In an iconic move, the Finance Minister slashed corporate tax rates for domestic companies. This step is expected to reduce India’s financial burdens and increase employment, reviving our economy's waning spirits.
India Inc. received a big bonus with the corporate tax rate being slashed from 30% to 22%. The effective tax rate after surcharge is now 25.2% from 35%, a corporate tax saving of upto 28%. Manufacturing companies set up after 1st October will have an effective tax rate of 17%. MAT has been reduced to 15% from 18%.
The direct impact, it is earnings accretive on corporate bottom line. Also, there will be a lesser incentive to expense capital expenditure now. The benefits will also percolate into spending either to improve offerings or reduce product prices. This has an ability to propel growth and move on from the current slowdown. Otherwise, these excess profits can be used to pay more dividends to shareholders. The Government has foregone INR 1.45 trillion of revenue but ensured that more money stays with the corporates. This has empirically deployed capital more efficiently. This tax rate makes India a more competitive destination in comparison to other large economies for FDI.
There could be a medium-term impact on the fiscal deficit but it has definitely bolstered investor confidence. It’s been a great move in the right direction along with a slew of other measures from the finance minister.
To keep the liquidity flowing, the FM also encouraged banks to increase lending to small businesses and retail borrowers to promote spending ahead of the final quarter of the festive season.