Corporate tax slashed to fire up economy, markets soar
REVIVING GROWTH Central govt cuts rates for domestic manufacturing companies from 30% to 22% The step to cut corporate tax is historic. It will give a great stimulus to #MakeinIndia, attract private investment from across the globe, improve competitivenes
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 deca d e – t he b e nc hmark BSE Sensex soared 2,284.55 points before closing 1921.15 points or 5.32% up.
“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 GDP growth which slipped to 5%, a s i x- year l ow, f or t he t hree months ended June 30.
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 t a x o f a l l c o mpani e s wi l l increase because the tax cut will directly flow to the bottomline.
Sitharaman said that companies have the option of continue to avail exemptions, leverage ongoing tax-holidays, and then shift to the new tax regime later.
The minister’s announcement will also boost manufacturing – according to what she said, any company incorporated after October 1 and investing in manufacturing can opt to pay tax at the rate of 15%, as long as they do not avail of any exempt i ons and s t art production before March 31, 2023. With cess and surcharge this works out to a tax rate of 17.01%. Experts said this could encourage companies, including global ones, to set up manufacturing operations in the country.
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(plus surcharge and cess effective 34.94%)
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(effective 29.12%)
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(effective 25.17%) without exemptions
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(effective 17.01%)
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An over ₹50,000cr Wto-compliant package for exports
Creation of a ₹20,000cr fund for unfinished real estate projects to
Mega mergers of 10 state-run banks into four strong lenders for efficient and robust credit flow in the economy with an aim to realise govt’s $5 trillion economy dream by 2024-25
Removal of surcharge on capital gains of foreign portfolio investors; instructions to banks to launch repo rate-linked loan products to pass benefit of policy rates cuts to borrowers; online tracking of loan applications; transparent one-time settlement (OTS) policy to benefit MSMES; and time-bound return of loan
NARENDRA MODI, Prime Minister
There was also some good news for companies that want to continue to aggressively plan their tax outgo – the Minimum Alternate Tax (MAT) has been reduced from 18.5% to 15%. MAT brings companies that pay no tax into the tax net.
“The industry demand was for a tax of 25%. The FM has pro
help completion of about 3.5 lakh dwelling units in affordable and middle income segments
documents within 15 days of loan closure
BS-IV vehicles to remain operational for entire period of registration if purchased on or before March 31, 2020
GST authority directed to resolve liquidity problems of MSMES to clear all refunds within 30 days posed 22 plus surcharge. This is really encouraging and the reduction in MAT is also welcome. This will be a big boost for