Investors rejoice after FM slashes tax rates

Benchmark indices shot up after Finance Minister Nirmala Sitharaman proposed to slash effective corporate tax to 25.17% inclusive of all cess and surcharges for domestic companies.

At 11:45 IST, the barometer index, the S&P BSE Sensex, surged 1,522.97 points or 4.22% at 37,616.44. The Nifty 50 index soared 436.35 points or 4.08% at 11,141.15.

The S&P BSE Mid-Cap index jumped 3.52%. The S&P BSE Small-Cap index rose 2.07%.

On the BSE, shares 1,517 rose and 566 shares fell. A total of 84 shares were unchanged.

Among the sectoral indices, the S&P BSE Auto index (up 7.07%), the S&P BSE Bankex (up 5.55%), the S&P BSE Capital Goods index (up 5.19%), outperformed the Sensex.

In a press conference held in Goa today, the Finance Minister Nirmala Sitharaman announced a slew of measures in order to reduce the prevailing taxation rates in the country.

The FM announced slashing of corporate tax rate for domestic companies and new domestic manufacturing companies. The FM added that the ordinance for cutting tax rate has been passed.

The FM said that the new corporate tax rate will be 22% without exemptions. The effective corporate tax rate after surcharge will stand at 25.17%.

To further attract investment in manufacturing, local companies incorporated after October 2019 will pay tax at 15%, the FM added.

The government has also decided to not levy enhanced surcharge introduced in Budget on capital gain arising from sale of equity shares in a company liable for securities transaction tax (STT). To stabilise flow of funds into the capital market, enhanced surcharge under Finance (No.2) Act, 2019 will not 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.

Higher surcharge will also not apply on capital gains on sale of security including derivatives held by foreign portfolio investors (FPIs).

Listed companies that have announced buyback before 5 July 2019, tax on buyback of shares will not be charged.

Total revenue foregone for the reduction of taxes and other reliefs is estimated to be at Rs 1.45 lakh crore per year.

The government has decided to expand the scope of spending 2% profits on corporate social responsibility (CSR) to allow spending on incubators or research grants to institutes engaged in promoting science research.

FM also announced that effective tax for new companies shall be 17.01%, including cess and surcharge. Companies enjoying tax holidays would be able to avail concessional rates post the exemption period.

She further added that the Government will give MAT relief for those opting to continue paying surcharge and cess at 22%. MAT has been reduced to 15% from 18.5% for companies who continue to avail exemptions and incentives.

The said measures have been announced with expectation to widen the tax basked with lower tax rate. Economic buoyancy will itself generate revenue, the FM said.

In her closing remarks, the FM said that the new corporate are to be among lowest in SouthEast Asia. The move has been aimed to have more investment in 'Make In India' program of the Government.

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