A reduction in corporate tax rate has been a long-standing demand of India Inc. Finance minister Nirmala Sitharaman, in her maiden Budget speech, cut the corporate tax rate for companies with an annual turnover of Rs 400 crore to 25 percent.
Currently, only companies with an annual turnover of Rs 250 crore can avail the 25 percent corporate tax rate. The tax rate for all other companies is 30 percent.
“So far as corporate tax is concerned, we continue with the phased reduction in rates,” said Sitharaman in her speech. “I propose to widen this to include all companies having an annual turnover of up to Rs 400 crore. This will cover 99.3 percent of the companies. Now only 0.7 percent of companies will remain outside this rate.”
The move is largely a damp squib for the corporate sector. The demand has been for an across the board cut of the corporate tax rate to 15 percent. While it is true that a majority of companies fall under the Rs 400 crore turnover line, the 25 percent rate in itself would be on the higher side for some companies.
Add to that the exception was that a cut will be applicable to all corporates. So the large-cap companies, the ones that comprise of a bulk of the listed blue chips, would be excluded and will continue to pay 30 percent.
According to Vivek Jalan, co-founder, Tax Connect Advisory Services, “Reduction of the corporate tax rate to 25 percent to all companies with turnover of up to Rs 400 crore will give a boost to the industry. However, it was expected that such relief would be spread across all corporates which is a small dampener.
Rahul Garg, senior tax partner, PwC India also has the same view. “It was expected that corporate tax would have been made more competitive for all businesses, he said.
However, companies can take heart from the FM’s comments on continuing with the phased reduction in rates, which could signify that this government could adopt the strategy of a phased cut in corporate rate over a period of time.
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