Corporate Tax Rates Slashed, Benefits To The Manufacturing Sector: Key Takeaways From The Finance Minister’s Address

As part of the measures announced by the Government to ensure the economic slowdown is curbed efficiently, Finance Minister Nirmala Sitharaman addressed a press conference for the 2nd time this week on 20th September 2019.

Most industry experts were expecting a cut in GST rates in multiple aspects like the auto sector, hotels, cement, steel, biscuits, etc. along with revised GST slabs and new policies to revive the economy as the FM was scheduled to chair the latest GST Council Meeting.

However, in the press conference and to the surprise of the corporate taxpayers, the FM announced a slew of proposals for them. She proposed that the corporate tax rates shall be slashed to 22% for domestic companies (not including foreign companies operating through Project Offices or Branch Offices), applicable only if the said domestic companies do not avail any exemptions/incentives. She also announced that the said companies will not be required to pay the Minimum Alternate Tax (MAT).

For companies availing exemptions/incentives, it was announced that these companies can opt for the lower rate after completion of their tax holiday period. Further, the option once availed cannot be withdrawn at a later point of time.

Also, the MAT rate for these companies during the period in which they are claiming exemptions/incentives is proposed to be reduced to 15% from the current 18.5%.

Following that, it was also announced that the tax paid by new manufacturing companies incorporated after October 1, 2019 and which commence their production on or before March 31st, 2023, will now be taxed at a rate of 15%. These companies would also not be required to pay tax under MAT.

The Hon’ble FM, in line with the earlier Press Release of August 2019 reiterated that, “Enhanced surcharge introduced in Budget shall not apply on capital gain arising on sale of equity shares in a company liable for Securities Transaction Tax.”

It was also announced that in order to stabilize flow of funds into the market, the enhanced surcharge rates which were announced the Union Budget 2019 will not apply on capital gains arising on the sale of any security, including the derivatives by Foreign Portfolio Investors (FPIs).

Another major announcement made during the press conference talked about listed companies which had made public announcement for buyback before July 5th, 2019. The FM said that the buyback tax on shares of such companies will not be charged.

The above amendments are proposed to be inserted in the Income Tax Act, 1961 through a Taxation Laws (Amendment) Ordinance 2019.

The final major announcement during the press conference was that CSR spending of 2% could now be used to fund incubators funded by the Government or its agencies, or also to make contributions to publicly funded universities, IITs, National Laboratories and Autonomous Bodies engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs).

Following the announcements, Nirmala Sitharaman jokingly asked a media reporter at the press conference if the latter wanted to know about the total revenue forgone to take the said measures. Following that, she immediately announced that the revenue forgone per year for these measures would be INR 1.45 lac crore.

The market reacted extremely positively to the news, as the Indian National Rupee recorded an immediate increase, NIFTY went up by 240 points, and SENSEX went up by well over 900 points.

In response to the measures announced, Shrey Aggarwal, Senior Manager in the Tax & Regulatory Services Coinmen said, “These announcements, coupled with the other ongoing announcements made by the FM of late, especially with regards to the banking sector are expected to provide the much-needed boost to the slowing Indian economy.”

He further added, “The announcement regarding manufacturing companies will surely provide an impetus to this sector and to the overall goal of the Government of ‘Make in India’. The immediate impact with the Sensex going north marginally by 900 points is definitely one of the many positives that are likely to follow.”

What do you think of the FM’s comments and the new measures announced for the Indian economy? Share your thoughts with us in the comments below!

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