Diwali came early for India Inc after the Centre slashed effective corporate tax to 25.17 per cent inclusive of all cess and surcharges for domestic companies. Making the announcement, FinanceNSE 3.52 % Minister Nirmala Sitharaman said the new tax rate will be applicable from the current fiscal which began on April 1.
Sitharaman said the revenue foregone on reduction in corporate tax and other relief measures will be Rs 1.45 lakh crore annually.
The move puts India’s tax rate on par with Asian peers and will boost efforts to attract investments as companies look for alternative destinations to sidestep supply chain disruptions from the U.S.-China trade war.
RBI Governor Shaktikanta Das welcomed the government announcement, calling it a “bold move.’’ Domestic investor wealth soared by Rs 2..11 lakh crore in morning trade on Friday.
Here’s what you should know:
- 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.
- 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.Listed companies that have announced buyback before July 5, 2019, tax on buyback of shares will not be charged
- Higher surcharge will also not apply on capital gains on sale of security including derivatives held by FPIs
- 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.
- To provide relief to companies availing of concessions and benefits, a MAT relief by reducing it from 18% to 15%
- CSR 2% spending to include government, PSU incubators and public funded education entities, IITs
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.
The government has also decided to not levy enhanced surcharge introduced in Budget on capital gain arising from sale of equity shares in a company liable for securities transaction tax (STT).
Also, the super-rich tax will not to apply on capital gains arising from sale of any security including derivatives in hands of foreign portfolio investors (FPIs). “The government has taken a bold and proactive step to bring the much-needed tax reforms, which will boost investment and also aid to private cycle capex. The lowering of corporate tax rates will widen the tax net and gradually bring in more revenues to the government. Overall, the move will make Indian companies globally competitive, a welcome step to arrest slowdown and lift up the market sentiments,” said Sanjeev Hota, Head of Research, Sharekhan.
In another relief, the minister said listed companies which have announced 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. Sitharaman expressed confidence that the tax concessions will bring investments in Make in India, boost employment and economic activity, leading to more revenue.
Markets responded with a massive surge. The 30-share Sensex jumped 1,600 points while Nifty topped 11,000-mark.
All the players in the Sensex pack were trading in the green with Tata Steel gaining the most 5.19 per cent. It was followed by Maruti Suzuki (up 5 per cent), HDFC Bank (up 4.86 per cent), YES Bank (up 4.62 per cent) and Reliance Industries (up 3.50 per cent).
Among the sectoral indices on BSE, the Auto index rallied the most 3.69 per cent. Bankex, Capital Goods, Metal, Consumer Durables and Oil & Gas were up between 1.50 per cent and 3.70 per cent
Source : Economic Times