Only 25 percent tax on companies, 15 percent tax on new industrial units

In China, Indonesia and South Korea, the corporate tax rate is currently 25%

(PTI) Panaji, Ta. September 20, 2019, Friday

The government, which is facing six-year low economic growth and the highest unemployment rate for 45 years, has announced that corporate tax on companies will be reduced by 10 per cent to 25.17. At the same time, India's corporate tax has increased to the same as China and South Korea.

Two-and-a-half months after presenting its first budget, Finance Minister Nirmala Sitaram today announced a reduction in corporate tax that would cost the government treasury Rs 1.45 lakh crore.

This is the fourth economic incentive package announced by the government after the budget. At present, the companies were 30 percent corporate tax which has now been reduced to 22 percent. Corporate tax has been reduced from 25 percent to 15 percent for manufacturing companies beginning October 1, 2019 and before March 31, 2023.

However, these new companies will get tax relief only on the condition that they do not get the benefit of any other incentive scheme like any other tax holiday.

If the surcharge and cess imposed on the companies are taken into account, the corporate tax will increase from 22% to 25.17%. Which was currently 34.94 percent. If the cess and surcharge is levied on the corporate tax of the new manufacturing unit, the corporate tax rate will increase to 17.01 percent, which is currently 29.12 percent.

The new tax rate will be implemented from April 1, 2019. India will be able to attract foreign investment due to corporate taxation, such as China and South Korea.

Companies in China, South Korea and Indonesia have to pay 25 percent tax while Malaysia has 24 percent corporate tax. In Japan alone, the corporate tax is 36 percent. Hong Kong has the lowest 16.5 percent and Singapore has 17 percent corporate tax. Thailand and Vietnam have a 20 percent corporate tax.

Sitaram said that this step of the government will promote development and investment. The government has set a target of earning tax revenue of Rs 16.5 lakh crore for the financial year 2019-20 in the budget. The target is to keep 3.3 percent of the fiscal deficit budget in the financial year 2019-20.

RBI Governor Shaktikanta Das welcomed the government's decision. Taxes on share buybacks of listed companies have also been abolished. The super rich tax will not be charged on capital gains on the sale of equity. The decision has been taken to keep the investment in the capital market intact. At the same time, companies will no longer have to pay the Minimum Alternative Tax (MATE). For companies acquiring Examination and Incentives, the MATE has been reduced from 18.5% to 15%.

Relief on new investment

The announcement by Finance Minister Nirmala Sitaram today has also brought relief to the newly invested domestic companies. Now after October 1, 2019, the businessmen who constitute the manufacturing unit will have to pay tax of 15%. By adding surcharge and tax on it, the tax rate will be 17.10 percent. Currently, the tax rate is 25 percent.

Who will benefit from the reduction in corporate tax?

The benefit of the corporate tax deduction will benefit large companies that fall under the slab of corporate tax at 30 percent. Corporate tax is levied on company profits. The scope of corporate taxes includes all types of companies, private or limited and listed. Corporate tax is considered an important part of government revenue. That is why the government's decision will cost the government treasury a burden of Rs 1.45 lakh crore.

What is capital gains tax?

There are two types of capital gains tax. One long-term and the other short-term capital gains tax. At present, the profit is short-term on the amount sold less than 3 years, while the profit on the assets sold after more than 3 years is considered as long-term capital. However, in the case of shares, long term capital is considered to be over one year. New investors were avoiding buying shares as the government increased the surcharge on Long Term Capital Gain in the budget.

What is Share Buyback?

When a company buys its own shares from investors, it is called buyback. These stocks do not exist in the market after the completion of this process. When companies have extra cash they put more emphasis on buyback. Excess cash is not considered a good thing for a company. For this reason, the company uses its own extra cash through buyback.

Important points of the announcement made to Nirmala Sitaram

* Corporate tax has been reduced from 30% to 22% for domestic companies

* Considering the cess-surcharge, the reduced corporate tax will be 25.17% which is currently 34.94%.

* Such companies also do not have to pay the Minimum Alternate Tax (MATE)

* If new companies invested in the manufacturing sector after October 1, 2019, they will have to pay tax at the rate of 15% which is currently 25%.

* In view of cess and surcharge, the reduced tax rate for such companies will be 17.01% as compared to the current 29.12%.

* The super rich tax on capital gains on the sale of equity shares was also abolished.

* The surcharge raised in the budget will not apply to capital gains on the sale of equity by Foreign Portfolio Investors (FPIs)

* Companies that announce buyback before July 5, 2019 will not be charged any tax on share buyback

* Reduced corporate tax rates will be effective from April 1, 2019

* The Income Tax Act, 1961 and the Finance Act, 2019 will be amended by an order

* The decision to reduce corporate tax will put a financial burden of Rs 1.45 lakh crore on government treasury.