In a surprise move to boost the corporate sector in India, Finance Minister Nirmala Sitharaman announced slashing of the corporate rate to 22% from 30%. She also announced a slew of other reforms, including giving a boost to manufacturing companies. These new proposals will kick in from the current financial year, from April 2019. The total revenue forgone through all these measures will be Rs 1,45,000 crore per year, she added.
Here’s a lowdown of everything announced by the Finance Minister:
Corporate tax slashed:
To promote growth, the Finance Minister announced that all domestic companies will now have to pay income tax of 22%, subject to the condition that they will not avail any incentive or exemptions. This will come into effect from the current fiscal (FY19-20).
The effective tax rate for these companies shall be 25.17%, inclusive of all surcharges and cess.
Nirmala Sitharaman also said that the effective tax for new companies shall be 17.0%, including cess and surcharge. Companies enjoying tax holidays would be able to avail concessional rates post the exemption period.
Boosting manufacturing:
All new and domestic companies incorporated on or after October 1, 2019, and making fresh investments in manufacturing will pay income tax at 15%. This again is available for companies not availing any exemptions. The FM also said that these companies will be eligible if they commence production on or before March 31, 2023. These companies too, will be exempted from paying MAT (Minimum Alternate Tax).
Relief to listed companies:
In order to provide relief to listed companies, which have made public announcement of buyback before July 5, 2019, tax on buyback of shares shall not be charged, the Finance Minister announced. In the budget, FM had announced a tax of 20% on buyback of shares.
Capital gains:
In order to stabilise the flow of funds into capital markets, FM announced that enhanced surcharge introduced in Budget of July 2019 shall not apply on capital gains arising on sale of equity share in a company or a unit of an equity-oriented fund.
“In order to stabilise the flow of funds in capital markets, increased surcharge in this year's budget shall not apply on capital gains made through the sale of equity shares in companies liable for Securities Transaction Tax (STT),” Sitharaman said.
The FM also announced that enhanced surcharge shall not apply on capital gains arising on sale of any security including derivatives in the hands of foreign portfolio investors (FPIs).
MAT relief:
Domestic companies and new domestic manufacturing companies have now been exempted from the MAT. This is subject to the condition that companies do not avail any exemption. The Finance Minister also proposed Minimum Alternate Tax relief for those opting to continue paying surcharge and cess. MAT has been reduced to 15% from 18.5% for companies that continue to avail exemptions and incentives.
Expanding scope of CSR:
Nirmala Sitharaman announced that the government has decided to expand the scope of 2% spending on CSR. This can now be spent on incubators funded by central or state governments, or any agency or PSU of central /state government, and in making contributions to publicly funded universities such as IITs and national laboratories.
Market response
Shortly after the Finance Minister’s announcements, BSE Sensex and NSE Nifty rallied. Sensex jumped 1,510 (up 4.18%) points to 37,603.55 as of 11:28 am, while the Nifty gained 454 points to 11,158.80 as on 11:29 am.