InvestorQ : What were the major tax cuts announced by the Finance Minister on Friday and why is it good for markets?
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What were the major tax cuts announced by the Finance Minister on Friday and why is it good for markets?

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2 years ago
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The FM announced a slew of tax cuts just ahead of the GST Council meet in Goa. This was part of the FM’s press conference ahead of the GST Council meet, but the impact appeared to be much bigger than the GST story. Let us look at the overall corporate tax cuts and the incentives for new manufacturing businesses.

What the FM has done is to offer a new tax bracket formula under which Indian companies can opt to pay just 22% tax on corporate profits. In exchange, they will have to forego all exemptions and rebates that are now available to them. Of course, 22% is the base rate and when you add the 10% surcharge and the 4% cess, the effective tax rate comes to 25.17%. Companies can opt for the 22% formula either right away or at a future date. However, such a shifting decision will be irreversible and going back to the old formula will not be permitted at a future date. Unlike in the past, wherein this benefit was only available only for companies with turnover up to Rs.400 crore, the new model will extend these tax cuts to all domestic companies.

The FM announcements also gave a boost to fresh investments via the concessional 15% tax bracket. This will be applicable for new companies that set up manufacturing operations between October 2019 and March 2023. This could give a major boost to fresh investments by companies as well as for the Make-in-India program. This will also come without any rebate3s and exemptions and is restricted to manufacturing companies.

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