Reduction Of Corporate Tax
High corporate tax was responsible for slow progress of Indian economy due to less incentive for capacity generation and less exports which was an outcome of less competitive international prices. Thus in order to realize this and to put Indian economy on a sustainable growth path, the Government promulgated Taxation Laws (Amendment) Ordinance 2019 on 20 September, 2019 to make certain amendments in the Income-tax Act 1961 and the Finance (No. 2) Act 2019.
Key Provisions
Key provisions incorporated in the Income-tax Act are following:
- Domestic companies have an option to pay income-tax at the rate of 22% with effect from financial year 2019-20 subject to condition that they will not avail any exemption/incentive. The effective tax rate for these companies shall be 25.17% inclusive of surcharge and cess. Also, such companies shall not be required to pay Minimum Alternate Tax.
- Domestic companies incorporated on or after 1st October 2019 and making fresh investment in manufacturing, have an option to pay income-tax at the rate of 15% from FY 2019-20. This benefit is available to companies which do not avail any exemption/incentive and commences their production on or before 31st March, 2023. The effective tax rate for these companies shall be 17.01% inclusive of surcharge & cess.Also, such companies shall not be required to pay Minimum Alternate Tax.
- Companies which continue to avail exemptions/incentives, the rate of Minimum Alternate Tax have been reduced from existing 18.5% to 15%.
Impact
It is an important step to spur growth in Indian Economy as it has the potential to propel India to a 5 trillion $ path. Major benefits accruing from this step are following:
- It makes the tax structure close to South-East Asian economies which are globally competitive.
- It gives the incentive to entrepreneurs to enhance capacity.
- It will bring more FDI into Indian ventures.
- Credit ratings will improve which in turn creates a virtuous cycle of high investments in India.
