Decoding Rs 1.45 Lakh Crore Bonanza: How Modi Govt Slashing Tax On Local Biz Will Spur Growth

Union Finance Minister Nirmala Sitharaman on Friday announced the tax cut on domestic businesses bringing the rates among lowest in Asia. "In order to promote growth and investment, a new provision has been inserted in the Income Tax Act with effect from fiscal year 2019-20," Nirmala Sitharaman said. The step comes a day after the government had asked all the banks not to declare any stressed loan account to Micro, Small and Medium Enterprises (MSMEs) as NPA till March 31, 2020, citing a Reserve Bank of India order. Here are the key points of the Friday announcements:

-Corporate tax rate to be 22% without exemptions, inclusive of surcharge and cess.

-No Minimum Alternate Tax (MAT) applicable on such companies.

-Effective corporate tax rate after surcharge to be 25.17 percent.

-To attract investment in manufacturing, local companies incorporated after October 2019 will pay tax at 15 percent.

-That effective tax for new companies shall be 17.01 percent, including cess and surcharge. Companies enjoying tax holidays would be able to avail concessional rates post the exemption period.

-Will give MAT relief for those opting to continue paying surcharge and cess. MAT has been reduced to 15 percent from 18.5 percent for companies who continue to avail exemptions and incentives.

-To stabilise flow of funds into the market the enhanced surcharge announced in Budget 2019 will not apply on capital gains arising on sale of any security, including derivatives by foreign portfolio investors (FPI).

-For listed companies which made announcement for public buyback before July 2019 it is provided that tax on buyback on shares of such companies will no be charged.

-Total revenue foregone by undertaking these measures is Rs 1.45 lakh crore per year.