Corporate tax rates for domestic companies and new manufacturing companies have been slashed, Finance Minister Nirmala Sitharaman announced on Friday. The changes will cost the government about Rs 1,45,000 crore in revenue foregone. Sitharaman said the economic buoyancy would generate more revenue and widen the tax basket.
The change gives a domestic company an option to pay income tax at 22 per cent (down from 30 per cent) while new domestic manufacturing companies can pay corporate tax at 15 per cent (instead of existing 25 per cent) provided they do not claim any exemption. This means that the effective tax rate would 25.17 per cent and 17.01 per cent, respectively.
“This is a major tax reduction that has happened,” she said
Sitharaman said the changes were part of the continuing efforts to respond to points made during consultations with the government. This set of amendments was brought about in the taxation laws through an ordinance which was passed a couple of minutes ago, Sitharaman said at a media conference before heading into the Goods and Services Tax Council meeting.
“Now, India’s corporate tax rates are almost at par with many Asian and South-East Asian countries and lower than many countries,” she said listing seven changes in the tax regime.
A company which does not opt for the concessional tax regime and avails the tax exemption or incentive shall continue to pay tax at the pre-amended rate but can switch to the concessional regime at a later date.
“Further, in order to provide relief to companies which continue to avail exemptions or incentives, the rate of Minimum Alternate Tax has been reduced from the existing 18.5 per cent to 15 per cent,” she said.