India Inc gets ~1.45L-cr boost,stocksskyrocket
Corporate tax slashed ahead of festive season, govt to bear fiscal cost
NEWDELHI: Finance minister Nirmala Sitharaman surprised India Inc with a gift of ~145,000 crore on Friday by reducing the corporate tax rate for domestic manufacturing companies from 30% to 22% and for new manufacturing companies from 25% to 15% in her fifth set of measures, but the first real fiscal stimulus, since August 23 to revive growth in a slowing economy.
The move, which was almost universally welcomed, spurred the stock markets to register the highest single-day rise in a decade — the benchmark BSE Sensex soared 2,284.55 points before closing 1921.15 points, or 5.32%, up , adding ~7 lakh crore in investor wealth.
“This is not bigger than the budget, this is bigger than the last 20 budgets,” tweeted Samir Arora, a Singapore-based fund manager. Uday Kotak of Kotak Mahindra Bank called it a “big bang reform” on Twitter. It “allows Indian companies to compete with (those in) lower tax jurisdictions like the US”, he added.
The changes will be made through ordinance, and come as part of efforts to revive gross domestic product (GDP) growth which slipped to 5%, an over sixyear low, for the three months ended June 30. The tax cuts will be effective retrospectively from April 1, the start of the fiscal year, and any advance tax paid
by companies will be adjusted, revenue secretary Ajay Bhushan Pandey said.
The lowest rate of corporate tax now is 25% (for companies with a revenue up to ~400 crore), with other companies paying 30%. That effectively works out
to 29.12% and 34.9% respectively, with cess and surcharge.
Now, if they so choose to, companies can pay tax at 22% (they won’t be eligible for any exemptions, though), which translates into an effective tax rate of 25.17%. Such companies will also
not be required to pay the so-called Minimum Alternate Tax.
This means the profit after tax of all companies will increase because the tax cut will directly flow to the bottomline.