The beginning of this month, September 2019: The Indian economy is in shambles and investors are fleeing the country, in search of better and greener lands. A plan needed to be devised to curb negativity and to promote consumption and investment.
The current Finance Minister Nirmala Sitharaman, on 20 September 2019, announced in an impromptu move, several tax cuts and incentives to promote business activity and investment.
A crux of all the changes announced is mentioned below:
1. Reduction in corporate tax rate
The basic corporate tax rate was reduced from 30% to 22%, in a move that made the stock market go all crazy. A surcharge of 10% was though chargeable on all companies. This made the effective tax rate as 25.17%. Still a lot lesser than previous times and a big reason to cheer for the Indian economy.
2. Reduction in Minimum Alternate Tax (MAT)
A reduction in the MAT rate was announced from 18.5% to 15%. MAT is the tax that is chargeable on book profits of companies and it is a measure to prevent companies from window dressing the accounts in such a way, so as to avoid income tax.
3. Reduction in Income tax rate for new manufacturing companies
Comapnies engaged in manufacturing activity, incorporated after 1 October 2019, will have an even lower effective tax rate of 17%. 17% is one of the lowest tax rates for companies in the world, bringing it close to Singapore’s corporate tax rate, which is also 17%.
4. No buyback tax on buybacks executed prior to July 5, 2019
Buyback tax was proposed to be charged by the government on the buybacks of shares to prevent untaxed distribution of wealth to shareholders. For all buyback transactions prior to July 5, 2019, the FM announced zero buyback tax. Though this is a move that affects taxation in retrospect and would not cover a large number of transactions, the FM announced this with a view to boost the economy and improve investor sentiment.
Amendments were implemented through an Ordinance
These changes were brought in through an ordinance and not through an amendment (which is the normal route for bringing about these changes). It reflects the sense of urgency in the government regarding the financial situtation in India. The ordinance allows the government to immediately effect the changes, at a time when the parliament is not in session and later bring in a Bill when the parliament is in session.
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