In a press conference that took place on Friday morning, Union Finance Minister Nirmala Sitharaman announced corporate tax rate cut of up to 5%. This has been sought as a method to revive the private investments which have been going down in the past 6 years resulting in escalated inflations, loss of jobs and poor economy.

She announced, “With effect from the financial year 2019-20, any domestic company has an option to pay income tax at the rate of 22%, subject to the condition that they will not avail any exemption.”

The rate of corporate tax has been slashed from 30% to 22% for the corporate entities. However, the provision conditions that the Assessee will have to drop the option of availing any income tax exemption from their income total income. Thus, effectively it will be a 25% tax rate after surcharge etc, making it a slash worth 5%. Apart from this, the companies opting for 22% slab will not have to pay MAT (Minimum Alternative Tax).

As soon as the news of the lowered effective tax rates came out, Sensex & Nifty jumped a little high in a long time. BSE Sensex jumped up by 1300 points to reach 37420.12 points, which is approximately a high of 3.68%. Further, NSE Nifty rose by 362.95 points to reach 11067.75, making it a high of 3.39%. Top gainers in today’s market were Maruti, M&M, HDFC Bank, Tata Motors, Yes Bank, Tata Steel, L&T, ICICI Bank, Bajaj Auto and RIL, rocketing up by an average 9 per cent.

Apart from this, the rupee appreciated by 66 Paise against dollar coming down from 71.34 per dollar to 70.68 per dollar.

Here is a pointwise list of the new announcements

  • The government has also announced that there will no surcharges on capital gain arising on sale of equity shares to the companies who are liable for payment of securities transaction tax on speculative transactions. It was previously introduced in the budget to levy an enhanced surcharge on such capital gains.
  • To give another boost to Foreign Direct Investments, the super-rich tax leviable on capital gains from the sale of any security including derivatives to foreign portfolio investors has also been made not applicable.
  • Another relief regarding the super-rich tax is that listed companies who bought back shares before July 5 will not be charged with the same.
  • As further told by the Union Minister, the government is foregoing on Rs. 1.45 Lakh crore annual revenue with the new relief introduced. However, the government expects to promote investment and growth with these policies.
  • Further, to boost the manufacturing industry, the government made provision for new domestic manufacturing companies which incorporated after October 1 has the option to pay income tax at a rate of 15 per cent without any incentives. Thus the effective rate of tax rate these taxpayers will be 17.01 per cent after including of all surcharge and cess.
  •  Companies are at the option to choose for lower tax rate after the expiry of tax holidays and concessions that they are availing now.
  • Companies can now use their 2 per cent CSR funds to spend on incubation, IITs, NITs, and national laboratories and that will be eligible for exemption.
  • The new changes will be applicable from the Assessment Year 2020-21 (Financial Year 2019-20) after an ordinance will be passed in Parliament approving the changes in the Income Tax Act.