Corporate tax rates slashed by the Government

Corporate tax rates

Finance Minister Nirmala Sitharaman announced a big reduction in income tax rate for corporates. The government has slashed basic corporate tax rate to 22% from 30% while for new manufacturing companies it has been cut down to 15% from 25%.

‘Over the past few weeks, the government has been announcing a series of measures to boost growth that had fallen to six-year low of 5% in the June quarter. Revenue foregone for the reduction in corporate tax rate and other relief measures announced will cost the government ₹1.45 lakh crore per year’, the ‘finance minister said.

Some major  announcements on Corporate tax rates slashed:

There are some major announcements regarding the corporate tax by Finance Minister Nirmala Sitharaman, major ones are given below.

  • Proposal to slash corporate tax rate for domestic tax rate
  • A domestic company can pay income tax at 22% if they don’t seek any exemption or incentives
  • Effective Tax Rate is 25.17% inclusive of all surcharges and cess for such domestic companies
  • Companies availing exemptions can opt to pay tax of 22% after the exemption period is over
  • Enhanced surcharge announced in Budget shall not apply on capital gains arising on sale of any securities including derivatives in the hands of foreign portfolio investors
  • Buybacks pre-July 5 exempted from buyback tax
  • For new manufacturing companies that start production before March 2023 and incorporated on or after 1st October 2019, corporate tax rate brought down to 15% from 25%
  • Enhanced surcharge announced in Budget not to apply on capital gains arising on sale of equity share in a company or a unit of an equity oriented fund or a unit of a business trust liable for STT
  • MAT for companies that want to use tax exemptions cut to 15% from 18.5%
  • New tax rate will be applicable from the current fiscal which began on April 1.
  • Companies can opt for lower tax rate after expiry of tax holidays and concessions that they are availing now

Industry opinion on  Corporate tax rates slashed by the Govt.

Provision on Minimum Alternate Tax (MAT) to support the SEZ developers and promote affordable housing segment

The measure is expected to bolster the growth of industrial real estate development in the country says Ramesh Nair, CEO & Country Head – India, JLL.  His full outlook is given below.

Ramesh Nair, CEO & Country Head – India, JLL

The announcement by honourable Finance Minister, Nirmala Sitharaman proposing to slash corporate tax for domestic companies from 30% to 22% comes at an opportune time when the economy needs a boost in investments. To give strength to India’s ambitious ‘Make in India’ initiative, the government has proposed a tax rate of 15% for new domestic companies incorporated on or after 1st October 2019 and commences manufacturing by 31st March 2023. The measure is expected to bolster the growth of industrial real estate development in the country.

According to the announcement, the total revenue foregone for the reduction in corporate tax rate and other relief estimated at INR 1,45,000 cr. This quantum of money will act as an incentive to the industry in terms of savings and will result in further investments. Moreover, companies will also have a leeway to pass on the benefit to consumers, thereby reviving demand.

The reduction in Minimum Alternate Tax (MAT) to 15% from the existing 18.5% for companies which do not opt for the concessional tax regime will act as a harbinger of growth. However, there will be no MAT applicable for units which will opt for new concessional tax regime. This definitely is a welcome move.

This is likely to help the real estate sector and specifically promote affordable housing. The new proposal will also help in promoting the affordable housing segment. MAT provisions are applicable to the profits of the housing projects eligible for deduction under the clauses of Section 80-IBA. Section 80-IBA grants 100% exemption on profits from affordable housing projects, subject to conditions.

This would specifically support developers operating in special economic zones (SEZ). The real estate sector has been demanding the removal of MAT for SEZ developers. SEZs and their development are keys to the growth of the office segment, logistics & warehousing and manufacturing sectors in the country. Their development has in turn contributed significantly to the overall growth of the neighbouring regions and propelled the housing sector.

This big-bang move will have a rippling impact on all sectors including real estate as it will encourage foreign institutional investors to invest in the country.

In another positive and a bold step to help revive the economy from its slumber, the FM has slashed the corporate tax rates to 25.75% from earlier 30% says Anuj Puri, Chairman – ANAROCK Property Consultants. His full outlook is given below.

Anuj Puri, Chairman – ANAROCK Property Consultants

In terms of taxation, India will now be at par with many of its Asian peers and hence a major draw for foreign investors who shied away from entering India due to high taxes.

The Indian stock exchange was quick to welcome the move and went on a surge within just an hour. The Sensex saw a gain of more than 1,800 points while Nifty jumped over 500 points. This is the highest intraday gain in a decade, giving investors a gain of INR 5,00,000 crore. This itself reflects that sentiments have gone highly positive.

The chain of announcements made by the Finance Minister in recent past weeks in addressing the growing concerns of various sectors of the economy will go a long way in not just bolstering all-round sentiments but also see its positive ripple impact across all sectors including the real estate. As and when the overall financial health of the economy improves with these slew of measures, there will be heightened activity within real estate – by both actual home buyers and investors alike.