In a surprise move, the government on Friday slashed the income tax rate for companies by almost 10 percentage points to 25.17 percent. It also offered a lower rate to 17.01 percent for new manufacturing firms to boost economic growth rate from a six-year low by incentivising investments to help create jobs.
Finance Minister Nirmala Sitharaman said the reduction in tax rates has been done by promulgating an ordinance to an amendment to the Income Tax Act.
"In order to promote growth and investment, a new provision has been inserted in the Income Tax Act, with effect from the financial year 2020. It will allow any domestic company an option to pay income tax at 22 percent subject to the condition that they will not avail any exemption or incentives," she told reporters here.
After considering surcharges and cess, the effective tax rate will be 25.17 percent.
This compares to 30 percent corporate tax rate currently, and an effective tax rate of 34.94 percent.
The tax cut will cost the exchequer Rs 1.45 lakh crore annually.
"To attract fresh investment in manufacturing and boost Make In India, new provision has been inserted in the I-T Act, which allows any new domestic company incorporated on or after 1 October, 2019, making fresh investment in manufacturing, and starts operations before 31 March, 2023, an option to pay income tax at 15 percent," she said.
Here are the highlights of the announcements made by Finance Minister Nirmala Sitharaman:
- Corporate tax rate has been slashed to 22 percent for domestic companies not availing any incentives/exemptions; earlier rate 30 percent
- Effective tax rate for such companies now stands at 25.17 percent including cess and surcharge; earlier it was 34.94 percent
- Also, such companies shall not be required to pay Minimum Alternate Tax (MAT)
- New domestic companies incorporated on or after 1 October, 2019, making fresh investment in manufacturing can pay income-tax at a rate of 15 percent; the earlier rate was 25 percent
- However, lower tax is applicable if the companies do not avail any exemption/incentive, and commence production by 31 March, 2023
- Their effective tax rate will be 17.01 percent inclusive of surcharge and cess; earlier the rate was 29.12 percent
- These companies, too, will not be required to pay MAT
- For cos which continues to avail exemptions/incentives, the MAT has been reduced from 18.5 percent to 15 percent
- Enhanced super-rich tax on capital gains on the sale of a share in hands has been removed
- Enhanced surcharge will also not apply to capital gains on the sale of a security in the hands of foreign portfolio investors (FPIs)
- Enhanced surcharge introduced in Budget shall not apply on capital gain arising on sale of equity shares in a Co liable for Securities Transaction Tax (STT)
- No tax on buyback of shares if companies have made an announcement regarding it before 5 July 2019
- Scope of corporate social responsibility (CSR) activities has been expanded
- Lower tax rates are effective from 1 April, 2019
- Changes in Income Tax Act, 1961 and Finance Act, 2019 made through an ordinance.
- Revenue foregone for a reduction in corporate tax and other relief is estimated at Rs 1.45 lakh crore.
(With PTI inputs)