After successive drops in the BSE Sensex and the NSE Nifty 50 for the past week, Finance Minister Nirmala Sitharaman announced the major decision to boost the economy by slashing the rate of corporate tax from 30% to 25.17% to increase employment and investment. By slashing the rates by more than 5%, India is now at par with many Asian emerging economies such as Indonesia, Malaysia, Singapore, and many more. China which is seven times more than India is at par with India corporate tax slab rate, both the economies stand at 25%.
The decision’s popularity was witnessed with the Rupee appreciating 66 paise to 70.68 against the US dollar as of yesterday and saw a rise in Sensex by 2000 points and climbing whereas it was down 400 plus points closing yesterday. The fiscal decisions have introduced new provisions to the Income Tax Act and will be effective assessment year 2019-2020.
Some of the other introductions made by Nirmala Sitharaman today are:
1. For attracting fresh investment in manufacturing, local companies which have been incorporated after October 1, 2019, have to pay a tax of 15%. This is applicable to companies who start their production on or before March 31, 2023.
2. The tax rate without exemptions will be 22%.
3. Including cess and surcharge, new corporate tax for new companies (see point 1) will be 17.01%.
4. Relief has been provided to companies, Minimum Alternate Tax (MAT) rate has been reduced from 18.5% to 15%, it is a reduction of 3.5%.
5. Buyback tax on listed companies who had announced buybacks before July 5 have been exempted from taxation.
6. To stabilise the economy and flow of funds, Finance Minister has said that enhanced surcharge won’t be applied on capital gains and on sale of securities arising from Foreign Portfolio investors.
7. Corporate Social responsibility (CSR) fund has been increased by 2%. The funds will and can be used for an incubator, research and development activities, said Nirmala Sitharaman.
Read full : Corporate tax rates slashed to 22% for domestic companies and 15% for new domestic manufacturing companies and other fiscal reliefs
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 today. The Finance Minister elaborated further, the salient features of these amendments, which are as under:-
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.
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.
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%.
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.
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.
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.