Government cuts corporate tax rate to 22% for domestic companies
In a move which is expected to boost growth and provide some respite to the sluggish economy, the government has decided to slash income tax for corporates. Finance Minister Nirmala Sitharaman on Friday announced that basic corporate tax rate for domestic companies and new manufacturing organizations has been brought down to 22% and 15% respectively. Here are more details.
With this move, domestic companies can pay income tax at a rate of 22%, if they don't avail any other incentives of the government, Sitharaman explained. For such companies, the effective tax rate is 25.17% including all surcharges and cess. Similarly, for manufacturing units, set up after October 1, the tax rate was fixed at 15% and an effective tax rate at 17.01%.
Sitharaman said this will be applicable for the current fiscal year, meaning April 1. The entire process will cost the government Rs. 1.45 lakh crore annually. As soon as she made the announcement, markets welcomed it with open arms. The S&P BSE Sensex index rose by 1,300 points to 37,042.59 in early deals, while NSE Nifty index climbed by 300.5 points and was recorded at 11,005.30.
Further, Sitharaman revealed the changes will be brought in through an ordinance to amend the Income Tax Act, 1961. "In order to promote growth and investment, a new provision has been inserted in the Income Tax Act with effect from the fiscal year 2019-20," she added. Interestingly, a GST council meeting in Goa is scheduled for later in the day.
Off late, Sitharaman has been announcing a series of measures to boost the economy. In the April-June quarter, the GST growth rate hit a seven-year low and was recorded at 5%. The automobile sector is also going through its worst-ever crisis. On Thursday, while replying to tweets of entrepreneur Kiran Mazumdar Shaw, Sitharaman said she was working towards pulling the economy from slumber.