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Big Bonanza for Business – Among the Lowest Corp Tax Rates Anywhere

Corporate tax rate cut India

Finance Minister Nirmala Sitharaman has already announced a series of measures to boost the economy. In yet another round of big announcements, the Finance Minister declared a huge cut in the corporate tax rate.

Rate cut for domestic companies

A domestic company now needs to pay tax at the rate of 22% instead of earlier 30% provided that they don’t avail incentives/exemptions. The effective tax rate for these companies shall be 25.17% inclusive of surcharge & cess. Also, such companies shall not be required to pay Minimum Alternate Tax (MAT), said a government release.

Rate cut for domestic manufacturing companies

Giving a boost to manufacturing sector and in turn to ‘Make-in-India’ initiative, Finance Minister also announced that new domestic manufacturing company incorporated on or after October 1, 2019, will pay income tax at the rate of 15% instead of earlier 25% provided they also don’t seek any incentives/exemptions and starts its production on or before March 02, 2023. The effective tax rate for these companies will be 17.01% inclusive of surcharge & cess. These companies will also not be required to pay MAT.

Provision for companies opting for new tax regime at a later stage

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of the option they shall be liable to pay tax at the rate of 22% and option once exercised cannot be subsequently withdrawn, noted the government announcement.

However, the government has provided relief for such companies also which continue to avail exemptions/incentives, the rate of MAT has been reduced from existing 18.5% to 15%.

The Minimum Alternate Tax refers to the taxation on ‘zero tax companies’ i.e., those companies which show zero or negligible income to avoid tax using various practices. Under MAT, such companies have to pay the tax by deeming a certain percentage of their book profit as taxable income.

The impact of the decision

The rate cut announced will help domestic companies to further scale up their business. Consequently, this will also help in employment generation. Importantly, the tax incentive to domestic manufacturing companies is a smart move. It is a known fact that the manufacturing sector creates a significant amount of employment. In India, the thriving service sector has provided jobs to white-collar professionals. But the manufacturing sector which creates jobs even for the low-skilled employee required a greater push. It is in this direction that Make-in-India program was launched. Now, another push to this sector came from the tax rate cuts for the domestic manufacturing companies.