Corporate tax rates slashed for domestic companies: Sitharaman

Investors react as they watch the stock prices on a digital screen at BSE building in Mumbai Friday Sept. 20 2019. Sensex surges 1,921.15 pts to end at 38,014.62 Nifty zooms past 11,200 after Finance Minister Nirmala Sitharaman announced a slew

The effective new rate will be 25.2% including all additional levies and is applicable only for companies. But now it appears that the Finance Minister believes even perpetual deficits are sustainable, but first the economy should expand faster than the national debt.

"The step to cut corporate tax is historic". Major foreign companies, however, tend to be incorporated in India, and so would be eligible for the lower corporate tax rate. "It will arrest the downtrend in sentiment, and auto companies are among the highest tax payers, so this will help some of the sectors that have been worst hit recently". Yet, Sitharaman indicated with certainty that a little deviation won't be ruinous and may be it was thrift - not spendthrift - that sleepwalked us into a slowdown.

"The downside to this tax reduction is clearly lower tax revenue, although hopefully the volume will eventually offset the decline of the rate".

The risk India will miss its fiscal deficit target of 3.3% has increased significantly as tax revenue growth is already weak, ratings agencies and economists said.

Investor wealth on Friday zoomed a whopping Rs 6.82 trillion in single day as equity markets rallied, with the Sensex skyrocketing 2,284 points in intra-day trade, following a slew of economy-boosting measures announced by Finance Minister Nirmala Sitharaman. Nifty market cap was up at Rs 2.5 lakh crore. "FM was also unable to justify the fiscal concerns, thus the 10-year yield surged almost 25 bps keeping rupee gains under check", said Rahul Gupta, Currency Research Head, Emkay Global Financial Services Ltd. This is being reflected in the sharp spike in bond yields post the announcement.

Perhaps, for the first time, the government is also offering companies a Do-It-Yourself tax policy.

"After the exercise of the option they shall be liable to pay tax at the rate of 22 per cent and option once exercised can not be subsequently withdrawn".

The effective tax rate for these companies shall be 25.17 per cent inclusive of surcharge and cess.

India cut corporate tax rates on Friday in a surprise move created to woo manufacturers, revive private investment and lift growth from a six-year low that has led to major job losses and fueled discontent in the countryside. These measures are going to cost the government a cool Rs 1.45 lakh crores.

According to her, no country can counter China's sheer size except India.

Also, the super-rich tax will not apply on capital gains from sale of any security including derivatives in hands of foreign portfolio investors.

Finance Minister Nirmala Sitharaman after meeting of 37th GST Council meeting in Goa.

"Markets gave complete thumbs up to the decision as it is expected to give much room for corporate India to reinvest the money into building capacity and fuel growth for the long term while providing immediate support to its waning earnings in the near term", said Narendra Solanki, Head Fundamental Research (Investment Services) - AVP Equity Research, Anand Rathi Shares & Stock Brokers.

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