Tax Update Detail

Festival bonanza from FM: Corporation tax rate slashed to boost investments

In her fourth set of packages for the industry, finance minister Nirmala Sitharaman on Friday announced corporation tax rate cuts for companies not availing of any exemptions and setting up manufacturing facilities in the country from the next month.

The minister also announced doing away with surcharge announced in the Budget for the capital markets.

The measures will hit the exchequer by Rs 1.45 trillion a year amid the already grim situation, but the finance minister said the cut in taxes also expands the basket.

Sitharaman announced that the corporation tax rate has been cut to 22 per cent from 30 per cent for companies not availing the benefits of exemptions. Currently, the total tax burden after surcharges and cesses come to about 34.94 per cent, which has been reduced to 25.17 per cent or about ten percentage points.

The companies which are enjoying exemptions and tax holidays and are not willing to join the new tax regime can do so after sun set clause on their tax breaks kicks in. However, once they come to the new tax regime, they have to stay there.

Companies incorporated from the next month and starting production before March 31, 2023 would get reduction in corporation tax rate from 25 per cent to 15 per cent. With cess and surcharges this comes to 29.12 per cent at present and with new rate structure that would be cut to 17.01 per cent or about 12 percentage points. These companies also need not pay any minimum alternate tax (MAT).

The government also reduced the minimum alternate tax (MAT) to 15 per cent from the current 18.5 per cent. With cess and surcharge this comes to 21-22 per cent at present, which will be reduced to 17 per cent.

To give a boost to the capital markets, the minister announced that enhanced surcharge will not apply to capital gains on sale of equity or units in equity oriented trusts.

Also, tax on buy back will not be charged for those companies making this announcement before July five this year.

The government also expanded the scope of corporate social responsibility to include incubators funded by the Centre or state governments, public sector units and making contribution to public-funded research institutions and universities such as ICAR, CSIR and ICMR.

All the tax measures have been announced through an ordinance promulgated today to amend the Income Tax Act, 1961 and the Finance Act, 2019.