25 September 2019 India reduces tax rates for Indian companies On 20 September 2019, the Indian Government enacted1 a significant reduction of the corporate income tax rate for certain Indian companies, repealed the higher surcharge applicable to non-corporate taxpayers on certain capital market transactions and provided an exemption from the share buyback tax for listed Indian companies that publicly announced share buybacks prior to 5 July 2019, but had not completed the share buyback by that date. Indian companies can elect to apply a 22% corporate income tax rate,2 a reduction from 25% or 30%,3 effective for taxable years beginning 1 April 2019. If the election is made, most tax exemptions or incentives can no longer be claimed.4 Once the election is made, it cannot be revoked in subsequent years. Electing companies are exempt from Minimum Alternate Tax (MAT). Indian companies incorporated on or after 1 October 2019 that commence manufacturing operations on or before 31 March 2023 can elect5 to apply a 15% corporate income tax rate.6 If the election is made, most tax exemptions or incentives can no longer be claimed. The election is subject to meeting certain company formation and other conditions.7 Once made, the election cannot be revoked in subsequent years. Electing companies are exempt from MAT. The Indian Budget 2019 significantly increased the surcharge rates for certain non-corporate taxpayers;10 however, the increased surcharge has been repealed for: (i) non-corporate taxpayers deriving capital gains from the transfer of listed equity shares, units of equity-oriented funds, and business trusts when such transfers are subject to securities transaction tax; and (ii) foreign portfolio investors11 deriving capital gains from the transfer of any securities. The Indian Budget 2019 expanded the application of the share buyback tax to listed Indian companies for share buyback transactions occurring on or after 5 July 2019. However, as transitional relief, the tax does not apply to share buybacks of listed companies that were publicly announced prior to 5 July 2019 but were not completed by 5 July 2019. 1. The law is technically enacted and in force; however, it is subject to ratification by the Indian Parliament. Failure for the Indian Parliament's ratification causes the law not to be effective on the first day immediately following the tax year, although the chances of the law not being ratified by the Indian Parliament are highly unlikely. 4. Companies claiming tax exemptions or incentives can make the election in any year before or after the expiration of the exemption or incentive period. 7. The new company should not be formed from the restructure of an existing business and should not use second-hand assets (subject to a threshold).
Document ID: 2019-1698 |
