To boost manufacturing in India and to promote SMEs, Government took this initiative of reduced tax rate for manufacturing Company.
Let me give you a complete understanding of to whom it is applicable, how and when. Read the complete article to not miss a single update and a deep understanding.
To whom it is applicable:
A domestic company formed and registered in India after October 1, 2019.
From when it is applicable:
Reduced tax rate is applicable from FY 2019-20 for companies incorporated after Oct 1, 2019 and has started its manufacturing operations on or before March 31, 2023.
Effective tax liability would be 17.16% (Base tax rate 15% plus surcharge 10% plus cess 4%)
The Company has to exercise the reduced tax rate option before filing return of that year. Please note that once the option is exercised, it cannot be changed later for that financial year.
Criteria to be considered
It should be a newly formed company which means that it should not be formed by splitting or reconstructing any existing business.
Plant and machinery should be new. It should not use any machinery which is used before for any other purpose. However, it can use a machinery which is used outside India. Indian machinery can also be used is the value of Plant and machinery does not exceed 20% of total cost of machinery.
It cannot use any of the following premises:
- Building earlier used as hotels which can be 3star, 4-star, 5 star
- Halls used for conducting seminars and workshops
Tax exemptions which cannot be claimed if you go for the reduced tax rate
- Set off and carry forward loss of the earlier period not allowed
- Deduction under Chapter VIA not allowed
- Depreciation u/s 32 not allowed
- Amount paid towards scientific research cannot be claimed
- Any capital expenditure payment made for specified business
- Few deductions cannot be claimed for tea, coffee and rubber company.
- Other deductions like agricultural, site restoration etc. cannot be claimed.
Note: Minimum Alternate tax would not applicable to such companies which is a good benefit given by government.
Conclusion: The new tax rate is really beneficial for those manufacturing companies who do not have any of the exemptions mentioned above. If you are small manufacturing company like plastic, boxes etc. and there are no special deductions to be claimed, you can always go for reduced tax rate of 17.16%. Please plan the taxes as per both the provisions i.e normal tax rate of 25% for companies and the new tax rate and check what is beneficial for your company. Once the option is exercised it cannot be changed for that financial year.
