Finance Minister Nirmala Sitharaman said that the effective tax rate for domestic corporates, inclusive of surcharges, will fall from 34.94% to 25.17% if they stop availing any other tax sops. To put in perspective, the Nifty put on the single biggest gain seen in the last decade, surging close to 600 points, and stock market veterans couldn't stop gushing over the "early Diwali" feeling. It is also a prudent move to reduce the corporate tax rates because (1) it increases the retained earnings of the companies and forms the investible surplus for future, (2) moves India to parity with its regional peers thereby removing one of the issues related to manufacturing and exports, (3) maintains macro prudence by continuing to favour investment cycle rather than consumption cycle. NDTV delivers reliable information across all platforms: TV, Internet and Mobile.
The government has also made a decision to not levy enhanced surcharge introduced in Budget on capital gain arising from sale of equity shares in a company liable for securities transaction tax (STT).
The reduction to 22 per cent in corporate taxes will result in massive release of Rs 1.45 lakh crore immediately in the economy that will boost sentiments and bring in real surplus to the corporates.
The Minister said a new provision has been ed in the Income-tax Act with effect from Financial Year 2019-20, which allows any domestic company an option to pay income-tax at the rate of 22 per cent if they do not avail any exemption/incentive.
"India still has a non-performing loan swamp to drain, but this is most definitely a step in the right direction", he said. Only Japan has a higher tax than India at 30.6 per cent. Hong Kong has the lowest corporate tax rate of 16.5 per cent while Singapore has 17 per cent rate and Thailand and Vietnam levy 20 per cent tax on companies.
By lowering the tax rate for new units, the government has rolled out a red carpet that would ensure higher foreign investment over the medium term.
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Share prices surged, with the Sensex in Mumbai jumping more than 5% to its highest level since July. "These companies can opt for concessional tax regime after the expiry of tax holiday or exemption", she said. On the other hand, surcharges on income tax would be eased out too, she hinted, in response to a query.
Devang Mehta, Head - Equity Advisory, Centrum Wealth Management, said, "Today's measures, without exaggeration, have revived the sagging economic situation and has reinfused the "Josh" amongst the corporate and capital market fraternity".
The broader BSE midcap and smallcap indices followed the benchmarks, surging up to 6.28 percent. -China trade dispute, according to data compiled by Deloitte.
The Finance Minister also said that import of specified defence goods which are not being manufactured indigenously have been exempted from GST/IGST till 2024.
India's annual economic growth fell to a 25-quarter low of 5% in April-June period. He said that this is a big step and all sectors will benefit from it. Besides, it is also expected to boost jobs creation.