You might be pursuing your business in multiple forms, may be as a sole proprietorship, partnership, company or any other form of entity. You must have chosen such convenient form of business considering the ease of operations, liability to owners, etc.
While selecting an appropriate form of business, income tax rates may not have been a major criteria for decision making.
It is a fact that many of us choose the corporate structure induced by factors such as:
- Limited liability
- Ease of transfer of shares and ownership
- Higher preference by banks, financial institutions, investors, etc.
Prior to the latest announcement, companies with a turnover of less than INR 400 Crores enjoyed a reduced tax rate of 25% (before surcharge and cess) compared to 30% for other forms of business and this might have prompted some of you to choose a corporate structure for your business.
The government of India has now introduced a big reduction in income tax rates for corporates, adding up to the pros of a corporate structure of business. The basic corporate income tax rate for all companies irrespective of its turnover has been slashed to 22% plus applicable surcharge & cess. Moreover, manufacturing companies set up after October 1, 2019 get an option to pay tax at a reduced rate of 15% plus applicable surcharge & cess. Companies can now opt for lower tax rates subject to certain conditions stated by the government.
The benefits before surcharge and cess are summarised below:
|Tax rate before relaxation (%)||Tax rate after relaxation (%)||Reduction in tax rates (%)|
|Companies with turnover less than 400Cr||25||22||3|
|Companies with turnover more than 400Cr||40||22||8|
|Manufacturing companies set up after 1st Oct 2019||25/30||15||10/15|
Comparison of maximum tax rates excluding surcharge and cess (%) with other legal entities:
|Domestic company including one-person company||Non-company (LLP/Partnership/proprietor)|
|All type of businesses (excluding manufacturing companies set up after 1st Oct 2019)||22||30|
|Manufacturing business set up after 1st Oct 2019||15||30|
If you would like to discuss how to structure your business as a corporate legal entity, availing the reduced tax rates please feel free to contact us.