Sensex jumps over 2,000 points after corporate tax cut announcement

Mumbai: Domestic equity benchmark BSE Sensex on Friday jumped over 2,000 points after Finance Minister Nirmala Sitharaman announced corporate tax cut for domestic companies and new domestic manufacturing companies.

The BSE Sensex recorded an intra-day high of 38,108.40, rising 2,015 points or 5.58 per cent. Similarly, broad-based NSE benchmark Nifty was also trading 583 points higher at 11,288.15, up 5.45 per cent.

The Government has brought in the Taxation Laws (Amendment) Ordinance 2019 to make certain amendments in the Income-tax Act 1961 and the Finance Act 2019.

Finance Minister Nirmala Sitaraman said in order to promote growth and investment, any domestic company shall have an option to pay income-tax at the rate of 22% subject to condition that they will not avail any exemption/incentive with effect from 2019-20 financial year.

The effective tax rate for these companies shall be 25.17% inclusive of surcharge & cess. Also, such companies shall not be required to pay Minimum Alternate Tax.

She said any new domestic company incorporated on or after 1st October 2019 making fresh investment in manufacturing shall have an option to pay income-tax at the rate of 15%.

The aim is to attract fresh investment in manufacturing and thereby provide boost to ‘Make-in-India’ initiative of the Government.

This benefit is available to companies which do not avail any exemption/incentive and commences their production on or before 31st March, 2023. The effective tax rate for these companies shall be 17.01% inclusive of surcharge & cess. Also, such companies shall not be required to pay Minimum Alternate Tax.

A company which does not opt for the concessional tax regime and avails the tax exemption/incentive shall continue to pay tax at the pre-amended rate. However, these companies can opt for the concessional tax regime after expiry of their tax holiday/exemption period.

After the exercise of the option they shall be liable to pay tax at the rate of 22% and option once exercised cannot be subsequently withdrawn. Further, in order to provide relief to companies which continue to avail exemptions/incentives, the rate of Minimum Alternate Tax has been reduced from existing 18.5% to 15%.

Prime Minister Narendra Modi described the corporate tax cut as historic.

“The step to cut corporate tax is historic. It will give a great stimulus to #MakeInIndia, attract private investment from across the globe, improve competitiveness of our private sector, create more jobs and result in a win-win for 130 crore Indians,” tweeted Modi.

“The announcements in the last few weeks clearly demonstrate that our government is leaving no stone unturned to make India a better place to do business, improve opportunities for all sections of society and increase prosperity to make India a $5 Trillion economy,” the PM tweeted.