In a bid to give a boost to a slowing economy amid a brewing global oil crisis, the Narendra Modi government on Friday announced a slew of tax incentives and initiatives.
Announcing a lowering of corporate tax rate which has received a lot of flak, Finance Minister Nirmala Sitharaman said corporate tax rate on domestic companies will be reduced to 22 per cent subject to such entity not availing any exemptions and incentives. Also these companies will also not be required to pay any Minimum Alternate Tax (MAT). Effective tax rate in this case would be 25.17 per cent, including cess and surcharge.
Sitharaman announced an even lower 15 per cent corporate tax rate for new domestic companies making fresh investment in manufacturing. These companies should have commenced production on or before March 31, 2023 and would also get exemption from MAT. According to the minister, the Taxation Laws (Amendment) Ordinance 2019 has already been prised to effect changes in the Income Tax Act and Finance Act 2019. A company that does not opt for concessional rate can continue to be charged at existing rate of corporate tax. Such companies can opt for concessional tax regime after expiry of tax holiday period or exemptions. But option once exercised cannot be withdrawn. In order to provide relief to companies enjoying concessions and tax incentives, MAT has been brought down from 18.5 per cent to 15 per cent.
In another decision aimed at ensuring flow of funds in the capital market, the enhanced surcharge provided in Finance Act 2019 shall not apply to capital gains arising on sale of equity shares in a company or a unit of equity oriented business trust. The enhanced surcharge shall also not apply on capital gains arising on sale of any securities, including derivatives in the hands of Foreign Portfolio Investors (FPIs).