In a major boost to employment and economic activity, the government on Friday slashed corporate tax rate for domestic companies to 22 per cent inclusive of all cess and surcharges for domestic companies from 30 per cent.
“Tax concessions will bring investments in Make in India, boost employment and economic activity, leading to more revenue,” said Finance Minister Nirmala Sitharaman.
Announcing a new provision in the income tax act with effect from fiscal year 2019-20, the Finance Minister said, “new domestic manufacturing companies incorporated after October 1 can pay income tax at 15 per cent rate without any incentives.”
Sitharaman further said the Minimum Alternate Tax (MAT) rate has been reduced to 15 per cent from the existing 18.5 per cent for those companies which continue to avail incentive or exemptions.
The new effective tax rate inclusive of surcharge and cess for domestic companies would be 25.17% and for new domestic manufacturing companies would be 17.01%. These rates would be applicable to those companies who forego the current exemptions and incentives.
The total revenue foregone for a reduction in corporate tax rate is estimated at Rs 1.45 lakh crore per year. The reduction in corporate tax rate for domestic companies would be effective from April 1 this year, while the change for new domestic companies would apply for those which get incorporated on or after October 1 and start producing on or before March 31, 2023.
In order to stabilise the flow of funds in the capital market, the government also said that enhanced surcharge announced in Budget shall not apply on capital gains arising on sale of any securities including derivatives in the hands of Foreign Portfolio Investors.(FPI)
Meanwhile, Sensex jumped over 1600 points after Sitharaman’s rate cut announcement. Domestic equity benchmark BSE Sensex which opened to a rebound of 100 points, zoomed following Sitharaman’s announcements whereas, Nifty rallied 254 points to 10,959.10.
In another relief, the minister said listed companies which have announced a buyback of shares prior to July 5, will not be charged with super-rich tax. The companies have now also been permitted to use their 2 per cent CSR spend on incubation, IITs, NITs, and national laboratories.
The Governor of Reserve Bank of India, Shaktikanta Das welcomed the decision and said: ” it will help revive the economy”.
Welcoming the changes, Union Minister Piyush Goyal said, “the announcements will give necessary fillip to the economy which we’ve been hoping for.” “The announcement on tax will help companies like Coal India, Infosys and Wipro, ” he added.