Tax bonanza: FM slashes corporate tax to 15%

Hyderabad: Ahead of the GST council meeting, Union finance minister Nirmala Sitharaman announced a series of benefits for the Indian corporate sector. Corporate tax rate has been slashed to 22 per cent for domestic companies. Corporate tax for new domestic manufacturing companies has been reduced to 15 per cent. Domestic companies may continue to enjoy reduced corporate tax. The effective tax rate for the companies is 25.17 per cent as against the existing 34.94 per cent. It includes surcharge and cess.  Such companies are not required to pay Minimum Alternate Tax (MAT).

The latest decision is expected to boost the growth of the domestic economy and the Centre aims to attract foreign direct investment (FDI) into the country. The new fiscal reliefs give priority to Small and Medium Enterprise (MSME), exports and housing sectors. Despite the low revenue collection on account of both direct and indirect taxes, the Modi-led government has announced a sharp tax rate cut.

 The additional burden on the Central government owing to the revenue loss due to the reduction in corporate tax rate and other relief would be Rs 1,45,000 crore. Economists term the latest decision as to the most significant announcement so far by the Modi 2.0 government. Prime Minister Narendra Modi-led NDA government is fighting against the slowdown, which dragged down the GDP growth to a six-year low of five per cent during the June quarter of the 2019-20 fiscal.

Ms Nirmala Sitharaman has also brought in changes in the Taxation Laws (Amendment) Ordinance-2019 to facilitate the reduction in tax for India Inc.

 If a company does not opt for the concessional tax and avails the tax exemptions, then it has to pay tax at the pre-amended rate. However, these companies can opt for the concessional tax regime after the expiry of their tax holiday/exemption period.

 “After the exercise of the option, they shall be liable to pay tax at the rate of 22 per cent and option once exercised cannot be subsequently withdrawn. Further, the rate of Minimum Alternate Tax has been reduced from existing 18.5 per cent to 15 per cent. The cut in MAT would provide relief to companies, which continue to avail exemptions/ incentives,” a statement from the Union Finance Ministry said.

 The Centre further said that the enhanced surcharge introduced by the Finance (No.2) Act, 2019, will not apply on capital gains arising on sale of equity share in a company. The exemption is also applicable to a unit of an equity oriented fund or a group of a business trust liable for a securities transaction tax. The decision would stabilise the flow of funds into the capital market, said Ms Nirmala Sitharaman.

 

Dasari Sreenivasa Rao

Dasari Sreenivasa Rao is a freelance journalist with 26 years of mainstream media experience in Hyderabad and Dubai. He was Business Editor at The Pioneer and Spl Correspondent at Deccan Chronicle and The Hans India. Earlier, he worked for prestigious media brands including ToI, Indian Express (Bombay) and SPG Media and Business Standard in Hyderabad. NSE-qualified Dasari specializes in derivatives trading. He was visiting faculty at IGNOU and handled two batches of journalism students. Dasari is passionate about business journalism and always suggests all to practice rigorous meditation that ensures peace of mind and helps in moving up the value chain.

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