The Finance Minister has announced today to reduce corporate tax from 30% to 25.17% for domestic companies, applicable from the beginning of the current fiscal
In a major development, the Finance Minister of India – Nirmala Sitharaman has today, i.e., Friday, September 20, 2019, announced to slash the corporate tax rate for domestic companies from 30% to 25.17%, inclusive of all cess and surcharges.
The new tax rate will be applicable from the current fiscal which began on April 1, 2019. She also announced that the revenue foregone on reduction in corporate tax and other relief measures will be Rs. 1.45 lakh crores annually. The Government’s latest move is aimed at reviving investment at promoting growth which has fallen to a 6-year low of 5% for the quarter ending June 2019.
Terming the Sitharaman’s announcement as ‘historic’, the Prime Minister of India – Narendra Modi asserted that the announcements made in the past few weeks prove that his Government is really working hard to ensure that India becomes a better place to do business and that India is on a path of becoming a U.S.$ 5 trillion economy.
Modi tweeted, “The step to cut corporate tax is historic. It will give a great stimulus to #MakeInIndia, 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.”
The step to cut corporate tax is historic. It will give a great stimulus to #MakeInIndia, 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. https://t.co/4yNwqyzImE
— Narendra Modi (@narendramodi) September 20, 2019
He further 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.”
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.
— Narendra Modi (@narendramodi) September 20, 2019
Addressing the Press Conference, Sitharaman said that the Centre 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.
As per the amendments, a new provision has been created in the Income Tax Act, which allows any domestic company to pay Income Tax at the rate of 22% provided they don’t avail any exemption / incentive. The effective tax rate for such companies shall be 25.17% inclusive of surcharge & cess. These companies will not be required to pay Minimum Alternate Tax (MAT).
To encourage new investment in manufacturing sector under the ‘Make in India’ initiative of Government of India, any domestic company incorporated on or after October 1, 2019 and making fresh investments in manufacturing will have an option to pay Income tax at a rate of 15%. This shall be applicable to companies who do not avail any exemption / incentive and commence their production on or before March 31, 2023. The effective tax rate for such companies shall be 17.01% inclusive of surcharge & cess and will be exempted from MAT.
The 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. Post that, they shall be liable to pay tax at the rate of 22%. The option once exercised cannot be subsequently withdrawn. For such companies, the rate of MAT has been reduced from existing 18.5% to 15%.
The Government has also decided to not to impose enhanced surcharge introduced in Budget on capital gain arising from sale of equity shares in a company liable for Securities Transaction Tax (STT).The enhanced surcharge will also not apply to capital gains arising on sale of any security including derivatives, in the hands of Foreign Portfolio Investors (FPIs).
The companies listed on stock exchange, who have announced in public to buy-back shares before July 5, 2019, will not be charged tax on the buy-back of shares.
In addition, the Government has also expanded the scope of Corporate Social Responsibility (CSR) spending. The 2% of CSR spending can now be spent on incubators funded by Central or State Government or any agency or Public Sector Undertaking (PSU) of Central or State Government, which is contributing 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.
