HEC, Effective Rate 25.17%

Tax Applicable for certain Domestic Manufacturing Companies [Section 115BAB] w.e.f of Annual Year 2020-21

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
  • Such company is incorporated on or after 1 October 2019, and commences production on or before 31 March 2023
  • Such Company is not formed by splitting up or reconstruction of a business already in existence and 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).
  • Such Company does not use building previously used as a hotel or convention centre.
  • Such a company is not engaged in any business other than the 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
  • 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 or subsequent AYs.
  • Once exercised, such an option cannot be withdrawn for the same or subsequent AYs

Tax Applicable for Individual Domestic Manufacturing Companies [Section 115BAB] w.e.f AY 2020-21

  • The total income is computed without claiming prescribed deductions or set-off of loss
  • Such company is incorporated on or after 1 October 2019, and commences production on or before 31 March 2023
  • Such Company is not formed by splitting up or reconstruction of a business already in existence and 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).
  • Such Company does not use building previously used as a hotel or convention centre.
  • Such a company is not engaged in any business other than the 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
  • 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 or subsequent AYs.
  • Once exercised, such an option cannot be withdrawn for the same or subsequent AYs
  • Tax rate = 15% + 10% Sur [irrespective of quantum of Income] + 4% HEC, Effective Rate 17.16%.

Minimum Alternate Tax [Section 115JB]

  • 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%.

Common Points for both Sections 115BAA & 115BAB

1) Domestic Co includes

  • Public/Private/Listed/Unlisted
  • without the restriction of Annual Turnover
  • Shareholder of Co may be resident or non-resident
  • Domestic/Foreign Entity may control such Co

2) Total Income shall be Computed without claiming following Deductions

  • Deduction u/s 10AA. [SEZ]
  • Additional Depreciation u/s 32.
  • Deduction u/s 32AD. [Investment Allowance]
  • Deduction u/s 33AB. [Tea development Account]
  • Deduction u/s 33ABA. [Site restoration fund]
  • Deduction u/s 35/35[2AB]/352[AA] [Scientific Research]
  • Deduction u/s 35AD. [ Specified business]
  • Deduction u/s 35CCC [Agriculture Extension project]
  • Deduction u/s 35CCD [Skill Development Expenditure]
  • Deduction under any provision of Chapter VIA but other than 80JJAA

3) Total income of the company is calculated without adjusting b/f losses from any earlier years. Moreover, such failure will not be carried forward

4) Total income of co so calculated after depreciation

5) Co has to opt this scheme in prescribe manner before filling ROI. However, once the co has taken the option, it cannot be withdrawn

6) If option is exercised in Sec.115BAA MAT provision is not applicable u/s 115JB. However, the benefit of b/f credit u/s 115JAA shall be available.

Circular 29/2019 (02.10.2019) – Clarification in respect of option exercised u/s 115BBA inserted through Taxation Laws (Amendment) Ordinance, 2019

Representations have been received from stakeholders seeking clarification on following issues relating to the exercise of option u/s 115BAA

Allowability of b/f loss on account of additional depreciation

  • A Domestic Co which would exercise option for availing benefit of lower tax rate u/s 115BAA shall not be allowed to claim set-off of any b/f loss on a/c of additional depreciation for an AY for which option has been exercised & [or any subsequent AY]
  • Further. as there is no timeline within which option u/s 1I5BAA can be exercised. It may be noted that domestic co having b/f losses on account of additional depreciation may if it, so desires exercise the option after set-off of the losses accumulated.

Allowability of b/f MAT credit

  • As regards allowability of b/f MAT credit, it may be noted that as the provisions of sec 115JB relating to MAT itself shall not apply to the domestic co which exercises option u/s 115BAA. It is now clarified that the credit of MAT paid by domestic co exercising option u/s 115BAA of the Act shall not be available consequent to exercising of such option.
  • Further, as there is no timeline within which option u/s 115BAA can be exercised, it may be noted that a domestic co having the credit of MAT may, if it, so desires exercise the option after utilising the said credit against the regular tax payable under the taxation regime existing prior to promulgation of the Ordinance.

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We have tried our best to present the law in respect to the Tax Rates for various Assesses correctly as per Finance Act 2019 and Taxation Ordinance 2019. In case you find any errors at any point please feel free to ask in comment section. We will be happy to respond.