Corporate tax slashed for domestic companies and new domestic manufacturing companies
Diwali came early for India's firms after the Centre 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.
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. The move is part of a series of steps the Centre has taken to provide a fillip to growth that had fallen to a six-year low of 5% in June quarter.
Here's what you should know:
- Manufacturing companies set up after October 1 to get an option to pay 15% tax. The effective tax rate for new manufacturing firms to be 17.01% inclusive of surcharge & tax.
- A new provision inserted in the income tax act with effect from the fiscal year 2019-20, that allows any domestic company to pay income tax at the rate of 22% subject to the condition they will not avail any incentive or exemptions.
- Listed companies that have announced buyback before July 5, 2019, tax on buyback of shares will not be charged
- A higher surcharge will also not apply on capital gains on the sale of security including derivatives held by FPIs
- The enhanced surcharge will not apply to capital gains arising on equity sale or equity-oriented funds liable to STT stabilise the flow of funds into capital markets
- To provide relief to companies availing of concessions and benefits, a MAT relief by reducing it from 18% to 15%
- CSR 2% spending to include government, PSU incubators and public-funded education entities, IITs
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. Sitharaman further said companies can opt for lower tax rate after the expiry of tax holidays and concessions that they are availing now.
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. Sitharaman expressed confidence that the tax concessions will bring investments in Make in India, boost employment and economic activity, leading to more revenue.