Finance Minister Nirmala Sitharaman announced tax cuts, along with tax relief measures, for domestic companies on Friday.
The government has slashed the tax rates to 22 percent for domestic companies and 15 percent to new domestic manufacturing companies.
Sitharaman said that a new provision had been inserted in the Income Tax Act with effect from fiscal year 2019-20. It allows any domestic company an option to pay income tax at the rate of 22 percent, subject to condition, that they will not avail any exemptions or incentives.
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The new effective tax rate, inclusive of surcharge and cess for domestic companies, would be 25.17 percent and for new domestic manufacturing companies would be 17.01 percent. Also, the Minimum Alternate Tax (MAT) will not be applicable to such companies.
Additionally, the central government announced rollback of higher surcharge on capital gains on sale of equity announced in Budget for individuals, HUFs (Hindu Undivided Family) and Association of Persons (trusts).
The reduced corporate tax rate for the domestic companies will be come into effect from April 1, 2020. And the slash for new domestic companies will be applicable for those which get incorporated on or after October 1 and start producing on or before March 31, 2023.
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It is to be noted that this is the biggest reduction by the government in past 28 years. The move is aimed at pulling the country’s economy out of a six-year low growth and a 45-year high unemployment rate.
The move will cost the exchequer an annual amount of Rs 1.45 lakh crore.
Presently, the tax rate for companies with annual sales over Rs 400 crore is 30 percent (exclusive of surcharge and cess).
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