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Corporate Tax

Corporate Tax Cut And Its Impact On Share Market

Amid growing concerns over the economic slowdown, Union Finance Minister Nirmala Sitharaman on Friday announced a tax exemption at the GST Council Meet.

Nirmala Sitharaman proposed to reduce the corporate tax for domestic companies and new local manufacturing companies through an ordinance. Here we will discus how it will impact in Indian economic.

What Is India’s Biggest Revenue Source?

As we see above diagram Indian govt have 8 major source where earn revenue, For example, suppose govt earn Rs. 1 and there sources are 21 paise from corporation, 20 paise from borrowings and liabilities, 4 paise from custom, 3 paise from non- debt capital receipts, 9 paise from non- tax revenue, 19 paise from GST and other tax, 16 paise from Income tax and 8 paise from excise duties.

Above the source we have seen corporate sector is the largest sector where government earn highest revenue and playing a major role toward the indian economy.

According to the 2019 budget 69% revenue come from direct or indirect tax among that corporate tax are higher any other tax.

The Major Decisions

According to the taxation lows thought ordinance announce that corporate tax rate has slashed to 22% from 30%. While for new manufacturing companies it has been cut down to 15% from 25%. Due to rate cut govt will lost 145000 cr,

Effective tax rate 25.17% inclusive of all surcharges and cess for such domestic companies. Such company also not require to pay minimum alternative tax.

For new manufacturing companies that started production before March 2023, and incorporated on or after 1st October 2019, corporate tax rate brought down to 15% from 25%. The effective tax rate after surcharge and cess will be  17%.

Corporate Tax

Corporation tax popularly known as a corporate tax is a direct tax levied on the net income or profit that corporate enterprise make from their business.

The tax is imposed at a specific rate as per the provision of the Income Tax Act 1961.

Why Government  This Decision?

Government mainly focusing on ‘Make in india’ and improve domestic companies and want to take advantage trade war between US and China. US trying to shift US companies from China to other countries hopping more trade war between US and China. Now not only US company removing their companies from China other countries also shifting their company to another country.

India was expecting to take advantage trade war between US and China but due to the high corporate tax major companies are shifted to south koria, vietnam thailand because of low interest rate. So indian govt took that decision to motivate the company for invest in India.

Above the data chart we can see india has reduce the corporate tax comparatively other countries. And hopping that the companies will invest in india and their will be more job opportune and which is currently loss of 145000 cr. it will be recover very soon.

Why Minimum Alternate Tax (MAT) Reduce?

The FM also reduced MAT from the present rate 18.5% to 15 %. Giving relief to those company that will continue to avail of incentives and exemptions.

The Objectives of Levying MAT

MAT is a tax provision designed to bring zero tax paying company in to income tax net. Taking advantage of various provision of the income tax act. Such as exemptions, deduction, depreciation, and the like many companies are able to reduce their tax and liabilities.

Other Announcement

Enhance surcharges introduced bu finance Act 2019 shall not apply to capital gain arising on sale of equity share in a company / unit of equity oriented fund. Or unit of business trust liable for securities transaction tax, the FM announcement.

Enhance surchages shall not apply to capital gain  on sale of any securities. Including derivatives in the hand of Foreign Portfolio Investor (FPI).

Relief to listed company which have already made a public announcement of buy back before 5th July 2019. No tax on buyback of share in case of such companies.

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About Dwipen Gogoi

Dwipen Gogoi, MBA (IB and IT) and PGDFT from Pune. (Technical Analyst of AliceBlue) I am a You Tuber, Blogger and doing Technical Analysis last 10 years in Stock, Commodity and Forex Market. i am creating various trading strategies for day traders, swing traders, scalp traders.

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