Corporate tax rate cut to awaken animal spirits of economy : India Inc

Nirmala Sitharaman

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The effective new rate will be 25.2% including all additional levies and is applicable only for companies.

Corporate India welcomed the move as well. The belief is that since they would have that extra amount, private sector investment could get a boost.

Friday's move will make it more tempting for foreign companies operating in China that have been hit by the China-US trade war, which has seen both sides impose tariffs on goods worth hundreds of billions of dollars. These measures are going to cost the government a cool Rs 1.45 lakh crores. The effective tax rate for these companies shall be 25.17% inclusive of surcharge & cess.

"The measures aren't a patchwork but are real agents that will help revive growth", Rajiv Singh, Hyderabad-based chief executive officer at Karvy Stock Broking Ltd. These companies will also not need to pay MAT.

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The effective tax rate will now be 25.17 per cent and 17.01 per cent for existing companies and new manufacturing firms, respectively, provided that they do not claim any exemption under the income tax act. The measure is thus a boost for start ups as well.

"To stabilise the flow of funds into the capital market, it is provided that enhanced surcharge introduced in Budget of July 2019 shall not apply on capital gains arising on sale of equity share in a company or a unit of an equity-oriented fund", Finance Minister added. "The fiscal deficit is a concern but at this time, growth should take priority". However, that does little to assuage market fears, as the government has broken the shackles and gone ahead and is spending.

Rajnish Kumar, Chairman of SBI said that the large reduction in corporate taxes across the spectrum of all companies is perhaps the boldest reform in the last 28 years.

What is also most important that from a sentiment point of view this is a big move. Bond yields have already surged on worries that the fiscal deficit would widen sharply.

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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. Remember, margins of corporates have been badly squeezed.

All sectoral indices, baring IT, closed in the green, with the Nifty Auto outshining others, closing the day with gains of close to 10 percent.

At 11.36 a.m., the Sensex was at 37,639.69, higher by 1,546.22 points or 4.28 per cent from the previous close of 36,093.47 points. On the Nifty 50, Zee Entertainment was the only stock that was down, while the top gainers were Eicher Motors, UltraTech Cement, Maruti Suzuki, Indiabulls Housing Finance and HDFC Bank.

India's GST council may defer or reject tax cuts on products with higher revenue implications.

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