Two out of five new companies opted for 15% tax in 2019-20

For 2019-20, the number of new manufacturing companies that filed corporate tax returns has been taken as 3,219 (the difference between 1,36,909 manufacturing companies that filed corporate tax returns for 2019-20 and 1,33,691 companies that filed returns for 2018-19).

The regime was introduced midway through the year and so the total income figure is for a six-month period. Data beyond 2019-20 has not been made available so far.

Under the new regime introduced in September 2019, a tax rate of 15 per cent was announced under Section 115BAB for newly incorporated domestic companies, which make fresh investment by March 31, 2023, for manufacturing, production, research or distribution of such article or thing manufactured. This was extended by one year in this year’s Budget to March 31, 2024.

Further, the corporate tax rate for all existing companies (manufacturing and non-manufacturing) was cut to 22 per cent (without surcharge and cess) from 30 per cent. This, however, appears to be a success.

Over 1.45 lakh companies (15.85 per cent of the total number of corporate returns for 2019-20) representing total income of more than Rs 9.33 lakh crore (62.01 per cent of the total income reported by all companies for 2019-20) chose the concessional tax regime.

Notably, in both cases, choosing the concessional tax rate means companies cannot avail exemptions, deductions or incentives provided under the old tax regime.

The Reserve Bank of India had earlier noted that the new tax regime did not help kick-start the intended investment cycle. In case of existing companies choosing the reduced tax rate, as pointed out by the RBI in its Annual Report for 2019-20, the tax rate cut may have been “utilised in debt servicing, build-up of cash balances and other current assets rather than restarting the capex cycle”.

Responding to a written question in Parliament on the new tax rate, Finance Minister Nirmala Sitharaman had last week noted that “…not all new manufacturing companies may have opted for provisions under Section 115BAB. Some may have opted for tax under the normal provisions, depending upon whether the same is more beneficial”.

As per finance ministry data, overall, the effective tax rate, inclusive of surcharge and education cess, for all 9,17,494 companies came down to 22.54 per cent in 2019-20. This is compared to 27.81 per cent effective rate for 8,85,289 companies in 2018-19.

A similar concessional rate regime was also introduced by the Centre for personal income taxpayers effective 2020-21, under which assessees willing to forgo deductions and exemptions such as those under sections 80C, 80D, house rental allowance and leave travel allowance could choose to pay tax on their income at a reduced rate. Even though the government has not yet published data on taxpayers opting for the new personal income tax regime, it is indicated that the new regime has not drawn taxpayers in large numbers prompting the government to take a relook.

Responding to a question on the new income tax regime at a Friday press conference, Revenue Secretary Tarun Bajaj said: “Due to the portal issue, we are still grappling with this kind of analytics data. But one can say it upfront that the numbers who would have gone to that would not be very large… basically we’ll have to do some changes there… to get to people to come in the new regime.”

On Friday, the government detailed record-high tax collections of Rs 27.07 lakh crore for 2021-22, with direct taxes having grown 49 per cent over previous year. Corporate tax recorded growth of 56 per cent in 2021-22, while income tax posted a growth of 43 per cent. Addressing the briefing, Bajaj had said that the number of those shifting to the new corporate tax regime must be seen with caution as “not every new manufacturing unit will come under the 15 per cent regime”. “They may not take the regime because they want to take exemptions,” he said.

Corporate tax collections rose to Rs 7.11 lakh crore in 2021-22 as against Rs 4.58 lakh crore in previous fiscal. “The corporate tax return filing for this year is at 9.86 lakh crore which was 9.24 lakh crore last year and the growth of over 60,000, it also tells a tale. Corporate tax collections surge has also happened due to these new filings…so those numbers also when crunched later will give us an idea as to the increase in corporate tax collections through those returns also,” Central Board of Direct Taxes (CBDT) Chairman JB Mohapatra said at the briefing.