In the biggest reduction in 28 years, the government in September slashed corporate tax rates up to 10 percentage points as it looked to pull the economy out of a six-year low growth with a Rs 1.45 lakh crore tax break.
Base corporate tax for existing companies has been reduced to 22% from 30%, and to 15% from 25% for new manufacturing firms incorporated after October 1, 2019, and starting operations before March 31, 2023.
The companies opting for lower tax rates, however, will not be entitled to claim any rebate or deductions.
Asserting that corporate tax reduction is aimed at attracting fresh investment and generating jobs, Finance Minister Nirmala Sitharaman on Monday said "green shoots" are already visible with several foreign as well as domestic firms showing interest to invest.
Amid concerns over slowing growth, Sitharaman assured that the government was "proactive" in addressing the challenges faced by the economy and also made it clear that tax rate cut was not aimed to benefit certain companies but the entire industry.
The finance minister said "people are approaching" the government for fresh investment which will help in generating more jobs as well as make India a manufacturing hub in the future.
Replying to a debate on Taxation Laws (Amendment) Bill in the Lok Sabha, she said the decision to reduce corporate tax will have an impact of about Rs 1.45 lakh crore on revenue collection, but it will help in bringing more funds within a year's time.
After the debate, the House passed the Bill, replacing an Ordinance by voice vote.
According to the minister, there was no decrease in direct tax collection and the gross mop-up rose 5% till November this fiscal.
She also stressed that maximum direct tax collection comes in the final quarter of the financial year.
In November, GST collections crossed Rs 1 lakh crore, the third highest-ever monthly mop-up since the new indirect tax regime came into force on July 1, 2017.
Further on the impact of corporate tax cut, the minister said, "Yes, we are conscious of it and we are conscious that if not today, in a matter of a year you will have a lot of investments coming into this country. I can see the initial green shoots."
Sitharaman was replying to questions asked by many of Members of Parliament (MPs) with regard to revenue foregone on account of tax cut.
"Yes, it is decision (corporate tax reduction) which has resulted in revenue foregone. ...approximately about Rs 1.45 lakh crore could be foregone," she said.
In the biggest reduction in 28 years, the government in September slashed corporate tax rates by up to 10 percentage points as it looked to pull the economy out of a six-year low growth with a Rs 1.45 lakh crore tax break.
Base corporate tax for existing companies has been reduced to 22% from 30%, and to 15% from 25% for new manufacturing firms incorporated after October 1, 2019, and starting operations before March 31, 2023.
The companies opting for lower tax rates, however, will not be entitled to claim any rebate or deductions.
The reduced tax are applicable only to companies registered under the companies act, and cannot be extended to Limited Liability Partnership (LLP) firms, she said, adding issues of LLPs can be dealt with separately.
She also allayed fears on economic slowdown, saying it was not for the first time that the rate of growth of GDP had slowed to 4.5%.
The minister said in the fiscal 2012-13 also the GDP had recorded sub-5% growth, but it increased later.
"It is possible to go up," she said, adding the government was "pro-active" in addressing challenges being faced by the economy.
The minister also rejected the suggestion that the government does not listen to experts.
To substantiate her point, Sitharaman said she met two former finance ministers, Pranab Mukherjee and Mammohan Singh, before presenting her maiden July Budget. The minister also said she had been meeting economists, industrialists and other stakeholders to receive suggestion and feed back.
On queries why the government did not reduce personal income tax to spur demand, she said tax benefits to individuals are reviewed periodically, the government will take action at an appropriate time.
Accusing the previous UPA government for the "step motherly" treatment to BSNL, she said the NDA government has recognised the "strategic importance" of the state-owned telecom company.
Required capital has been given to the company and now "it rising and in position to compete".
Talking about various steps to induce liquidity in the system, the minister said that during the recent outreach programme of public sector banks, loans to the tune of Rs 2.5 lakh crore were disbursed. Out of which Rs 1.56 lakh crore was fresh term loans.
Earlier, Lok Sabha members from various opposition parties on Monday expressed concern over the health of the economy and asked the government to take effective steps rather than "clutching at straws" to deal with the problem.
Congress leader Adhir Ranjan Chowdhury asked the BJP leadership to seek advice from former Prime Minister Manmohan Singh on ways to deal with the current economic slowdown.
He said Singh's warning that demonetisation would bring down the country's Gross Domestic Product (GDP) by 2% has come true.
The Lok Sabha on Monday passed a Bill to replace an Ordinance for effecting reduction of corporate tax rates.
Taxation Laws (Amendment) Bill, 2019, will amend the Income Tax Act 1961 and the Finance (No 2) Act 2019. It replaces the Ordinance which was Promulgated by the President in September.