Latest Amendments in the Corporate Tax Regime: What to Watch Out For
The corporate tax regime in India is constantly evolving, with new amendments introduced to streamline processes and boost economic growth. Understanding these changes is crucial for businesses to ensure compliance and optimize tax strategies. Here are the latest amendments in the corporate tax regime that you need to watch out for.
Reduction in Corporate Tax Rates
One of the significant changes is the reduction in corporate tax rates. This amendment aims to make Indian companies more competitive globally. The key highlights are:
- For Domestic Companies: The tax rate has been reduced to 22% (plus surcharge and cess) for companies that do not avail any exemptions or incentives.
- For New Manufacturing Companies: A concessional tax rate of 15% (plus surcharge and cess) is available for new manufacturing companies incorporated on or after October 1, 2019, and commencing production before March 31, 2023.
Introduction of Faceless Assessments
To enhance transparency and efficiency, the government has introduced faceless assessments. This initiative minimizes human interface, ensuring a fair and objective assessment process. Key features include:
- Random Allocation: Cases are randomly assigned to officers using artificial intelligence.
- Anonymous Interaction: No physical interaction between taxpayers and tax officers.
- Team-Based Assessments: Assessments are conducted by a team of officers, ensuring unbiased decisions.
Amendments in Dividend Distribution Tax (DDT)
The abolition of Dividend Distribution Tax (DDT) is another major change. This amendment shifts the tax burden from companies to shareholders. Key points include:
- Taxation of Dividends: Dividends are now taxed in the hands of shareholders at applicable income tax rates.
- Removal of DDT: Companies are no longer required to pay DDT on the distribution of dividends.
- TDS on Dividends: Companies must deduct tax at source (TDS) on dividends paid to shareholders exceeding INR 5,000 per year.
Changes in Tax Audit Threshold
To ease compliance for small businesses, the tax audit threshold has been increased. The important aspects are:
- Increased Threshold: The threshold limit for tax audits under Section 44AB has been raised from INR 1 crore to INR 5 crores for businesses.
- Digital Transactions: This increased threshold applies to businesses having less than 5% of their transactions in cash.
Impact on Startups
Startups are significant beneficiaries of the recent amendments. These changes aim to foster innovation and entrepreneurship. Key benefits include:
- Tax Holiday: Startups incorporated between April 1, 2016, and March 31, 2021, can avail of a tax holiday for three consecutive financial years out of their first ten years.
- Relaxation in Conditions: The turnover threshold for claiming tax holiday benefits has been increased from INR 25 crores to INR 100 crores.
- ESOP Taxation: Deferment of tax payment on Employee Stock Option Plans (ESOPs) for startups, allowing employees to pay taxes within five years of exercise or at the time of leaving the company, whichever is earlier.
Incentives for Affordable Housing
The government has introduced several incentives to boost the affordable housing sector. Key amendments include:
- Tax Holiday for Developers: 100% tax deduction for affordable housing projects approved until March 31, 2021.
- Interest Deduction for Home Buyers: Additional deduction of INR 1.5 lakhs on interest paid on loans taken for affordable housing.
Staying updated with these amendments is crucial for businesses to ensure compliance and make informed decisions. For professional assistance and more information, contact us at +91 911 891 1172.