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India Introduces Significant Corporate Tax Cuts

India Introduces Significant Corporate Tax Cuts

India introduces significant reductions to its base corporate income tax rate for domestic companies beginning fiscal year 2019/20.

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India has delivered a suite of new tax changes that may affect multinational corporations that are either operating in India or are considering doing business there. Among other changes, India is introducing two income tax concessions: one for existing domestic companies and another for new domestic manufacturing companies.

Lower income tax rates

Companies that opt into the new regime will be subject to a base corporate income tax rate of 22% for existing domestic companies (a decrease from a top rate of 30%) or a base corporate income tax rate of 15% (decreased from 25%) for qualifying new domestic manufacturing firms incorporated on or after October 1, 2019, if they start manufacturing operations on or before March 31, 2023.

The effective tax rates will be 25.17% and 17.16%, respectively, after accounting for income tax surcharges that will also apply under the new regimes.

New regime is optional

Notably, these corporate tax rate reductions are not automatic and companies must meet certain conditions in order to qualify. For example, among other conditions, new manufacturing companies must not conduct any business other than manufacturing, production and research or distribution of products manufactured or produced. Eligible taxpayers may opt into the concessional regime after careful consideration—by doing so, taxpayers will not be entitled to certain deductions or loss carryforwards available under the previous regime.

Conditions for accessing reductions

Companies who exercise their option to access these lower income tax rates cannot subsequently withdraw their decision.

Notably, the concessional regime does not include several deductions that may be available under the existing regime, such as deductions for:

  • Additional depreciation on new plant and machinery
  • Investment in new plant or machinery installed after a specified date or in specific areas in certain states
  • Investments in specified development accounts and funds
  • Weighted deductions for expenditures on scientific research or on specified business or projects.
  • Units in India's "special economic zone".

In addition, allowable depreciation will be computed as prescribed, and no set-off will be available for losses carried forward that are attributable to any of the above deductions.

For more information, contact your KPMG advisor.
Information is current to October 1, 2019. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

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