Government Proposes Major changes in Corporate Tax Rates

The Union Minister of Finance Nirmala Sitharaman has announced big cuts in the corporate tax rate, giving a ₹1.45 lakh crore stimulus aimed at reviving private investment and lifting growth from a six-year low.

The government has also rolled back the enhanced surcharge on capitals gains resulting from the sale of equity share in a company or a unit of an equity-oriented mutual fund in the hands of an individual. This was announced in this year’s budget.

Major Announcements

• The corporate tax rates have been slashed from 30 per cent to 22 per cent for domestic companies that don’t avail any exemption/incentive.
• The effective tax rate for these companies would be 25.17 per cent which includes cess and surcharge.
• The government has slashed corporate tax rate to 15 per cent, from 25 per cent, for domestic companies incorporated on or after 1st October 2019 making fresh investment in manufacturing. This is expected to give a boost to the Make in India initiative.
• The government has also provided an option to pay income tax at the rate of 15 per cent to companies which do not avail any exemption/incentive and commence their production on or before 31st March 2023. The effective tax rate for these companies shall be 17.01 per cent inclusive of surcharge and cess.
• Those companies which do not opt for the concessional tax regime and avails the tax exemption/incentive can continue to pay tax at the pre-amended rate. After expiry of their tax holiday/exemption period, these companies can opt for the new concessional tax regime.
• To provide relief for companies which avail exemptions/incentives, the government has reduced the rate of Minimum Alternate Tax or MAT to 15 per cent, from 18.5 per cent.

Where India stands globally?

The reduction in corporate tax rates puts India closer or even lower in some cases to the rates prevalent in many of the emerging and industrialised countries.

The new tax rates after the announcement in India will be lower than the USA (27 per cent), Japan (30.62 per cent), Brazil (34 per cent), Germany (30 per cent) and is similar to China (25 per cent) and Korea (25 per cent).

The effective tax rate of 17 per cent for new companies is equivalent to what corporates pay in Singapore (17 per cent).