Corporate tax cuts: Modi government's strike on bears

Union Finance Minister Nirmala Sitharaman during the Goods and Service Tax council meeting in New Delhi

Government slashes corporate tax for domestic companies

In a major fiscal booster, the government on Friday slashed effective corporate tax to 25.17 percent inclusive of all cess and surcharges for domestic companies. Nifty registered its biggest single-day gain in 10 years. NDTV delivers reliable information across all platforms: TV, Internet and Mobile.

On the flip side it will negatively impact the bond market as the revenue forgone due to the tax rate reduction will make it hard to stick to the gross fiscal deficit/gross domestic product budgeted target.

The government also announced rollback back of higher surcharge on capital gains on the sale of equity announced in Budget for individuals, HUFs, Association of Persons (trusts).

The key takeaways from the finance minister's announcements and the ordinance that followed are as under: - An option to pay corporate tax at a reduced rate of 22% is provided to every domestic company, irrespective of the turnover, subject to the condition that no incentives or exemptions are availed.

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Domestic companies will pay 22% tax on their income from April 1, 2019, versus 30% previously, Finance Minister Nirmala Sitharaman said Friday. Woven and non-woven polythene bags will now attract a uniform tax rate of 12%, the finance minister said.

Sitharaman further said companies can opt for lower tax rate after the expiry of tax holidays and concessions that they are availing now. "The new rates simplify the tax architecture and it will give a fillip to investments and jobs", he told Reuters.

Goa: Hours after announcing major corporate tax cuts, Finance Minister Nirmala Sitharaman on Friday said that the Goods and Services Council (GST Council) has made a decision to further slash the tax rate on hotel tariffs.

For hotels, Sitharaman announced that rooms which cost Rs 1,000 to Rs 7,500 per night, will now levy a tax of 12 per cent rather than 18 per cent, while the rooms which charge more than Rs 7,500 will now levy 18 per cent tax, down from 28 per cent. On the other hand, surcharges on income tax would be eased out too, she hinted, in response to a query.

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India's economic growth is sitting at a six-year low and the government has taken a series of steps to boost the economy. He said that this is a big step and all sectors will benefit from it.

"These are definitely very bold and welcome measures", he said at a forum.

In yet another move to revive its sluggish economy, India's government has significantly reduced corporate taxes, seeking to boost investment in a business sector plagued by slowing demand, trade concerns and record-high unemployment. The rate is now 40%, according to Deloitte. The rupee too appreciated 66 paise to 70.68 against United States dollar following the finance minister's announcements.

The liberal cuts of nearly 10 per cent on corporate tax rates for both existing and also new manufacturing companies would surely have an impact on the fiscal deficit for the current year.

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The government's growth support measures, announced in fits and starts over the last one month, supplement the RBI's generous dose of monetary stimulus.

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