Arjuna (Fictional Character): Krishna, The festival of Navratri has started and enthusiasm can be witnessed on every corner. The grounds for 'Corporate tax Dandiya' are all set and many are enjoying it. Recently, Finance Minister introduced amendments and now let’s see how this 'Corporate tax Dandiya' will be played by corporates taxpayers in Income tax for corporates?
Krishna (Fictional Character): Arjuna, Finance Minister introduced amendments in Income Tax to boost economy. Corporate tax Dandiya ground is of Income Tax, the players are corporate taxpayers. The music is being played to boost economy. The Corporate tax Dandiya is for coporate tax payers only and no passes are given to non-corporate taxpayers i.e. it is not applicable to individuals, HUF, partnership firm, etc.
Arjuna: Krishna, How many types of players can play "Corporate tax Dandiya"?
Krishna: Arjuna, There are 3 types of players who can participate in this "Corporate tax Dandiya". They are as follows:
The new domestic manufacturing companies who will to pay Income tax at the rate of 15% are the first players.
The second player are the old corporate taxpayers who have been provided the option to pay tax at the rate of 22% but no benefit of deduction can be taken.
The old corporate taxpayers who wish to claim deductions then tax should be paid at the rate of 33% are the last players.
The amendments would be effective from Assessment Year 1st April, 2020.
Arjuna: Krishna, What are the rules for new entrants in order to play 'Corporate tax Dandiya'?
Krishna: Arjuna, for participating in this 'Corporate tax Dandiya' new entrants i.e. tax to paid at the rate of 15% have to comply following rules:
- Company should be set up and registered on or after 1/10/2019 and should commence manufacturing on or before 31/03/2023
- Company should not be formed by splitting up or reconstuction of a business already existing.
- The company does not use any plant and machinery previously used for any purpose subject to certain exceptions.
- The company does not use any building previously used as a hotel or a convention centre, as the case may be.
Arjuna: Krishna, What are the benefits which established players i.e. old companies have to forego for playing new 'Corporate tax Dandiya'?
Krishna: Arjuna, for participating in this 'Corporate tax Dandiya' i.e. to pay tax at the rate of 22%, old companies have to forego the following benefits:
- No deduction u/sec 10AA
- No deduction u/sec 32(1)(iia) or 32AD or
- No deduction u/sec 35(2AA) OR (2AB)
- No Income-Based Deduction under Chapter VI-A except Section 80JJAA
- No Set-off or Carry forward of losses allowed of any previous Assessment year in relation to above Sections and no further deduction for such loss shall be allowed for any subsequent year
- Option to opt shall have to be exercised before Filing Income Tax Return and once exercised, it cannot be withdrawn.
- Some companies have huge accumulated MAT credit and thus want to claim the credit even while switching to a lower tax bracket. The others want longer period for writing off such credit to prevent a one-time setback to profits.
Arjuna: Krishna, what lesson should one learn from this?
Krishna: Arjuna, to give boost to the economy government has arranged new ground for 'Corporate tax Dandiya' and has also decided some set of rules. Now the old companies have to decide about their participation in 'Corporate tax Dandiya'. Now let’s see now whether corporates enjoy 'Corporate tax Dandiya' or new amendments spoils the 'Corporate tax Dandiya'.
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