The benchmark index posted its biggest intraday gain in more than a decade to end more than 5% higher. Also, such companies would not be required to pay Minimum Alternate Tax. NDTV delivers reliable information across all platforms: TV, Internet and Mobile. The effective tax rate for such companies will be 17.16%.
The government has given a major booster dose to the market by deciding not to levy the enhanced surcharge introduced in the budget on capital gains arising from the sale of equity shares in a company liable for a securities transaction tax.
Total revenue foregone for the reduction in corporate tax rate and other relief are estimated to be at 1.45 lakh crore rupees.
Starting from the current fiscal year, any domestic company has the "option to pay income tax at the rate of 22%" as long they do not seek any special tax incentives, the minister said in the western city of Panaji where officials are also considering lowering sales tax on 20-25 products.
By slashing corporate tax rate to 25 per cent from 35 per cent (22 per cent from 30 per cent without exemptions) for existing domestic companies and an extremely attractive rate of 15 per cent for new companies setting up manufacturing operations after October 1, 2019 and commencing operations before 2023, government has rolled out a red carpet that would ensure hundreds of billions of dollars of FDI and FII flows over the medium term.
SBI chairman Rajnish Kumar, said: "The large reduction in corporate taxes across the spectrum of all companies is perhaps the boldest reform in the last 28 years".
-A domestic company which does not opt for the concessional tax regime due to existing exemptions or incentives will pay tax at the rate of 34.94% or 29.12%.
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Meaning, the effective tax rate for new manufacturing companies will be 17.01 percent inclusive of all surcharge and cess.
She said that no tax will be charged on share buyback by listed companies that announced such a move prior to July 5.
"As well as providing instant EPS upgrades, these tax cuts should provide a boost to business confidence and investment and will create a tailwind for Indian equity performance for the remainder of the year", said Ross Cameron, head of Northcape Capital Ltd.'s Japan office in Tokyo.
The broader BSE midcap and smallcap indices followed the benchmarks, surging up to 6.28 percent.
According to experts, rate cut hopes and a slew of measures taken by the government to boost the ailing economy has boosted investor sentiment. "We are confident this step, in coming days, will boost economic growth so that GDP can attain its true potential of 8-9 per cent".
RBI Governor Das said on Thursday there is more room for interest rate cuts to spur the country's economic growth. It signals that the government is committed to economic growth and supports legitimate tax abiding companies. "There will be no MAT levied on them and the effective tax rate for such firms will be 25.17%, including all surcharges and cess", the Finance Minister said. A bold, progressive step forward, he said.