Centre cuts corporate tax rates; decision boosts shares
Finance Minister Nirmala Sitharaman on Friday reduced corporate tax to 25.17% inclusive of all cess and surcharges for domestic companies. The reduction will be on approx 10% points for existing companies and approx 12 basis points for new companies and will be effective from April 1.
In all six amendments have been made in the Income Tax Act and Finance Bill 2019 which will cost Rs 1.45 lakh crore on an annual basis. The decision boosted shares by more than 5% –biggest in the past one decade – and the rupee firmed against dollar.
The move allows domestic companies to pay income tax at the rate of 22 percent on condition they will not avail any incentives or exemptions. The listed companies that have announced buyback before July 5 will not be charged tax on buyback of shares.
Also, the enhanced surcharge will not apply to capital gains arising on equity sale or equity-oriented funds liable to STT stabilize the flow of funds into capital markets. Similarly, the manufacturing companies set up after October 1 will have an option to pay 15 percent tax and the effective tax rate for new manufacturing firms will be 17.01 percent inclusive of cess and surcharge.
The FM also said that the higher surcharge will not apply on capital gains on the sale of security including derivatives held by FPIs and the CSR 2 percent spending to include government PSU incubators and public funded education entities, IITs, etc.