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Breaking it down: Corporate income tax rate cuts and what it means

In a mini-Budget of sorts, Finance Minister Nirmala Sitharaman on September 20 announced major changes in corporate income tax rates to revive growth in the broader economy.

Here’s a lowdown.

What has the government done?

The government has slashed the corporate income tax rate from 30 percent to 22 percent for all companies. Inclusive of cess and surcharges the effective corporate tax rate in India now comes down to corporate tax to 25.17 percent.

Newer companies, which are set up after October 1, 2019, will be subjected to an even lower effective tax rate of 17 percent.

For companies who continue to avail exemptions/incentives, the rate of minimum alternate tax (MAT) has been reduced from 18.5 percent to 15 percent.

A higher surcharge, announced in the Budget in July, will now not be applicable to capital gains on the sale of equity made by foreign portfolio investors (FPIs) as well as individuals and other classes of investors.

Also, there will be no tax on buyback of shares by listed companies that have announced buyback plans before July 5, 2019.

How do these rates compare globally?

The new rates bring India closer, in some cases lower, to the rates prevalent in many of the emerging and industrialized countries. The new corporate income tax rates in India will be lower than USA (27 percent), Japan (30.62 percent), Brazil (34 percent), Germany (30 percent) and is similar to China (25 percent) and Korea (25 percent). New companies in India with an effective tax rate of 17 percent is equivalent to what corporates pay in Singapore (17 percent).

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