Without any incentives, the effective rate for the existing domestic and new manufacturing companies will be 22% and 15% respectively.
To revive the sluggish economy, finance minister Nirmala Sitharaman on Friday announced a reduction in corporate tax rates to 25.17%, inclusive of all surcharges and taxes. For the new manufacturing firms, the tax has been slashed to 17.01%.
Without any incentives, the effective rate for the existing domestic and new manufacturing companies will be 22% and 15% respectively.
The current rate of corporate tax for the two categories is 30% and 25% respectively.
Also Read: Cut in corporate tax to boost investors sentiments, manufacturing, says industry players
The change in the corporate tax rates would be applicable from April 2019. An ordinance would be brought in to implement the new rates of corporate tax.
“We today propose to slash the corporate tax rates for domestic companies and for new domestic manufacturing companies…The proposed rate cuts are to promote growth and investment,” the finance minister announced ahead of Goods and Services Tax (GST) Council meeting in Goa on Friday.
The effective rate for the existing domestic companies will be 22%, provided they don’t avail any tax exemption or concession. However, inclusive of all surcharges and taxes, the effective rate of corporate tax for the domestic companies will be 25.17%.
Also Read: Govt announces corporate tax reduction, relief in minimum alternate tax, other measures to boost economy
“The important aspect is that such companies are not required to pay minimum alternate tax (MAT),” the minister said.
The total revenue foregone on account of reduction in the corporate tax rate and other relief is to the tune of Rs 1.45 lakh crore, the minister said.
The changes in the Income Tax Act and Finance Act will be made implemented through an ordinance.
The effective corporate tax rate for the new manufacturing companies will be 17.01%, inclusive of all surcharges and cess. The new manufacturing companies will be the ones which are incorporated on or after October 1 and commence production from March 31, 2023.
Foreign companies which have offices in India and run business in India will also be eligible for the new tax rate. The companies can opt for lower tax rate after the expiry of tax holidays and concessions being availed by them.
However, after exercising the option the companies will continue to pay tax at the rate of 22% and can’t go back to the old regime.
To provide relief to the listed companies, Sitharaman announced that those which have already announced a buyback of shares before July 5, tax on buyback of the shares of such companies will not be charged.
To stabilise the funds into capital market, the minister also announced that the enhanced surcharge introduced in July 2019 Budget shall not apply on capital gains arising on the sale of equity shares in a company or a unit of equity oriented fund or unit of a business trust liable for securities transaction tax (STT) in the hands of individual, Hindu Undivided Family (HUF), Association of Persons (AoP), Body of Individual (BoI) and Artificial Juridical Person (AJP).
The enhanced surcharge will also apply to capital gains arising on sale of any security including derivatives, in the hands of foreign portfolio investors (FPIs).
The fiscal measures announced by the minister are expected to boost the growth in the coming quarters. The country’s Gross Domestic Product (GDP) growth fell to a six-year low of 5% in the April-June quarter of the current fiscal year.
To give boost start-ups and research, the government has also decided to expand the scope of Corporate Social Responsibility (CSR) expenditure.
A class of profitable companies are required to spend 2% of their average net profits of the preceding three years on welfare activities every year, as per the Companies Act, 2013.
Now CSR fund can be spent on incubators funded by central or state government or any agency or Public Sector Undertaking (PSU) of central or state government, and making contributions to public-funded universities, Indian Institute of Technology (IITs), national laboratories and autonomous bodies (established under the auspices of ICAR, ICMR, CSIR, DAE, DRDO, DST, Ministry of Electronics and Information Technology) engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs).
Currently, CSR funds can be spent only on technology incubators located within academic institutions which are approved by the central government.
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 "Finance Minister Nirmala Sitharaman")
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