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Corp tax cut to help top 1,000 firms save Rs 37K cr: Crisil
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SME Times News Bureau | 23 Sep, 2019
Around 1,000 companies would
save nearly Rs 37,000 crore due to recent corporate tax rate cut,
according to a Crisil report on Sunday.
A study of nearly 1,000
companies, spread across 80 sectors, which cover over 70 per cent of the
National Stock Exchange's market capitalisation indicates that
effective tax rates had risen over the past five years.
These
companies, including oil & gas and financial services, account for
nearly one third of the tax paid by India Inc. "Our analysis indicates
these companies could see tax savings of Rs 37,000 crore, or nearly a
fourth of the total savings anticipated by the government," the report
by Crisil Research said.
Segments linked to consumer would
benefit the most given higher effective tax rates of over 30 per cent,
it said and added, exports-linked sectors, such as IT and pharma, on the
other hand, would benefit the least, accounting for only 5-6 per cent
of potential savings because they already enjoyed low effective tax
rates.
Finance Minister Nirmala Sitharaman reduced the corporate
tax on companies with a turnover of up to Rs 400 crore to 25 per cent in
the Budget presented on July 5. This brought down the effective tax
rate on over 99 per cent of companies to 27.8 per cent (corpoarte tax
inclusive of surcharge and education cess).
For the rest less
than 1 per cent, the effective rate remained at 34.94 (on 30 per cent
corporate tax rate). This category of large turnover companies, such as
Reliance Industries, Tatas, Aditya Birla Group, are the biggest
beneficiary of Sitharaman's latest tax breaks.
"Tax benefits will
also vary within sub-segments. For instance, with the consumption space
assessment of automobile manufacturers that account for 50 per cent of
volumes sold indicates that tax cuts may have limited benefits because
of already lower effective tax rates. But auto component manufacturers,
which bear higher effective tax rates, may see maximum gains," as per
the analysis of 70 firms that account for 20 per cent of the market.
The
Finance Minister on Friday announced Rs 1.45 lakh crore fiscal stimulus
that includes slashing corporate tax to 22 per cent from 30 per cent,
cutting down the minimum alternate tax (MAT) and lowering tax to 15 per
cent for companies putting fresh capital into manufacturing.
The
reduced corporate tax rate of 22 per cent would apply on domestic
entities that don't avail any exemptions and incentives. Also, these
companies will not be required to pay any MAT. Effective tax rate in
this case would be 25.17 per cent, including cess and surcharge.
Tax
experts said reduction in the corporate tax would benefit large
companies, like Reliance, Tata, Vedanta and Adani, more than
medium-sized firms.
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