One-year extensions: 15% concessional corporate tax rate for new manufacturing cos, start-ups

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Finance Minister Nirmala Sitharaman on Tuesday kept the corporate tax rate unchanged in the Union budget for 2022-2023, but proposed a concessional rate of 15% for 1 more year until March 2024 for newly incorporated manufacturing companies.

Section 115BAB of the Income Tax Act provides a preferential tax rate option at the rate of 15 percent for new domestic manufacturing enterprises, provided they do not benefit from any specified incentive or deduction and meet certain other conditions. The law provides that the new domestic manufacturing enterprise must be established and registered on or after October 1, 2019 and must begin manufacturing or production of an article or thing no later than March 31, 2023, according to the budget document. . .

Sitharaman also offered approvals to start-ups by extending the date of incorporation for startups eligible for the exemption. The current provisions of Section 80-IAC of the Act provide for a deduction of an amount equal to 100% of the profits and gains derived from a qualifying business by a qualifying start-up for three consecutive tax years out of 10 years. , from the year of the constitution, at the discretion of the elected representatives.

Due to the Covid pandemic, there have been delays in setting up these units. In order to take into account these deadlines and favor these eligible startups, the government proposed to modify the provisions of article 80-IAC of the law to extend the period of constitution of eligible startups until March 31, 2023, according to the Document budget.

The government has revised upwards the direct tax collection estimates for the financial year 2021-22 from Rs 11.08 lakh crore in the budget estimates (BE) to Rs 12.50 lakh crore in the revised estimates (RE) . The government plans to collect Rs 6.35 lakh crore from corporate tax and Rs 6.15 lakh crore from personal income tax (PIT) compared to the budget estimate of Rs 5.47 lakh crore and Rs 5 .61 lakh crore in corporate tax and PIT, respectively.

In most cases, the optional corporate tax regime lowered the corporate tax rate to 22 percent, plus surtax and resulting tax, to an effective tax rate of 25.17 percent.

Improving business profitability, formalizing the economy and improving compliance through tax reforms are noteworthy, according to the economic survey for 2021-22. Corporate tax recorded growth of 90.4% from April to November 2020 and 22.5% from April to November 2019.

Additionally, the budget proposed changes to corporate dividends.

Rohinton Sidhwa, Partner, Deloitte India, said: “Upon the withdrawal of Sec 115BBD, Indian companies benefited from a reduced tax rate on dividends of 15% received from their foreign ‘affiliates’ (whose stake was 26% or more). This has now been removed and these dividends will now be taxed at regular rates. The justification for this is attributed to the abolition of the tax on the distribution of dividends. The lower rate prompted the money to be brought back to India.

Concerns have been expressed by corporate taxpayers about the limited time available to review tax returns, acknowledging part of the concern that the Finance Bill proposed an extended deadline for an updated tax return.

“However, what the FM did not mention in their speech was that the same would be the case with an additional 25%/50% levy on tax and interest due on the additional income provided would be to pay. While this provides one more opportunity for taxpayers to ensure complete reporting, the additional tax fairness and whether it would encourage voluntary tax compliance would remain to be seen,” said Pranay Bhatia, Partner and Head of Tax Services and Regulatory, BDO India.

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