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Corporate tax rates slashed to 22% for domestic companies and 15% for new domestic manufacturing companies
The Government has brought in the Taxation Laws (Amendment) Ordinance 2019 to make certain amendments in the Income-tax Act 1961 and the Finance (No. 2) Act 2019. This was announced by the Union Minister for Finance & Corporate Affairs Smt Nirmala Sitaraman during the Press Conference in Goa on 20 September, 2019.
Elaborating further she said, “In order to promote growth and investment, a new provision has been included in the Income Tax Act, that allows any domestic companies an option to pay income tax at the rate of 22% without exemptions. Amendments will be made through an ordinance to IT Act”.
She further announced companies which pay corporate tax at 22%, without any exemption or incentives, would not be required to pay Minimum Alternative Tax (MAT). Making the announcement, the finance minister said the new tax rate would be applicable from the current fiscal which began on April 1.
The FM said that the revenue foregone on reduction in corporate tax and other relief measures would amount to Rs 1.45 lakh crore annually. This, she said, was being done to promote investment and growth.
The Finance Minister elaborated further, the salient features of these amendments, which are as under:-
a. In order to promote growth and investment, a new provision has been inserted in the Income-tax Act with effect from FY 2019-20 which allows any domestic company an option to pay income-tax at the rate of 22% subject to condition that they will not avail any exemption/incentive. The effective tax rate for these companies shall be 25.17% inclusive of surcharge & cess. Also, such companies shall not be required to pay Minimum Alternate Tax.
b. In order to attract fresh investment in manufacturing and thereby provide boost to ‘Make-in-India’ initiative of the Government, another new provision has been inserted in the Income-tax Act with effect from FY 2019-20 which allows any new domestic company incorporated on or after 1st October 2019 making fresh investment in manufacturing, an option to pay income-tax at the rate of 15%. This benefit is available to companies which do not avail any exemption/incentive and commences their production on or before 31st March, 2023. The effective tax rate for these companies shall be 17.01% inclusive of surcharge & cess. Also, such companies shall not be required to pay Minimum Alternate Tax.
c. A company which does not opt for the concessional tax regime and avails the tax exemption/incentive shall continue to pay tax at the pre-amended rate. However, these companies can opt for the concessional tax regime after 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% and option once exercised cannot be subsequently withdrawn. Further, in order to provide relief to companies which continue to avail exemptions/incentives, the rate of Minimum Alternate Tax has been reduced from existing 18.5% to 15%.
d. In order to stabilise the flow of funds into the capital market, it is provided that enhanced surcharge introduced by the Finance (No.2) Act, 2019 shall not apply on capital gains arising on sale of equity share in a company or a unit of an equity oriented fund or a unit of a business trust liable for securities transaction tax, in the hands of an individual, HUF, AOP, BOI and AJP.
e. The enhanced surcharge shall also not apply to capital gains arising on sale of any security including derivatives, in the hands of Foreign Portfolio Investors (FPIs).
In order to provide relief to listed companies which have already made a public announcement of buy-back before 5th July 2019, it is provided that tax on buy-back of shares in case of such companies shall not be charged.
f. The Government has also decided to expand the scope of CSR 2 percent spending. Now CSR 2% fund can be spent on incubators funded by Central or State Government or any agency or Public Sector Undertaking of Central or State Government, and, making contributions to public funded Universities, IITs, National Laboratories and Autonomous Bodies (established under the auspices of ICAR, ICMR, CSIR, DAE, DRDO, DST, Ministry of Electronics and Information Technology) engaged in conducting research in science, technology, engineering and medicine aimed at promoting SDGs.
The total revenue foregone for the reduction in corporate tax rate and other relief estimated at Rs. 1,45,000 crore.
Industry, market cheer slashing of corporate tax rate
Industry, stock market and experts cheered slashing of corporate tax rate and other announcements by Finance Minister Smt. Nirmala Sitharaman saying the big bang reforms will push economic growth and investments.
“Reducing corporate tax rate to 25 per cent is big bang reform. Allows Indian companies to compete with lower tax jurisdictions like the US. It signals that our government is committed to economic growth and supports legitimate tax abiding companies. A bold, progressive step forward, the heads of companies said.
