Tax Reforms in The Corporate Sector and Indian Economy
On the backdrop of weak economic numbers and sentiments, Hon. Finance Minister, Ms. Nirmala Sitharaman announced major corporate tax reduction across the board. The reduction in corporate tax has happened after 14 years and that clearly shows the importance of the corporate taxes from the Government’s revenue budget. The Taxation Laws (amendment) Ordinance, 2019, reduced the effective corporate tax rate for all domestic companies from 34.94% (including surcharge of 10% and cess of 4%) to 25.17%. For the manufacturing companies incorporated after 1st October 2019 and commencing commercial production on or before 31st March 2023, the effective tax rate is further slashed to 17.16%. What does this mean for corporate India and the economy?
For corporate India, the reduction in the tax rate clearly brings it at par with their ASEAN counterparts and gives them a level playing field in the global economy. Corporates, before choosing the lower tax regime need to be aware about certain conditions. While choosing the lower tax rates, the domestic company will not be allowed to claim deductions/incentives like deduction available to SEZ units, accelerated depreciation, expenditure on in-house scientific research, deductions under Section 80- IA, 80- IAB, 80- IE etc., losses brought forward attributable to the above mentioned deductions. Most importantly, MAT credit will not be available for setting off against the payment of lower tax. Corporate India really needs to assess the situation before opting for lower tax rate because once the option is taken, a corporate cannot go back to the old tax regime. This also indicates that in the near future we will usher in the era of Direct Tax Code.
For the Indian economy, it can be a major boost in a form of providing impetus to the “Make in India” initiative and attract more foreign investment in the manufacturing space. It can also fuel the consumption cycle as corporates are passing on the benefits of the reduced tax rate to the consumers. All in all, reduction in corporate tax rate has the potential to bring the economy back on to a growth path.
This article is brought to you by Mr. Sachin Raole of Praj Industries. Praj industries is India’s most successful company in the field of bio-based technologies and engineering having a worldwide presence. Praj industries has always strived to work towards making the world a better place and will continue to do so. From beginning as supplier of ethanol plant & bioethanol production technology, Praj today has grown out to become a globally leading company with a bouquet of sustainable solutions for bioenergy, high purity water, critical process equipment, breweries and wastewater treatment. Headquartered in Pune, India, Praj has spread its presence across the globe with more than 750 references in more than 75 countries.
