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Indian market bonanza!

“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,” Modi said in a tweet.

The step to cut corporate tax is historic. It will give a great stimulus to #MakeInIndia, attract private investmen… https://t.co/OHuGEcA9Dq— Narendra Modi (@narendramodi)

Finance Minister Nirmala Sitharaman on Friday delivered a major tax bonanza to domestic businesses and manufacturing firms, lowering corporate tax rates to one of the lowest levels in Southeast Asia and allowing new manufacturers to avail minimum corporate tax at 15 per cent.

Sitharaman said the revenue foregone on reduction in corporate tax and other relief measures will be Rs 1.45 lakh crore annually, which means a $20 billion booster to an economy.

KEY HIGHLIGHTS

  • FM proposes to slash corporate tax for domestic companies
  • Lower corp tax only if no exemption availed
  • Effective tax rate will now be 25.17, including surcharge and cess
  • Effective tax rate for new manufacturing companies at 17.01%

Amid growing concerns over the economic slowdown, Union Finance Minister Nirmala Sitharaman announced a slew of tax exemptions at the GST Council Meet on Friday.

Nirmala Sitharaman proposed to slash corporate tax for domestic companies and new local manufacturing companies through an ordinance.

In a major fiscal booster, the government on Friday slashed effective corporate tax to 25.17 per cent inclusive of all cess and surcharges for domestic companies.

Making the announcement, Finance Minister Nirmala Sitharaman said the new tax rate will be applicable from the current fiscal which began on April 1.

“We today propose to slash the corporate tax rates for domestic companies and for new domestic manufacturing companies,” the finance minister said at the meeting.

Nirmala Sitharaman said the revenue foregone on reduction in corporate tax and other relief measures will be Rs 1.45 lakh crore annually.

This, she said is being done to promote investment and growth.

“Tax concessions will bring investments in Make in India, boost employment and economic activity, leading to more revenue,” the finance minister said in Goa.

In effect, the corporate tax rate will be 22 per cent for domestic companies, if they do not avail any incentive or concession.

The changes in the Income Tax Act and Finance Act will be made effective through an ordinance.

The finance minister also said companies opting for 22 per cent income tax slab would not have to pay minimum alternative tax (MAT).

Nirmala Sitharaman further said, new domestic manufacturing companies incorporated after October 1, can pay income tax at a rate of 15 per cent without any incentives.

Meaning, the effective tax rate for new manufacturing companies will be 17.01 per cent inclusive of all surcharge and cess.

Nirmala Sitharaman further said companies can opt for lower tax rate after the expiry of tax holidays and concessions that they are availing now.

Other measures

The government has also decided to not levy enhanced surcharge introduced in Budget on capital gain arising from the sale of equity shares in a company liable for securities transaction tax (STT).

Also, the super-rich tax will not apply on capital gains arising from the sale of any security including derivatives in hands of foreign portfolio investors (FPIs).

In another relief, the minister said listed companies which have announced a buyback of shares prior to July 5, will not be charged with super-rich tax.

The companies have now also been permitted to use their 2 per cent CSR spend on incubation, IITs, NITs, and national laboratories.

Boost for economy

The new corporate tax cuts are expected to boost economic growth, which slipped to a six-year low of 5% in the April-June quarter.

Finance ministry officials have warned that the economic slowdown has led to lower tax collections, and they may have to utilize an extra dividend of nearly 580 billion rupees this year from the central bank to fund budgeted spending.

The government would have to resort to spending cuts in the January-March quarter because of a fall in tax collections and stiff fiscal deficit target for this year, the sources said.

On Friday, Nirmala Sitharaman accepted that the tax cuts will impact India’s fiscal deficit. “We are conscious of effect tax rebate will have on the fiscal deficit; we will reconcile numbers,” she said at the GST Council Meet.

As the government seeks to keep liquidity flowing, Finance Minister Nirmala Sitharaman urged banks on Thursday to increase lending to small businesses and retail borrowers to spur spending ahead of the final quarter festive season.