What's New :
12th April 2022 (7 Topics)

Concessional tax rate regime


The corporate tax rate for all existing companies (manufacturing and non-manufacturing) was cut to 22 per cent (without surcharge and cess) from 30 per cent.


The new corporate tax regime

  • Under the new regime introduced in September 2019, a tax rate of 15 per cent was announced under Section 115BAB for newly incorporated domestic companies
  • This make fresh investment by March 31, 2023, for manufacturing, production, research or distribution of such articles or things manufactured.
  • This was extended by one year in this year’s Budget to March 31, 2024.
  • In both cases, choosing the concessional tax rate means companies cannot avail exemptions, deductions or incentives provided under the old tax regime.

Corporate tax in India:

  • Corporate tax is the tax which is levied on the income of the domestic and foreign companies that arose in India.
  • It is levied on both the public and private companies registered under the Companies Act of 2013.
  • The rate at which the tax is imposed as per the provisions of the Income Tax Act, 1961 is known as the Corporate Tax Rate.
  • The Taxation Laws (Amendment) Bill, 2019 caused a reduction in the base corporate tax rate, that is, from 30 percent to 22 per cent for the existing businesses which led to revenue inference of INR 1.45 Lakh Crores.
  • While, in case of new manufacturing firms that have been established post 1st October, 2019 and prior to 31st March, 2023, the base corporate tax was reduced from 25 per cent to 15 per cent.
  • According to reports, the corporate tax rates in India stand the lowest among other nations across the globe and the impact will be visible in the Indian economy in the upcoming years.
  • This strategic action could possibly enhance the comparative adversaries of India’s corporation tax rates with other Asian nations.
  • The new corporate tax rates in India is much lower than USA (27%), Japan (30.62%), Brazil (34%), and Germany (30%) and for the new firms the tax rate is similar as of Singapore (17%).

Corporate Sector:

  • A corporate is an entity that has a separate and independent legal entity from its shareholders. Domestic as well as foreign companies are liable to pay corporate tax under the Income-tax Act.
  • While a domestic company is taxed on its universal income, a foreign company is only taxed on the income earned within India i.e. is being accrued or received in India.
  • For the purpose of calculation of taxes under Income tax act, the types of companies can be defined as under:
    • Domestic Company: Domestic Company is one which is registered under the Companies Act of India and also includes the company registered in the foreign countries having control and management wholly situated in India. A domestic company includes private as well as public companies.
    • Foreign Company: Foreign Company is one which is not registered under the company’s act of India and has control & management located outside India.

Benefits of corporate tax rate cut

  • The benefits are immense, as for every rupee of profit a company makes progressively, it has more with itself to invest or pass on to consumers through price cuts.
  • It might expand the corporate universe as new firms will now be taxed at 15 per cent.
  • The present tax cut can help revive economy, boost tax collections and compensate for the loss of revenue.
  • The big boost to shareholder value is unmistakable and the equity market showed its appreciation by surging the most in a single day in over a decade.
  • It can make India more competitive on the global stage by making Indian corporate tax rates comparable to that of rates in East Asia.
  • Thus India is likely to attract investors from across the globe as lower tax outflow could increase the share of profit making companies in India over time.
  • Above factors will generate more employment and will help increase the purchasing power of the people thereby boosting sales which have been hit in major sectors like automobile sector.
  • It will give boost to government initiatives like Make in India, Startup India etc. which had taken a hit in the past couple of years.

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