Corporate houses cannot split or restructure their businesses just to avail the benefit of lower tax regime announced on Friday.

The details provided in the ordinance promulgated on Friday mentioned a slew of conditions to avail lower tax for new domestic manufacturing companies that are set up on or after October 1, 2020 and start manufacturing by March 31, 2023. These units will have an option of paying income tax at the rate of 15 per cent provided they do not avail any exemption/incentive. The effective tax rate for these companies shall be 17.01 per cent, inclusive of surcharge and cess. Also, such companies need not pay Minimum Alternate Tax (MAT).

The ordinance said that benefits will be available to new units provided they are not formed by splitting or restructuring an existing business. However, if a business activity is discontinued due to natural or man-made calamity, riot or fire and needs to be re-established, reconstructed or revived on or after October 1 and starts manufacturing by March 31, 2023, it will get benefit of the lower tax scheme.

Another condition that the businesses, trying to get the benefit of the new system, will have to ensure that they do not use any machinery or plant previously used for any purpose. However, this condition will not be applicable in case of imported plant or machinery. Third condition says that the business will not use any building previously used as a hotel or convention centre. This means that if a business closes down a hotel or convention centre and starts a new manufacturing unit, then it will not be eligible for lower tax.

The ordinance also says that once the option of lower tax has been exercised for any previous year, it cannot be subsequently withdrawn for the same or any other previous year.”

‘Bold step’

Experts feel that despite these conditions, the measure will boost fresh investment in big way. Rakesh Nangia, Managing Partner, Nangia Advisors (Andersen Global), said “The government has taken a bold and appropriate step, which shall not only go on to revive the Indian economy by increasing the investment in India Inc. but shall also leave more disposable income in the hands of the corporates.” The positive move, that costs the government ₹1.45 lakh crores, shall also align the Indian tax rates with the rest of the world, thereby boosting investment, employment and economic activity, he said.

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