Finance Minister Nirmala Sitharaman announced slashing down of corporate taxes at the GST council meet held at Goa today. The government has reduced the corporate tax rate from 30% to 22% for domestic companies. The new manufacturing units will be getting a tax reduction from 25% to 15% to boost investments.
The Finance Minister stated that the revenue waived for the reduction in the corporate tax rate and other fiscal relief measures announced today would cost the government Rs 1.45 lakh crore each year.
Earlier, the FM had urged the banks to increase lending to smaller businesses and retail borrowers to encourage spending ahead of the final quarter festive season. Over a couple of weeks, the government has been announcing a series of measures to boost their economic growth that had fallen to a six-year low of 55 in the June quarter.
The GST council meeting discussed various measures and announcements to boost the Indian economy.
Here are some noteworthy proposal announcements:
Slashing corporate tax
The government has proposed to cut corporate tax rates for domestic companies and also for the new local manufacturing company along with other fiscal reliefs. The ordinance for the same has been passed. These would be amendments to the Income Tax Act 1961 & the Finance Act-II 2019.
To promote growth and investment, a new provision has been inserted in the income tax act with effect from FY’19 to FY’20 which would permit any domestic company an option to pay income tax at the rate 22%, subject to the condition that they would not avail any exemptions or incentives.
The Effective Tax Rate for such companies shall be 25.17% inclusive of all surcharges and cess. The companies won’t be paying any MAT (Minimum Alternative Tax).
Companies availing exemptions can opt-out to pay the 22% tax after their exemption period is over. The government expects to widen the tax basket with a lower tax rate.
Enhanced surcharge stated in Budget shall not be applied on capital gains arising on the sale of any securities inclusive of derivatives in the hands of foreign portfolio investors.
Buybacks made before 5th July shall be exempted from the buyback tax.
Boosting Make in India
The government has added another provision to the Income-tax act to boost the nation’s Make in India drive. The new domestic manufacturing companies whose production starts before 31st March 2023 and has been incorporated on or after 1st October 2019, will be given an option to pay income tax at 15%, slashed down from 25%, on the condition that they would not avail any exemptions or incentives.
Minimum Added Tax for firms that want to make use of tax exemptions cut to 15% from 18.5%. The new tax rate will come to effect from the current fiscal year. Companies have the option to opt for lower tax rates after the expiry of the tax holidays and concession that they would be availing currently. The Effective Tax Rate for these businesses will be 17.01% inclusive of all surcharge and cess.
Additionally, the Sensex surged above 1700 points as the corporate tax rates slashed; Nifty crosses 11,000.
Option to avail tax holiday/exemption
The companies which do not opt for the concessional tax regime and avails the tax exemptions shall continue to pay taxes at the pre amended rate. However, these companies can opt for the concessional tax regime after the expiry of their exemption period. After completion of their tax holiday, if the company prefer to opt for the tax regime, the company shall be liable to pay tax at 22%. Howsoever, once opted, one cannot jump back from the concessional tax regime. Furthermore, to provide relief, if companies continue to avail tax exemptions, they would be provided with a MAT relief of 15% from 18.5%.
Stabilizing fund flow in the capital market
In order to stabilize the flow of funds into the capital market, it will be provided that the enhanced surcharge, which was introduced in the Budget of 2019, shall not be applied on capital gains arising on the sale of equity shares in a company, unit of an equity-oriented fund or a unit of business fund, liable for security transaction tax in the hands of an individual, HUF, AOP, BOI and AJP.
Enhanced surcharge stated in Budget shall not be applied on capital gains arising on the sale of any securities inclusive of derivatives in the hands of foreign portfolio investors.
Buyback & CSR
The listed companies, which already made a public announcement of a buyback, before 5th July 2019, would not be charged tax on buyback of shares.
The government has also decided to expand the scope of CSR 2% spending. The CSR 2% Fund (Corporate Social Responsibility Fund) can be spent incubators funded by the central government, state government, any agencies or PSU of central and state government. This would enable them to make contributions to the public-funded universities like IITs, National Laboratories and Autonomous Bodies, all who are established under ICAR (Indian Council of Agricultural Research), CSIR ( Council of Scientific and Industrial Research), ICMR ( Indian Council of Medical Research), DAE, DRDO ( Defence Research and Development Organisation), DST (Department of Science & Technology) and Ministry of Information and Technology engaged in conducting research, science , technology, engineering, medicine aimed at promoting STGs.
Additionally, the Sensex surged above 1700 points as the corporate tax rates slashed; Nifty crosses 11,000. At 11:30 am, the Sensex rose 4.45%, that is, from 1607.94 to 37,701.41, while Nifty was up 362.95 points, that is 3.39% at 11,067.75 points.
