28 Sep 2019Posted By: Mudit Handa


Corporate Tax Rates Slashed for Domestic Companies

Undoubtedly, it’s the gala time for India Inc. as the government has recently announced the reduction in the Corporate Tax Rates for the Domestic Companies and the newly established companies in the manufacturing sector. 

The government has taken this step so as to draw in fresh investment in the Indian manufacturing sector and to boost the 'Make in India' drive. The substantial reduction in Corporate Tax Rates is intended to provide much boost to the Indian manufacturing sector and encourage entrepreneurship.

Refer to the  

Here we will try to understand how this new tax reform will benefit the Indian companies.

 

1. How much reduction is in Corporate Tax Rates for existing companies?

A new provision has been added to the Income Tax Act 1961 effective from FY 2019-20. According to it:

  • Now, all domestic companies can opt to pay Corporate Tax @ 22%, with a condition that they won't be able to get any tax exemption or incentive. 
  • However, the effective tax rate for such companies shall now be 25.17% (incl. of surcharge & cess). Let's understand how:-

Particulars 

Tax Rate 

  Corporate tax rate (%)

22.00  

  Plus: Cess @ 4% (%)

0.88  

  Plus: Surcharge @ 10% (%)

2.29  

  Effective tax rate (%)

25.17  


2. How much Corporate Tax Rate cut for newly setup manufacturing units?

With a view to promoting development and investment in the manufacturing sector, a new provision has been added to the Income Tax Act 1961, wherein:

  • Any new domestic company formed on or after October 1, 2019, making new investments in production, can opt to pay Corporate Tax @ 15%.
  • This relief is for those companies that commence their manufacturing on or before 31st March 2023. 
  • Again, this is subject to certain conditions that they won't be able to get any other tax exemption or incentive.
  • However, the effective tax rate for such companies shall now be 17.16% (incl. of surcharge & cess). Let's understand how:-

Particulars 

Tax Rate 

  Corporate tax rate (%)

15.00  

  Plus: Cess @ 4% (%)

0.60  

  Plus: Surcharge @ 10% (%)

1.56  

  Effective tax rate (%)

17.16  

Moreover, all the abovementioned domestic companies need not settle the Minimum Alternate Regulatory expense.


3. How will the Corporate Tax reliefs help Domestic Companies?

As per the Finance Ministry, the total revenue foregone for this Corporate Tax reliefs are estimated at ₹1.45 lakh crore annual.

  • Nevertheless, this move shall be a lift for the manufacturing sector amid the pressure to revive the economy from the recession after GDP fall to 5%. 
  • The move shall bring in more & more investment in the manufacturing sector. This will boost the production in these recession-hit manufacturing units. 
  • Moreover, this will bolster entrepreneurship, as the newbie entrepreneurs shall be able to easily set up and run their manufacturing unit in India.

4. What are the legal requirements to set up manufacturing units in India?

The manufacturing units in India require to obtain some legal registration to start with, which are discussed below:

  1. Factory License: As per the Factory Act, 1948 all the manufacturers have to compulsorily register their factory premises with the local authority before commencing their business. The factory license shall be obtained from the Chief Inspector of Labour Commissioner Organisation.
  2. GST registration: Mandatory to register under GST when annual turnover exceeds INR 40/20 lakh or supply goods and services inter-state or through an e-commerce platform. GST registration not only helps you in getting your business recognized as a legal registrant but also opens a number of opportunities for your business. 
  3. Pollution NOC Certificate: As per the prevalent laws of pollution control, all industrial units, seek consent to establish (No Objection Certificate) from the angle of environmental pollution before commencing their production.
  4. Import Export Code registration: Import Export Code, commonly abbreviated as IEC is the first registration required for the business entities who are dealing in Importing or exporting of goods and services from India.
  5. GeM Registration: The Government e-Marketplace (GeM) is a government-run e-commerce portal. It is a one-stop to facilitate and enable easy online procurement of the Consumer Goods & Services that are needed by various Government Departments, Organizations and PSUs.

With a GeM Registration, you can avail the benefits of smart trade & commerce offered by the government such as:

  • Eligibility to Govt. tenders
  • e-bidding,
  • Reverse e-auction
  1. PF Registration: This is mandatory for all the companies that have 20 or more employees. Such organizations are required to contribute a fixed amount towards Employee Provident Fund out of employee salary and wages.
  2. ESI Registration: This is mandatory for every factory and specified establishments who have 10 or more permanent employees and wages of such employees are less than ₹21,000/- per month.
  3. NSIC registration: In order to promote small & growing entrepreneurs in post-independent India, the Government of India has set up National Small Industries Corporation (NSIC). Here are the benefits of NSIC registration:
  • Free allotment of tenders
  • No EMD deposit in Govt. bids
  • The reserved quota of 20% for govt. purchases from MSEs only.
  • Various schemes to optimize the proficiency of MSMEs in India.

The tax cut down at the rate of nearly 10% is a good signal shows the right time to set up a manufacturing unit in India.

If you need any kind of assistance with regard to Corporate tax or income tax return filing, you can feel free to contact our business advisor at 8881-069-069.

Now you can also Download E-Startup Mobile App and Never miss the latest updates relating to your business.

Give a Reply

E-startupIndia Mobile App

Get latest update in your
pocket!

Download our free Android App and get realtime update on your order status.
Easily connect with our professionals handling your order over chat & mobile.
Never miss business compliances due date with advance notifications.

Get E-startupIndia in your mobile

Why choose E-startup India

e-startupindia member of CII

E-startupindia is a Proudly Member of Confederation of Indian Industry.The CII is a premier business association in India which works to create an environment conducive to the growth of business industry.

e-startupindia certified #Etstartupindia

E-Startup India is duly certified under GOI's Startup India scheme and is renowned for our tech-driven solutions for business & legal services requirements for MSMEs.

e-startupindia  ZOHO Alliance Partner

E-startupindia is an affiliate alliance partner of ZOHO. Zoho Corp is famously known as an operating system of the business. It facilitates solutions to all the business problems in today's digital era.

e-startupindia Google Partner

E-Startup India is a Google Partner, which implies we are rigorously involved in assisting SME businesses to market their presence in the digital world.

IN THE MEDIA

CONNECT WITH US