Indian government slashed corporate tax rates for domestic companies. This move was done to generate fresh investments and to promote the MAKE IN INDIA campaign. The second main intention was to encourage manufacturing and entrepreneurship.
Rate reduction for existing companies
According to the income tax act 1961 provision:
- All the existing domestic companies will now have to pay a total of 25.17% of corporate tax instead of 34.94%.
- However, this 25.17% inclusive of cess tax of 4% and a surcharge of 10%. The tax rate before this additional tax is 22%.
- Reduction can be only done if the company agrees to compute without claiming incentives, deductions, additional depreciation and exemption available under income tax act
Rate reduction for new companies
According to the income tax act 1961’s new provision:
- All the new domestic companies formed till or on 1st October will now have to pay a total of 17.16%.
- However, this 17.16% is again inclusive of cess tax of 4% and a surcharge of 10%. The tax rate before this additional tax is 15%.
- As mentioned above the reductions can be only possible if the company agrees to compute without claiming incentives, deductions, additional depreciation and exemption available under the income tax act.
- It is to be noted that the companies who will start manufacturing on or before 31st March 2023 are only eligible for this provision
- The reduction and tax rate was from 18 % to 15%.
How will this reduction act as a relief to the companies?
The total revenue spends on this relief is estimated to be ₹ 1.45 lacs crore on an annual basis. This move is estimated to be a boost to the manufacturing sectors to recover the economy from a GDP fall of 5%. This move increase investment in the manufacturing sector and will also help boost production in the country resulting to increase in sales and exports. This will act as an east to the entrepreneurs to set up and run there business in India.
What are the legal requirements?
It is important to obtain some legal registration to start using this provision to let us learn about the documents required to do the same:
I.GST registration: If a company’s annual turnover exceeds INR 40 lacs in normal states and 20 lacs in special States then the company has to mandatorily get GST Registration Online under GST to continue supplying goods and services interstate or through an E-Commerce platform.
II.NOC Certificate for pollution: As per the laws, every industrial unit has to obtain a No Objection Certificate (NOC) for pollution from the government before starting their production.
III.Import Export Code: Any business dealing with importing and exporting of goods and services require an import-export code before commencing the business
IV.Factory License: According to the factory act 1948 it is mandatory for the factories to register their promises with local authorities before actually manufacturing goods. The chief inspector of the labor commissioner organization will be issuing the factory license.
V.PF Registration: A Company with 20 or more employees have a PF registration. PF registration is basically an employee provident fund which the company should provide out of employee salary and wages.
VI.ESI Registration: Any factory having more than 10 permanent employees with wages less than Rs. 21000 per month is mandatory to be registered under ESI registration
VII. GeM Registration: GeM also known as government e-marketplace is a portal run by the government. This is a one-step portal which helps the user and provides the easy online document of goods and services needed by various kind of government organization, departments, and PSUs. With this kind of registration one can avail the following benefits offered by the government:
- E bidding
- Reverse e-auction
- Eligible for government tenders
VIII.NSIC registration: The Government of India set up a corporation for small and growing businesses named National Small Industries Corporation.
The following are few benefits of NSIC registration
- Tenders are provided free allotment
- EMD deposits are not required in government bids
- There is 20% of reserved quota for government purchases exclusively from MSEs.
This move of the government has given a signal to set up more manufacturing units in less price due to 10% of tax deduction.