Nirmala Sitharaman slashes corporate tax to fire up economy, market responds with a massive surge

Diwali came early for India Inc and the bourses 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 NSE 2.56 % Minister Nirmala Sitharaman said the new tax rate will be applicable from the current fiscal which began on April 1.



The revenue foregone for this move will be Rs 1.45 lakh crore annually. The move is a lift for Prime Minister Narendra Modi who was facing increasing pressure to relight once-stellar economy after five consecutive quarters of slowing growth saw India this year lose its status as the fastest-expanding major economy to China.Sitharaman said the new rates would be “comparable with the lowest tax rates in South Asian region and in South East Asia”. The announcement sent shares soaring more than five percent in Mumbai — the biggest jump in 10 years — while the rupee and firmed against the dollar.



Indian stock markets have been on course for the biggest quarterly exodus since at least 1999, with foreign funds having dumped a net $4.9 billion worth of stocks since June. Sitharaman, however, sidestepped questions on the impact the concessions will have on the fiscal deficit target, saying that the government was conscious of the reality and will reconcile numbers.

Here’s what Nirmala Sitharaman brought in on Friday:

• New provision inserted in the income tax act with effect from fiscal year 2019-20, that allows any domestic company to pay income tax at the rate of 22% subject to condition they will not avail any incentive or exemptions.
• Manufacturing companies set up after October 1 to get option to pay 15% tax. Effective tax rate for new manufacturing firms to be 17.01% inclusive of surcharge & tax.
• Listed companies that have announced buyback before July 5, 2019, tax on buyback of shares will not be charged
• Higher surcharge will also not apply on capital gains on sale of security including derivatives held by FPIs
• Enhanced surcharge will not apply to capital gains arising on equity sale or equity-oriented funds liable to STT stabilise 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, 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 expiry of tax holidays and concessions that they are availing now.