The Government of India had introduced the Taxation (Amendment) Ordinance, 2019 on September 20, 2019. Several amendments were made to the Income-tax Act, 1961 through this Ordinance. Changes such as cut in corporate tax rate for domestic companies as well as for manufacturing companies were announced. Also MAT rate had been reduced from 18.5% to 15% from the financial year 2019-20, i.e., assessment year 2020-21.
Thereafter on November 21, 2019, “The Taxation Laws (Amendment) Bill, 2019” has been introduced to replace the aforesaid ordinance. However, the bill makes confusion because it says that MAT will be applicable “for previous year commencing on or after April 1, 2020”.
Which means that reduction in rate of MAT would apply from the assessment year 2021-22 instead of Assessment year 2020-21. Therefore, before passage of bill into Act, it should be clarified by the Ministry of Finance that reduction in rate of MAT would apply from which year because many corporate assessees have done their planning based on lower rate of MAT.
In order to enable Indian Manufactures become competitive, the government had introduced the Ordinance that comprised of three tax measures:
(i) New manufacturing companies set up after October 1, 2019 will enjoy lower rate of income tax @ 15% and will be spared of MAT.
(ii) Existing companies which claim no deduction or exemption will pay an income tax of 22% (which works out to 25.17% including cess and surcharge) and no MAT would be applicable to them.
(iii) Companies that continue to claim exemption and deductions will have to pay lower rate of MAT @ 15% as against @ 18.5%.
So, the Ordinance said that the lower MAT will be effective immediately (i.e. from Assessment year 2020-21) while the Bill states that the reduced MAT will come into force from assessment year 2021-22 (that is the previous year commencing on or after April 1, 2020), Thus, there appears to be a one year deferral in the MAT rate reduction.
Therefore, it is suggested that while passage of bill into Act, in the proviso to section 115JB(1)(a) the word “previous” should be omitted to clear that the reduced rate of MAT would apply from assessment year 2020-21.
Differences between Ordinance and Act
A ‘Bill’ can be considered as initial stage of an Act. Bill is a proposal to make a new law. Usually, Bill is in the form of a document that summaries what is the policy behind the proposed law and what is to be the proposed law.
A Bill can be introduced by government itself or proposed by a member of the Parliament. The Bill is placed in the Lower House of the Parliament and after discussions once it has been passed, the Bill goes to the Upper house for approval. Once the Bill gets passed by the Upper House it is sent to the President for his assent. Finally a Bill becomes a Law (Act) of the land once it has been passed by the parliament and also gets assent from the President.
The term ‘law’ in general refers to the set of regulations or rules to be followed. Law can be in the form of an act, ordinance, order, bye-laws, rule, regulation etc. An act is a subset of law.
Ordinances are temporary laws that are circulated by the President of India on the recommendation of the Union Cabinet. They can only be delivered when the Parliament is not in session. They enable the Indian Government to take immediate legislative action.
At times, when the legislature of the Union is not in session and there is a need to make a legislation (Act) in emergency. In such cases, the Government refers a proposal to the President or Governor, and if they approve of them, it becomes an Ordinance. Legally, an Ordinance is the equal to Act. It can be seen as a temporary law till its expiry or till it is repealed or it is approved by the legislature.
H. N. Motiwalla