White Paper: New Corporate Tax regime and IndAS – Implications

The corporate tax rate for a domestic company doing business in India ranges from 26% to 34.944% for Financial Year 2019-2020. Taxation Laws (Amendment) Ordinance 2019 (‘Taxation Ordinance’) has made certain path breaking amendments in relation to taxation of domestic companies. The effective corporate tax rate for certain domestic companies is reduced to 25.17% (including applicable surcharge and education cess) provided the domestic companies will not avail specified deductions. Additionally, the companies opting for the lower tax regime would not be subject to MAT.

Transition to Ind AS since past three years has caused fundamental accounting changes. Considering that the book profit based on Ind AS compliant financial statements is likely to be different from the book profit based on previously existing Indian GAAP, the MAT provisions were amended vide Finance Act, 2017 to deal with the computation of book profit for Ind AS compliant companies. Some of the notional Ind AS adjustments, such as, remeasurement of financial instruments by issuers as compound financial instruments and fair valuation gains and losses of equity instruments classified as Fair value through Profit & Loss Account, have far reaching MAT implications, especially on account of transition adjustments which is to be added to book profit calculation over a period of five years.

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