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Modi govt unrolls Rs 1.45 lakh cr tax bonanza
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SME Times News Bureau | 20 Sep, 2019
The Modi 2.0 government on Friday announced a Rs 1.45 lakh crore fiscal
stimulus that includes slashing corporate tax to 22 per cent from 30 per
cent now, cutting down MAT and lowering tax to 15 per cent for
companies putting fresh capital into manufacturing.
The
government has made huge tax concession in spite of lower-than-expected
revenue mop-up, thus inviting charge of "crony capitalism" from
political rivals.
The reduced corporate tax rate of 22 per cent
would apply on domestic entities that do not avail any exemptions and
incentives. Also, these companies will not be required to pay any
Minimum Alternate Tax (MAT). Effective tax rate in this case would be
25.17 per cent, including cess and surcharge.
"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
expiry of their tax holiday/exemption period," a Finance Ministry
statement said.
Companies making fresh investment in
manufacturing would get to pay lower tax of 15 per cent provided they
are incorporated on or after October 1, 2019.
"This benefit is
available to companies which do not avail any exemption/incentive and
commences their production on or before 31st March, 2023," the Ministry
said.
Tax experts said that the reduction in corporate tax would
benefit large companies such as Reliance, Tata, Vedanta, Adani more than
medium-sized firms. Companies with annual turnover of upto Rs 400 crore
already pays lower tax rate of 25 per cent and account for 99.3 per
cent of India Inc.
The effective tax rate for companies after Friday's rate cut would be 25.17 per cent inclusive of surcharge and cess.
In
order to boost market sentiment which has been depressed for months
now, the government has also said that enhanced surcharge will not apply
to capital gains arising on sale of any security including derivatives
in the hands of Foreign Portfolio Investors (FPIs).
Further, tax will not be levied on buyback of shares of listed companies if they made such offer before July 5, 2019.
Making
the announcements at her fourth press conference on measures to boost
the economy, Finance Minister Nirmala Sitharaman said that the enhanced
surcharge shall not apply on capital gains arising from sale of shares
in a company or a unit of an equity-oriented fund or a unit of a
business trust liable to securities transaction tax (STT).
The
government has offered the biggest ever tax bonanza in the past few
years by amending the Income Tax Act 1961 through Taxation Laws
(Amendment) Ordinance 2019.
"This is an extremely important and
very courageous move which should give a significant push to the market
and industry. We hope this move is expected to unleash the animal
instinct in the Indian industry and put the economy back on the high
growth," said S.R. Patnaik, Partner & Head-Taxation, Cyril Amarchand
Mangaldas.
On account of tax concessions, the government will
forego revenue of about Rs 1,45,000 crore in a year. The tax measures
are being considered really bold given that revenue collection of both
direct and indirect taxes have been lower than expected in the budget.
In
order to boost the economy the government has already come out with
three set of measures with the Friday announcement being the fourth and
the biggest one. The move came hours before Prime Minister Narendra Modi
would fly to the US where, apart from other engagements, he will meet
the CEOs of top companies.
Modi termed the announcements made by
Finance Minister Sitharaman as historic which will promote domestic
manufacturing and create jobs.
"The step to cut corporate tax is
historic. It will give a great stimulus to #MakeInIndia, attract private
investment from across theglobe, improve competitiveness of our private
sector, create more jobs and result in a win-win for 130 crore
Indians," the PM tweeted.
India Inc double-cheered the
government's relief package saying it will boost economy, lift business
sentiment and make India globally competitive.
"We welcome the
Finance Minister's proposition of slashing corporate tax, scrapping
surcharge on buyback announced before July 5 and expanding the scope of
CSR spend," said Nagesh Basavanhalli, MD and CEO, Greaves Cotton Ltd.
The
biggest booster dose of the Modi 2.0 government is expected to give a
major push to the sagging economy which clocked 6-year low growth of 5
per cent in April-June quarter of FY20.
Anil Agarwal, Executive
Chairman, Vedanta Resources, said that the government move will
definitely prove to be a huge impetus for the manufacturing and
infrastructure sector.
"We are confident this step, in coming
days will boost economic growth so that GDP can attain its true
potential of 8-9 per cent," he said.
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