Govt slashes corporate tax to 25.17% for domestic companies

New Delhi: In its bid to rejuvenate the economy, the government has been pulling out something or the other from its bag every week. This week, the Ministry of Finance has decided to slash effective corporate tax from 30 percent to 25.17 percent, inclusive of cess and surcharge for domestic companies.

Corporate tax cut to 22% for those who do not avail exemption

According to a new provision inserted in the Income-tax Act with effect from FY 2019-20 any domestic company can pay corporate tax at the rate of 22 percent subject to condition that they will not avail any exemption/incentive. The effective corporate tax rate for these companies shall be 25.17 percent, inclusive of surcharge and cess. Also, such companies shall not be required to pay Minimum Alternate Tax, an official release said.

New domestic manufacturing companies to pay 15%

In order to attract fresh investment in manufacturing and thereby provide boost to the 'Make-in-India' initiative of the government, another new provision has been inserted in the Income-tax Act with effect from FY 2019-20. This allows any new domestic company incorporated on or after October 1, 2019, making fresh investment in manufacturing, an option to pay income-tax at the rate of 15 percent.

This benefit is available to companies which do not avail any exemption/incentive and commences their production on or before March 31, 2023. The effective tax rate for these companies shall be 17.01 percent, inclusive of surcharge and cess. Also, such companies shall not be required to pay Minimum Alternate Tax.

No change in Corporate Tax for those who avail exemption

A company which does not opt for the concessional tax regime and avails the tax exemption/incentive shall continue to pay tax at the pre-amended rate. However, these companies can opt for the concessional tax regime after the expiry of their tax holiday/exemption period. After the exercise of the option they shall be liable to pay tax at the rate of 22 percent and the option once exercised cannot be subsequently withdrawn. Further, in order to provide relief to companies which continue to avail exemptions/incentives, the rate of Minimum Alternate Tax has been reduced from existing 18.5 percent to 15 percent.

Other announcements

In order to stabilise the flow of funds into the capital market, it is provided that enhanced surcharge introduced by the Finance (No.2) Act, 2019 shall not apply on capital gains arising on sale of equity share in a company or a unit of an equity oriented fund or a unit of a business trust liable for securities transaction tax, in the hands of an individual, HUF, AOP, BOI and AJP.
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The enhanced surcharge shall also not apply to capital gains arising on sale of any security including derivatives, in the hands of Foreign Portfolio Investors (FPIs).

In order to provide relief to listed companies which have already made a public announcement of buy-back before July 5, it is provided that tax on buy-back of shares in case of such companies shall not be charged.

CSR funds could be spent on govt-funded incubators

The government has also decided to expand the scope of CSR 2 percent spending. Now CSR 2% fund can be spent on incubators funded by Central or state government or any agency or Public Sector Undertaking of Central or state government, and, making contributions to public funded Universities, IITs, National Laboratories and Autonomous Bodies (established under the auspices  of ICAR, ICMR, CSIR, DAE, DRDO, DST, Ministry of Electronics and Information Technology) engaged in conducting research in science, technology, engineering and medicine aimed at promoting SDGs.

The total revenue foregone for the reduction in corporate tax rate and other relief estimated at Rs 1,45,000 crore.