NEW DELHI – India cut on Friday the corporate tax from 30 to 22 percent in a fresh measure to revive the economy amid a slowdown, a move which was received well by the stock markets.
“To promote growth and investment, a new provision has been inserted in the Income-tax Act with effect from Financial Year 2019-20 which allows any domestic company an option to pay income-tax at the rate of 22 percent,” Finance Minister Nirmala Sitharaman told reporters.
Until now companies had to pay 30 percent of their business income as taxes, exclusive of cess and surcharges.
The effective tax rates now would come up to 25.17 percent, including surcharges for companies which do not come under the purview of other exemptions.
Sitharaman also announced that any new domestic company – registered on or after Oct. 1 – making fresh investment in manufacturing would be able to pay tax at a further reduced rate of 15 percent.
This measure is aimed at attracting fresh investment in manufacturing and provide a boost to the government’s ‘Make-in-India’ initiative, which facilitates investment for companies that want to manufacture their products in the country.
The estimated revenue loss to the government coffers due to the cut in corporate tax and other sops is pegged at 1.45 trillion rupees (around $20 billion).
Sensex, the index which groups together the 30 biggest companies listed at the Bombay Stock Exchange, jumped almost 5.3 percent after the announcement, while Nifty, the index which tracks the shares of 50 Indian companies across 12 sectors, registered an almost identical jump and rose to 11,274 points.
Friday’s announcement follows other economic measures announced earlier when the government ordered the merger of 10 public sector banks into four entities to boost lending.
The government has also pumped 700 billion rupees in public sector banks and withdrawn additional taxes on foreign portfolio investment.
India has been witnessing an economic slowdown after years of rapid growth as the GDP growth slowed down to 5 percent in the first quarter of this fiscal year (April-June), in line with a downward spiral which has continued in recent quarters and brought the growth rate down to its lowest level in six years.
The second biggest country in the world in terms of population has lost its position as the fastest growing economy due to the economic slowdown.