Aiming to promote investment and growth, Nirmala Sitharaman, Finance Minister, slashed the corporate tax on September 20. It was 30 percent, and it is now 25.17 percent. It includes the cess and surcharges. It will be effective from April.
Corporate taxes slashed
The corporate tax rate for domestic companies will be 22 percent. This change in the Finance and Income Tax Act will be effective through an ordinance.
Nirmala Sitharaman said the revenue would be foregone in corporate tax reduction and other relief activities. Companies choosing the 22 percent slab of income tax need not pay the Minimum Alternative Tax.
The advantage to domestic companies
Manufacturing domestic companies established after October 1 can pay 15 percent income tax without any incentives, said the finance minister. It implies the tax rate is valid for the new manufacturing companies as 17.01 percent as all-inclusive (cess and surcharge).
No super-rich tax
The government has decided not to levy enhanced surcharge introduced in 2019 Budget on capital gain arising from the equity shares sale.
Besides, the super-rich tax does not apply to capital gains arising by security sale, and this includes the foreign portfolio investors derivatives.
The Minister said the listed companies that had announced a buyback of shares before July 5 are free from super-rich tax charges. The companies are permitted to use 2 percent of their CSR to spend on national laboratories, NITs, IITs, and incubation.
A quick view of the changes
Following the announcement of the Finance Minister on the corporation tax current rate the firms were reduced from 30 to 22 percent, from April 1, 2019, and the effective tax rate is (inclusive of surcharge) now at 25.2 percent.
The new tax rate announced for manufacturing firms is for the firms registered after October. These firms will see a reduction from 25 percent to 15 percent. Thus, offering Narendra Modi, the Prime Minister’s ‘Make in India’, initiative a big boost. The effective tax rate, with the surcharge as inclusion for these companies, is at 17 percent.
This benefit will be for all the firms starting production on or before March 31, 2023. With, the new tax rates India broadly is in line with its South-East Asian counterparts.
The tax cut boosts the automobile company’s sentiments. The top five gainers had three automobile companies. Eicher Motors Ltd rising 13.38%, Hero MotoCorp Ltd with 12.34% higher, and Maruti Suzuki India Ltd was up by 10.54%.
Automobile companies exploring to manufacture in India will pay a lower tax rate of 15%, if they start by 31 March 2023 their production. Even experts agree that this move will help companies in investing in India to manufacture electric vehicles. The tax rates on such companies will be 17.5%. Moreover, aiming to develop activities of research and development in India, the minimum alternate tax rate I also reduced for companies wishing to avail incentives from 18.5% to 15%.
Rajan Wadhera, the Siam president, welcomed this bold move by the finance minister. “These are landmark announcements and would help in reviving the Indian economic growth. These tax reforms indicate that the government of India is committed to improving the business environment and will give a definite boost to economic growth”, he said.