One of the lowest tax rates among other Countries

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India’s Corporate Tax Rate has been slashed to 22 per cent, a historic move by Narendra Modi-led NDA Government. Union Finance Minister Nirmala Sitharaman addressed a press conference in this regard to cut the corporate tax rates for domestic companies as well as new domestic manufacturing companies. The tax cut will be in effect from April 1, 2019. The Government has already passed the ordinance for slashing the corporate tax rate. As per Prime Minister Narendra Modi, this tax cut is a historic step and will stimulate private investments from the international players. The Corporate Tax cut will be a win-win situation for over 130 crore Indians.

Corporate Tax Rate has been cut to 22 per cent from 30 per cent earlier; it is one of the lowest tax rates among the Developed and Developing economies in South Asian and South-East Asia Regions for the manufacturing units globally. As per Sitharaman, the move will boost the flow of money into India. The move is in line with the Government initiatives to boost the Indian economy and make it a USD 5 Trillion economy. The other changes announced by the Finance Minister Sitharaman are:

Corporate Tax Rate after surcharge will now stand at 25.17% for domestic companies (inclusive of all cess and surcharges).

– Domestic companies need to pay 22% income tax, without availing of any incentives or exemptions. This rate stands at 25.17% inclusive of cess and surcharge. These companies will be exempted from paying Minimum Alternate Tax (MAT).

New domestic manufacturing companies incorporated after October 1, 2019, will now be required to pay income tax at 15%, which stands at 17.01% including the surcharge and cess.

– Companies that continue to avail of exemptions or incentives, will now have to pay Minimum Alternate Tax (MAT) of 15&. The MAT Rate has been cut from 18.5% to 15%.

– Listed companies which announced buyback prior to 5th July 2019 will not be required to pay tax on buyback of shares.

– The enhanced surcharge will not be applicable to capital gains arising on sale of equity share or security

What is Corporate Tax Rate?

The Corporate Tax refers to the direct tax levied on the Income or Profit generated by a corporate entity or company. The Rate is prescribed by the Income Tax Act, 1961, subject to the changes announced. The revenue generated from the Corporate Tax is an important source of income for the Indian Government.

Impact of Corporate Tax Rate Cut

Soon after the announcement, the Sensex rose by over 2015 points (5.58%) and the Nifty recorded its biggest single-day gain in 10 years by crossing 11,000 points. This move will make Indian entities more competitive in the global market.

Unfortunately, Corporate Tax Rate Cut would cost the revenue of Rs 1.45 lakh crore annually to the Government, which it could have earned without cutting the tax rate. This would directly slow down the recovery process as the Government would not be able to spend much to pull out the Indian economy from the slowdown.

In the long run, the move might prove out to be beneficial for domestic companies to acquire land or hire people. But let’s leave it on time to reveal how the tax cut fares for the Indian Economy.

Corporate Tax Rate of 25.17%: One of the lowest tax rates

As seen above, the current Corporate Tax Rate is at a record low in India. It is also one of the lowest tax rates among the developed and developing economies. Have a look at the corporate tax rates levied by the major economies of the world:

Country

Corporate Tax Rate

Japan

30.86%

China

25%

United States

21%

Russia

20%

United Kingdom

19%

Singapore

17%

Sri Lanka

28%

Canada

15%

Indonesia

25%

Switzerland

8.5%

Highest & Lowest Corporate Tax Rate

The current Corporate Tax Rate of 25.17 per cent is the lowest in the Indian Economy. The tax rate was at its highest in 2001 at 38.95%. From 1997 till 2019, the Corporate Tax Rate stood at 34.52% on an average.





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