Historic, says PM Modi
Prime Minister Shri Narendra Modi has hailed his government’s decision to slash corporate tax rates. “The step to cut corporate tax is historic. It will give a great stimulus to Make in India, attract private investment from across the globe, improve competitiveness of our private sector, create more jobs and result in a win-win for 130 crore Indians,” he tweeted.
The announcements in the last few weeks clearly demonstrate that our government is leaving no stone unturned to make India a better place to do business, improve opportunities for all sections of society and increase prosperity to make India a $5 Trillion economy, he said.
How will a company benefit
The current effective tax rate for companies is 30 per cent. That rate is now 22 per cent. For new manufacturing companies the tax rate was 25 per cent. That has been brought down to 15, says Revenue Secretary Ajay Bhushan Pandey
There will be no sunset clause for the tax benefit to new manufacturing companies of 15 per cent. The effective rate was 34.9 per cent taking all surcharges into account, he says.
For new manufacturing companies, the effective rate with surcharges was 29.1 per cent. Now, the basic rate is 15 per cent, and effectively a company will pay only around 17 per cent.
What experts say about the Finance Minister’s corporate tax cut
It is a bold step and a highly positive one for the economy.
-Shaktikanta Das, RBI Governo
This is a brilliant move and I think this is the way forward. It will push manufacturing in India. More importantly, these are all measures to establish that the government is determined to take India forward and that it understands what is happening on ground. I believe this was the right time to introduce these measures, the RBI and government have worked together and this is the 4th booster and will revive the economy.”
-Amitabh Kant, CEO, Niti Aayog
Corporate Tax Rate Cut From 30% To 25.2% To Spur Growth- this is a great move which will firmly revive growth n investment. My hats off to FM for this bold but most needed move.
-Kiran Mazumdar Shaw
What the government has done is a very major step. Suddenly the focus is on the importance of manufacturing, making it a very attractive avenue for investment. Ultimately what you want is a lot more investments and what they have said about taxation on new companies coming in is a very innovative and extremely important step.
-R C Bhargava, Chairman, Maruti Suzuki
There cannot be a better day for India than what has happened today, it is amazing what a bold move by Sitharaman and Modi government. What they have done has not happened anywhere in the world….
-Anil Agarwal, Chairman, Vedanta
“This is an extraordinarily good announcement, it is the big bang reform we have been asking for it and glad that this was announced. It is a positive sign that the government is aware of what is happening and is aligned towards revival of animal spirits. It will encourage the FIIs”….
– Ajay Piramal, Piramal Group
“The current reduction in Corporate Tax by Finance Minister is an excellent step that was needed for Indian economy revival and manufacturing sector .. This would certainly help put businesses back on track, generate more employment and most importantly, keep India as the principal investment destination amidst global slowdown.
-Gopichand P. Hinduja, Co-Chairman
Sensex zooms over 2,000 points after govt slashes corporate tax rate
Immediately after Finance Minister Smt. Nirmala Sitharaman announced government’s proposal to cut tax rate for domestic companies and for new domestic manufacturing companies, Sensex jumped by 2,102.40 points touching 38,195.87 on September 20, 2019. This gain marked the highest single-day gain since May 2009.
Domestic equity benchmark BSE Sensex which opened to a rebound of 100 points, zoomed following Smt. Sitharaman’s announcements whereas, Nifty rallied 562 points to 11,267.70. The 30-share index was trading at 119 points, or 0.33 per cent, higher at 36,212.74 at 0930 hours, while the broader Nifty rose 23.90 points, or 0.22 per cent, to 10,728.70 as reported by the media.
“New domestic manufacturing companies incorporated after October 01 can pay income tax at 15 pc rate without any incentives or can pay income tax at a rate of 22 pc subject to the condition that they will not avail any incentive,” the Finance Minister announced.
Domestic investor wealth soared by Rs 2.11 lakh crore in morning trade. Led by the spike in equities, the market capitalization of BSE-listed companies climbed Rs 2,11,086.42 crore to Rs 1,40,79,839.48 crore.