Sensex zooms after Nirmala Sitharaman's Rs 1.45 lakh crore tax booster announcement

Nirmala Sitharaman

No stressed MSME to be declared NPA till March 2020: FM

Investor wealth on Friday zoomed a whopping Rs 6.82 trillion in single day as equity markets rallied, with the Sensex skyrocketing 2,284 points in intra-day trade, following a slew of economy-boosting measures announced by Finance Minister Nirmala Sitharaman. The effective rate, including all additional levies, will be 25.2% and applicable on companies that aren't availing any incentives or exemptions.

Banks would be encouraged to include new retail customers for lending, she said.

The government has also introduced Taxation Laws (Amendment) Ordinance 2019 to make certain amendments in the Income-tax Act 1961 and the Finance (No. 2) Act 2019.

Sharing similar views, Ficci said that these announcements will give a major boost to the "animal spirits" of corporate India and will reinvigorate the manufacturing sector that has been going through a hard phase of late.

India has cut its corporate tax rates in an effort to spur investment and boost growth in the country's faltering economy.

"The revenue foregone from the tax rate cut and other relief measures is Rs. 1.45 lakh crore (~0.7% of GDP)". The effective tax rate for these companies shall be 17.01% inclusive of surcharge & cess.

In another relief, the finance minister said listed companies which have announced buyback of shares prior to July 5 will not be charged with the super-rich tax.

"Reduction of corporate tax will bring in overall positivity and growth at the grass root level".

Sitharaman told reporters that the new rates would be "comparable with the lowest tax rates in South Asian region and in South East Asia".

"After the exercise of the option they shall be liable to pay tax at the rate of 22 per cent and option once exercised can not be subsequently withdrawn".

Sitharaman said that to "attract fresh investment in manufacturing and boost Make In India" the tax rate for new companies would be cut to 15 percent from 25 percent, the Press Trust of India news agency (PTI) said.

It might be mentioned that lower corporate tax of 22 per cent will apply to those companies which choose not to take any other exemption or incentives.

The enhanced surcharge shall not apply on capital gains arising on sale of any security including derivatives in the hands of foreign portfolio investors. With GST collections running already below target, this move is likely to cause a fiscal slippage on the government's 3.3% fiscal deficit target for FY20. The high corporate tax rate meant that Indian companies were not competitive and this move helps address this and shall also boost FDI. This is being reflected in the sharp spike in bond yields post the announcement.

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