The New Taxation Laws Bring Respite for the Manufacturing Sector

The recently passed Taxation Laws (Amendment) Bill, 2019 will help to promote foreign investment in India for firms looking to invest outside of the US and China following their trade war, said Finance Minister Nirmala Sitharaman

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The much awaited Taxation Laws (Amendment) Bill, 2019 was passed by Lok Sabha on 2nd December. The bill will reduce the base corporate tax rate to 22 per cent from the earlier 30 per cent for companies that do not seek tax exemptions.


For new manufacturing companies, the rate of interest has been lowered to 15 per cent from 25 per cent. These new domestic manufacturing companies should be registered after September 30, 2019, and should start manufacturing before April 1, 2023.

However, the Bill has strictly laid guidelines for certain businesses that will not qualify as manufacturing businesses. “These include businesses engaged in: (i) development of computer software, (ii) printing of books, (iii) production of cinematograph film, (iv) mining, and (v) any other business notified by the central government,” the Bill stated.

It also states that the Minimum Alternate Tax (MAT) will not apply to companies opting for the new tax rates. MAT is the minimum amount of tax required to be paid by a company, in case its normal tax liability after claiming deductions falls below a certain limit. The Bill adds that the provisions regarding MAT credit will also not apply to companies opting for the new rates.

What Does it Mean for the Economy

The Ministry of Finance has estimated the revenue impact of new tax rates and other measures under the Ordinance (now a bill) at INR 1.45 lakh crore. This could increase the fiscal deficit for the year 2019-20 from 3.3 per cent of GDP to 4 per cent of GDP.

The new tax laws are slated to have a huge impact on manufacturing businesses. The Bill affects 69 per cent of the total income tax-paying companies in 2017-18. The Bill allows these companies a lower statutory tax rate option of 25.17 per cent as against 29 per cent.

The finance minister Nirmala Sitharaman believes that the tax cut will bring investment in the country as firms are looking to invest outside of the US and China following their trade tensions.

India’s GDP growth slipped to 4.5 per cent in the July-September quarter, lowest in six years. Experts see this Bill as a slight relief to the distressed economy.