Income Tax rate cuts to drive economy!

The new regime and how is it beneficial:

1) Corporate tax rates slashed for domestic companies and for new set of domestic manufacturing companies. To promote growth and investment the corporate tax rate will be now 22% subject to a condition that they will not avail any exemption or incentive. Effective tax rate will now be 25.17% (Inclusive of Surcharge and Cess)

2) For new manufacturing companies the corporate tax rate even lower at 15% and the effective tax rate will be 17.01% (Inclusive of Surcharge and Cess) from 1st October 2019.

3) MAT relief for companies which continue to avail exemptions and incentives. MAT (Minimum Alternate Tax) reduces from 18.5% to 15%.

4) To stabilize flow of funds in capital market, the enhanced surcharge will not be applied on the capital gains from sale of equity shares and sale of any security including derivative in the hands of FPI.

5) For relief to listed companies which have made a public announcement of buyback before 5th July, 2019. Tax on buyback of shares for such companies will not be charged.

The above mentioned reliefs will benefit majorly FMCG, Banking, Consumer durable and auto companies as less tax rates will lead to more cash flows in the hands of the companies and will infuse more growth capital in the economy. With the global geopolitical scenario of trade war this new regime can make India the new rising opportunity for doing business and moving to a safer zone, than China currently.

Further FDI and FII will be attracted highly towards India as the new regime on no surcharge on capital gains gives more saving on income to foreign investors. The effective tax rates on such transactions will now be restored to 11.96% for Long Term Capital Gains (LTCG) and 17.94% for Short Term Capital Gains (STCG)

However the other side of the coin is not being seen clearly. Given such tax cuts, the same has an impact of around 1.5 Lac Crore Rs tax foregone. The market sentiment is highly positive on this, but will it be good for the government in long term is a food for thought. The intent is to boost the investment & demand volumes in order maintain tax reserves even after such rate cuts.

Thus, a bold and much needed move towards the economy.


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©2019 by Equialpha Wealth Advisers