Govt slashed Corporate tax to 25.17% for domestic cos to revive investment

Indian Finance Minister Nirmala Sitharaman announced a slew of measures on Friday to revive sagging investment in Asias third largest economy including a cut in corporate taxes.

On the move’s fiscal deficit impact, the FM said, the effect is being closely monitored. The measures will provide a fillip to growth that had fallen to six-year low of 5% in June quarter.

As Sitharaman made the big announcements, Sensex zoomed over 900 points to 37,042.59, while Nifty rallies 254 points to 10,959.10. Rupee also rallied 66 paise to 70.68 against US dollar.

The Government has brought in the Taxation Laws (Amendment) Ordinance 2019 to make certain amendments in the Income-tax Act 1961 and the Finance (No. 2) Act 2019. The salient features of these amendments are as under:-

1.) Manufacturing companies set up after October 1 to get option to pay 15% tax. Effective tax rate for new manufacturing firms to be 17.01% inclusive of surcharge & tax.

2.) New provision inserted in the income tax act with effect from fiscal year 2019-20, that allows any domestic company to pay income tax at the rate of 22% subject to condition they will not avail any incentive or exemptions.

3.) Companies that announced buyback of shares prior to July 5 will not be charged with tax.

4.) Higher surcharge will also not apply on capital gains on sale of security including derivatives held by FPIs.

5.) Enhanced surcharge will not apply to capital gains arising on equity sale or equity-oriented funds liable to STT stabilise flow of funds into capital markets.

6.) To provide relief to companies availing of concessions and benefits, a MAT relief by reducing it from 18% to 15%.

7.) CSR 2% spending to include government, PSU incubators and public funded education entities, IITs.

8.) Total revenue foregone for reduction in corporate tax rate is estimated at Rs 1.45 lakh crore per year.

9.) Tax concessions will bring investments in Make in India, boost employment and economic activity, leading to more revenue.

New domestic manufacturing companies incorporated after October 1, can pay income tax at a rate of 15 per cent without any incentives. Meaning, effective tax rate for new manufacturing companies will be 17.01 per cent inclusive of all surcharge and cess. Sitharaman further said companies can opt for lower tax rate after expiry of tax holidays and concessions that they are availing now.