Sitharaman further said companies can opt for lower tax rate after expiry of tax holidays and concessions that they are availing now.
The new corporate tax rate for domestic companies, excluding surcharges, makes India more competitive than neighboring Bangladesh and puts it nearly on par with Vietnam and Thailand, countries that have wooed businesses affected by the U.S.
Interestingly, companies there pay 25 per cent tax, while those in Malaysia pay 24 per cent.
With the announcement of these measures, a much-required intervention has been made by the finance minister for boosting economic activity and employment in India.
Grant Thornton India LLP's Krishan Arora said while proposed GST rate cut is indeed a good news to promote hospitality industry, the GST Council seems to have rightly refrained from offering larger rate cuts across other demanding sectors considering the overall revenue involvement as an immediate priority.
Companies have been using the buyback route to return wealth to shareholders after the government had slapped a tax on dividend. The cess levied on top of the maximum 28 percent tax rate on petrol vehicles with the capacity to carry 10-13 persons has been reduced to 1 percent and the same for diesel vehicles has been cut to 3 percent. The tax relief would cost the exchequer Rs 1.45 lakh crore.
Her ministry slashed the corporate tax rate for domestic companies to 22 percent from 30 percent.
The corporate tax cut is part of a series of steps taken by the government to tackle the slowdown in economic growth, which has dropped for five consecutive quarters to 5% in the June quarter. It's now over to India Inc.to wisely utilize the extra cash flow generated through this tax savings bonanza, to make more productive investments and grow sustainably. Following the government's decision, both the Nifty and the Sensex rose over 5%, which is their biggest one-day rise in a decade.
Domestic manufacturing companies that are formed after October 1 will pay even less.
The budget has pegged fiscal deficit at 3.3 percent of GDP for FY20 and the government has already crossed 77 percent of that in the first four months itself.
"India still has a non-performing loan swamp to drain, but this is most definitely a step in the right direction", he said. "So, that is another reason why we will be having a positive impact on the revenue collection", she said in response to a question.
The reduction in the corporate tax rate will "augur well for our economy", RBI chief Shaktikanta Das said in Mumbai.
Modi was re-elected in May with a bigger majority, which stoked hopes of bold reforms to get growth going and staunch the loss of tens of thousands of jobs.
The latest round of tax cuts may also be underwhelming for the economy, said Shilan Shah, senior India economist at Capital Economics. "They might have a medium- to long-term impact, but it is too early to comment", said Devendra Kumar Pant, chief economist at India Ratings.