Corporate tax relief to help stabilise economy

Today’s reduction in corporate tax sends a powerful signal that the Government is absolutely determined to revive the economy. Amidst these challenging times, the reduction in corporate tax & MAT will infuse confidence in the economy. It also addresses the core challenge of liquidity reinstating India as an attractive investment destination. It also demonstrates government’s sensitivity and its faith in the corporate sector to contribute to the economic revival.

The cut in corporate tax to 25 percent from 30 percent (with exemptions) and removal of additional surcharge on capital gains made by FII and domestic investors etc are certainly positive news. Tax regime which has been confusing for overseas investors for some time has been addressed by Finance Minister Nirmala Sitharaman.

FM, Nirmala Sitharaman made several announcements in a press conference in Goa, for the corporate sector. The minister announced sharp cuts in corporation tax among a series of announcements. Sitharaman said the total revenue forgone on account of today's measures would be Rs 1.45 trillion per year.

Benchmark indices - S&P BSE Sensex and Nifty50 -- posted their biggest single-day gain in 10 years while the Nifty Bank and Nifty MidCap index posted the biggest-ever single-day gain. The market capitalisation of BSE-listed stocks saw an increase of nearly Rs 7 lakh crore.

Announcement brings Cheer to the Industry :

All domestic companies to be allowed to pay corporation tax at the rate of 22% (effective rate 25.17% including cess and surcharge). This would be subject to the condition that these companies do not avail of any tax incentives or exemptions. Moreover, no Minimum Alternative Tax (MAT) would be imposed on these companies.

2. Any new domestic manufacturing company, incorporated on or after October 1, 2019, will be allowed to pay corporation tax at the rate of 15% (effective rate 17.01%). No MAT will be imposed on these companies either.

3. To provide relief to companies that continue to avail of exemptions and incentives, the rate of MAT has been reduced from 18.5% to 15%.

4. Enhanced surcharge introduced by the Finance Act 2019 shall not apply to capital gains arising on sale of equity share in a company/unit of equity-oriented fund or unit of business trust liable for securities transaction tax, the FM announced.

5. Enhanced surcharge shall not apply to capital gains on sale of any securities, including derivatives, in the hands of Foreign Portfolio Investors (FPIs)

6. Relief to listed companies which have already made a public announcement of buyback before 5th July 2019. No tax on buyback of shares in case of such companies.

7. The finance minister also announced an expansion in the scope of CSR activities. The companies can now spend 2% of the money on state or union govt incubators, PSUs, state universities, IITs, public-funded entities.