Concessional corporate tax rate: Government wants private companies to quickly set up new manufacturing units

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NEW DELHI: The government wants new domestic companies to quickly set up their manufacturing units in India and as a result the 15% concessional tax rate has been extended for a year until March 2024, the Revenue Secretary, Tarun Bajaj.
Stating that direct and indirect tax revenue is growing and has good momentum, Bajaj said this means the corporate sector is also doing well and India’s tax-to-GDP ratio could be “the highest on record”. This year.
The 2022-23 budget presented on February 1 proposed that the concessional 15% corporate tax rate be available for an additional year until March 2024 for newly incorporated manufacturing units.
While reducing the corporate tax rate in September 2019, the government had stated that any new domestic corporation incorporated on or after October 1, 2019, making new investments in the manufacturing sector, would have the option to pay tax on the income at the rate of 15%. if they started production on or before March 31, 2023.
However, these companies will not be allowed to benefit from an income tax exemption or incentive.
“Our tax to GDP ratio has fallen below 10% this year, we have lowered tax rates, but it has now started to increase. I would not be surprised if this year my tax to GDP ratio is the higher ever for direct and indirect taxes taken together,” Bajaj said at an Assocham event here.
India has been able to more than double its investment spending over the past three years, which would boost GDP growth, and once growth picks up, a lot of things will fall into place.
“Jobs will fall into place, business, taxes and incomes will improve. So once that starts, we also expect the private sector to come in and replace the public sector in terms of investments and drive forward It’s just in that context…the 15% tax provision for new manufacturing companies has been extended for a year.
“The message is very clear that we would like you to set up your factories and manufacturing units quickly, the deadline has been extended by a year and yes there will be a sunset clause and then we will go to 22% . , which is the corporate tax rate. This is granted as a special exemption for manufacturing units to set up their factories sooner rather than later,” Bajaj told the chamber of industry.
He said the increase in the tax-to-GDP ratio shows that the government is stabilizing its tax policy and the corporate sector is also adjusting to the lesser exemption regime.
After a three-year gap, direct tax collections – which include corporation tax and personal income tax – exceeded budget forecasts for the 2021-22 fiscal year ending in March 2022, indicating an economic recovery.
Direct tax collection estimates for the financial year 2021-22 have been revised upwards from Rs 11.08 lakh crore in the budget estimates (BE) to Rs 12.50 lakh crore in the revised estimates (RE ).
For 2022-23, collection of direct taxes has been set at Rs 14.20 lakh crore. This includes Rs 7.20 lakh crore in corporate tax and Rs 7 lakh crore in personal income tax.
“I’m happy that if revenue collection is growing, showing good momentum, that means the corporate sector is doing well as well. And unless the corporate sector is doing well, I don’t think we can do move the wheels of the economy.
“So while incomes are rising, we are also happy that the corporate sector, especially large, MSMEs still need support for 1 or 2 years until it comes back,” a- he declared.
Bajaj also said that the government has emphasized in recent years the stability and predictability of the tax system, and that some small changes – such as a provision for the reduction of litigation, changes in the faceless regime and an update back to help taxpayers – were announced in the recent budget.
In September 2019, the government had announced a reduction in basic corporation tax for then-existing corporations to 22% from 30%; and for new manufacturing companies, incorporated after October 1, 2019 and starting their activities before March 31, 2023, at 15% instead of 25%. Companies opting for these new tax rates will have to give up all exemptions and incentives.
The effective tax rate for existing units, after taking into account surcharges and taxes – such as Swachh Bharat Tax and Education Tax, which are levied in addition to income and companies – is 25.17% against 34.94% previously. For new housing, it is 17.01% against 29.12% previously.
This lower tax regime was optional.
Regarding the new tax regime, Bajaj said as it settles, and as the time for claiming exemptions comes to an end, companies will choose this new regime over the old one.
“In fiscal year 2020 and tax year 2021, nearly 65% ​​of income moved to the new tax regime, while only 16% of those assessed moved…
“I anticipate that as companies exhaust their exemption, they will start to move to the new tax regime, because 30% and 22% is a big difference, and they would benefit from it,” he added.
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