Recently, the Rajya Sabha gave its approval for the Taxation Laws (Amendment) Bill, 2019, a move which effectively replaces an ordinance put in place to cut down corporate tax rates in an effort to foster growth in an economy that has begun to slow down. Originally introduced as a money bill in the Lok Sabha due to the financial implications of the proposed legislation, it is important we understand what corporate tax is all about; essentially, it is a tax that is charged on a company’s net income.
Key Elements of the Taxation Laws (Amendment) Bill, 2019
The Taxation Laws (Amendment) Bill, 2019 is essentially a substitute for an ordinance that had been implemented, aiming at reducing the tax rate for domestic companies from 30% and 25% – for those with an annual turnover of over ₹400 crores – to a proposed 22%. Such rates would apply to any companies not claiming specific exemptions within the Income Tax Act.
Furthermore, for any new domestic manufacturing companies that were set up after October 1, the tax rate would be lowered to 15%. This would mean that the new effective tax rate, inclusive of surcharge and cess, for domestic companies would amount to 25.17% while for new domestic manufacturing companies, it would amount to 17.01%.
An Introduction to Money Bills
A bill can be classified as a Money Bill if it contains provisions exclusively concerned with taxation, borrowing of money by the government, expenditure from or receipts towards the Consolidated Fund of India. It also includes bills that contain provisions incidental to these matters.
A Money Bill can only be introduced in the Lok Sabha given the recommendation of the President and must be passed by a simple majority of all members present and voting. The Rajya Sabha is unable to amend money bills but can suggest amendments. A Money Bill mainly dealing with taxation or government spending has to be returned to the Lok Sabha within 14 days, or else it is assumed that the bill has been passed by both houses in the form in which it was originally proposed by the Lok Sabha.
Quick Facts
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| Fact | Detail |
|---|---|
| Original Corporate Tax Rate | 30% or 25% for companies with turnover > ₹400 crores |
| New Corporate Tax Rate | 22% |
| New Tax rate for New Manufacturing Companies | 15% |
| Effective Total Tax Rate for Domestic Companies | 25.17% (inclusive of surcharge and cess) |
| Effective Total Tax Rate for New Domestic Manufacturing Companies | 17.01% (inclusive of surcharge and cess) |
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Source of Information
The above information is sourced from TH. The facts presented are based on the recent approval of the Taxation Laws (Amendment) Bill, 2019, by the Rajya Sabha.
