On 5 December 2019, the upper house of parliament passed the Taxation Laws (Amendment) Bill, 2019. The bill was passed by the Lok Sabha (Lower house) on 2 December 2019. The bill repeals The Taxation Laws (Amendment) Ordinance, 2019. The bill also amends both the Income Tax Act 1961 and the Finance (No 2) Act 2019. The main measures are:

  • Currently, domestic companies with annual turnover of up to Rs 400 crore pay income tax at the rate of 25%. For other domestic companies, the tax rate is 30%.  The Bill provides domestic companies with an option to pay tax at the rate of 22%, subject to condition they will not avail any incentive or exemptions under the Income Tax Act. These companies are also not obliged to pay the minimum alternative tax (MAT).
  • The Bill also provides the new domestic manufacturing companies with an option to pay income tax at the rate of 15%, as long as they do not claim certain deductions. The new domestic manufacturing companies must be set up and registered after 30 September 2019 and start manufacturing before 1 April 2023.
  • The domestic companies have the right to opt for the new reduced tax rates in the fiscal year 2019-20 or any other fiscal year in the future. Once the company makes the choice of the tax rate, it will apply for all subsequent years.
  • The Ordinance reduces the MAT rate (applicable for companies not opting for the new tax rates) from 18.5% to 15% with effect from the financial year 2019-20. The Bill amends this provision by making it effective from the financial year 2020-21.