Corporate tax cut: Here's how IT companies will be impacted

Finance Minister Nirmala Sitharaman on Friday announced that the government proposed to cut corporate tax rates to 22 percent for domestic companies provided they will not avail exemptions or incentives and 15 percent for new domestic manufacturing enterprises as part of a raft of measures to boost economic growth.

When you look at the tier-1 IT companies, the only company that is likely to benefit is Infosys which pays a tax rate of about 26-27 percent.

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Secondly, the reversal in the dividend tax. The two companies which could benefit are Infosys and Wipro. Both of them had announced their buyback prior to the budget. They have completed the buyback but they have not paid it. For Wipro, the buyback amount was Rs 10,500 crore. So on that, a 20 percent tax would mean a saving of about Rs 2,100 crore. For Infosys, the buyback amount was about Rs 8,260 crore, so that is about Rs 1,600 crore of saving.

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If you look at the way the stocks have moved, they have reversed all their early gains on Friday. There are two reasons for that. One, the names like Infosys and TCS have done very well recently. Infosys has in fact rallied close to 25 percent since the start of the year and so a lot of money had gone into these IT bigwigs. That money will now move away to domestic companies. Secondly, the INR has started appreciating with these measures. So that is an added negative for the sector.