Less than thee months after the Union Budget, in a major mid-year change to provide a booster shot to the slowing economy, Finance Minister Nirmala Sitharaman Friday announced cuts in tax rates for domestic companies to 22% and for new domestic manufacturing companies to 15% and other tax relief measures.
The move will cost the exchequer Rs 1.45 lakh crore annually. The government also announced rollback back of higher surcharge on capital gains on sale of equity announced in Budget for individuals, HUFs, Association of Persons (trusts).
Further, those firms who choose to continue with pre-amended tax rates will also see their Minimum Alternate Tax (MAT) come down to 15% from 18.5% currently.
At present, the tax rate for companies with annual sales over Rs 400 crore is 30% (exclusive of surcharge and cess).
The reduction in corporate tax rate for domestic companies would be effective from April 1 this year, while the change for new domestic companies would apply for those which get incorporated on or after October 1 and start producing on or before March 31, 2023. The provisions effecting these changes have been inserted in the Income-tax Act through an ordinance.
The new effective tax rate inclusive of surcharge and cess for domestic companies would be 25.17% and for new domestic manufacturing companies would be 17.01%. These rates would be applicable to those companies who forego the current exemptions and incentives. Also, MAT will not apply to such companies.
When asked about the impact of these tax rate cuts on the government’s fiscal targets, Sitharaman said, “economic buoyancy will generate revenue generation.”
Meanwhile, Sensex jumped over 1900 points after Sitharaman’s rate cut announcement. Domestic equity benchmark BSE Sensex which opened to a rebound of 100 points, zoomed following Sitharaman’s announcements whereas, Nifty rallied 254 points to 10,959.10.
The Governor of Reserve Bank of India, Shaktikanta Das welcomed the decision and said: ” it will help revive the economy”.
Welcoming the changes, Union Minister Piyush Goyal said, “the announcements will give necessary fillip to the economy which we’ve been hoping for.” “The announcement on tax will help companies like Coal India, Infosys and Wipro, ” he added.