financial services · income tax return · Taxation

Finance Minister reduces Corporate Tax to stimulate economy growth

Tax Bonanza blog creative for ITR

The Finance Minister, Mrs. Nirmala Sitharaman on 20th September has taken a new decision for the Indian economy by unveiling a tax bonanza for Indian Companies. As per the historic move, Nirmala Sitharaman announced a deduction in the country’s corporate tax rate to 22% (effective rate of 25.17% including cess and surcharge) for existing firms, and to 15% (effective rate 17.01%) for new domestic firms in the manufacturing sector. The recent measure has aimed to pull the economy out of a six-year low growth and to address a 45-year high unemployment rate by reviving private investments with a Rs 1.45-lakh crore tax break.

Alternatively, this is one of the major policy reforms since 1991. However, the companies who do not avail any additional incentive or commission, the effective tax rate would be just 22%. Meanwhile, many of India’s prominent equity markets applauded the decision, the bond market stuck in between the fear that the government may now have to borrow more to meet its liabilities.

The reduction in corporate taxes could stimulate growth, which will depend on what the companies do with the taxes they have accumulated. There are many IT companies which are likely to benefit from a reduction in corporate tax rates, as per the economic analyst.

Here are the two new provisions petitioned by the Finance Minister to promote growth and investment-

  • A domestic company has to pay a reduced corporate tax of 22% with effect from the financial year 2019-20. Besides, the reduced corporate tax can be availed on the condition that companies should not claim any exemptions or under the income tax For now, the effective corporate tax rate is 25.17% including surcharge ad cess. This provision is not mandatory and domestic companies may either pick the benefits or pay the applicable tax rate and claim the exemptions.
  • The second reason for the incorporation of such amendment has been introduced to encourage manufactures and boost make in India which will be implemented on or after 1 October 2019. The benefit is available with effect from the FY 2019-20

Corporate Tax in India

According to the Income Tax Act Rule, the Domestic, as well as foreign companies, are liable to pay corporate tax. While a domestic company is taxed on its universal income, a foreign company will be taxed on the income earned within India. The Corporation tax is imposed on the net income of the company, both private and public which are registered in India under the companies act 1956. In addition to that, surcharge at the rate of 5% is levied if net income is in the range of Rs 1 crore to Rs 10 crore. If the net income exceeds Rs 10 cr, surcharge at the rate of 10% is levied.

At last, it would be exhilarating to see this tax cut will give companies a bit more financial space to maintain operations, create more employment and the growth of the economy.

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