In a press conference on Friday, the Finance Minister (FM) Nirmala Sitharaman announced a reduction in corporate tax to 22%. Now, the effective corporate tax rate after the cut would be around 25%. The FM also announced that the government has decided to reduce the corporate tax for new manufacturing firms to 15%.
#CorporateTax rates slashed to 22% for domestic companies and 15% for new domestic manufacturing companies and other fiscal reliefs
— PIB India (@PIB_India) September 20, 2019
To give effect to the tax relaxation an Ordinance in the Income Tax Act was passed earlier in the day. A new provision highlighting the cut was inserted in the act. The measure comes amidst an economic slowdown where the government is looking to push things back on track.
The FM said that the givernmnet would lose an estimated ₹1.45 trillion as a result of these relaxations. The present corporate tax system taxes business income at 30%, exclusive of cess and surcharge, other than the companies with sales of up to ₹400 crore. While the new manufacturing companies are taxed at 25%.
The tax cut is expected to incentivize the firms to invest in India while bringing out investments from the corporates. Company that is incorporated on or after 1 October 2019 and making fresh investments in manufacturing would have to pay a tax of 15%.
This benefit would be available to companies that do not avail of any tax incentives and commence production on or before 31 March 2023 said the FM. The step is taken to attract fresh investment in manufacturing activities and to give a boost to the ‘Make in India’ drive.