Nirmala Sitharaman cuts corporate tax rate on domestic companies; Resulting in revenue loss of 1.4 lakh crore

Finance minister Nirmala Sitharaman slashed effective corporate tax from 35 percent to 25.17 percent inclusive of all cess and surcharges for domestic companies, she made the announcement in a press conference on Friday.

Sitharaman said the new tax rate will be applicable from the current fiscal which began on April 1. This change will be made through an ordinance to amend the Income Tax Act, 1961

Her announcement cheered the markets sending Sensex up more than 1,200 points and the Nifty above the 11,000 points. Among sectors, the Bank Nifty and Auto index surged three percent each.

The total taxation revenue loss due to the measure would be Rs 1.45 lakh crore, Sitharaman said. This would definitely raise concerns about the government breaching its fiscal deficit target of 3.3 percent for 2019-20 at a time when tax revenue collections are already weak.

The tax rate will be 22 percent without exemptions, and with surcharge it would jump to 25.17 percent.

Local companies incorporated after October 1st that want to make fresh investment in manufacturing will have an option to pay income tax at 15 percent.

he new companies won’t have to pay minimum alternate tax (MAT).  MAT targets “zero-tax companies” that do not pay any tax due to concessions and incentives despite having earned substantial profits and paid high dividends.

The higher surcharge on the ‘super rich’ announced in the Union Budget this year will not apply on capital gains on sale of equity shares in a company that is liable to pay securities transaction tax (STT), the FM added.

The announcements come today as economic growth slowed to a six-year low of 5 per cent in the quarter ended June. These moves are supposedly taken to boost demand, and drive the investment in manufacturing and auto sectors that are the biggest contributors to the GDP.

Over the past few weeks, the finance minister has rolled back most of her key budget decisions to jump start the economy via press meets.