“In order to promote growth and investment, a new provision has been inserted in the Income-tax Act with effect from 2019-20, which allows any domestic company an option to pay income tax at the rate of 22% subject to condition that it will not avail (of) any exemption/incentive,” said Rajiv Chugh, national leader, policy advisory and speciality services, EY India. The effective tax rate for these companies shall be 25.17%, inclusive of surcharge and cess. Also, such companies shall not be required to pay MAT. New investments in SEZs on or before March 31, 2020 could be attractive whether or not the tax holiday benefit is availed of, with the reduced corporate tax rate of 15% for manufacturing companies and 22% for other segments.
Companies may choose not to claim the tax holiday and avail of the concessional corporate tax rate of 15% without any MAT implications. Existing entities operating in SEZs have an option to take benefit of the reduced corporate tax rate of 22%, without availing of any tax holiday. Even otherwise, if such concessional tax regime is not opted, the tax burden could come down as the rate of MAT has been reduced to 15% from 18.5%.
“Post March 31, 2020, investment in SEZ can still be considered as a preferred option, given the concessional corporate tax rate without any MAT impact and indirect tax benefits remaining at status quo. Therefore, with the advent of this tax reform, SEZ could still be an ideal destination for many export-oriented companies,” said Vikram Doshi, partner-tax and regulatory, at PwC India. At the end of March 2019, investments in SEZs totalled more than Rs 5 lakh crore and exports from these enclaves were over Rs 7 lakh crore.