Rs 1.46 trillion tax cut in India to boost business sentiment

The market splurged with a thumbs-up as it got a boost from a slump and India Inc delightfully saw the changes as the government on Friday concluded to launch a concrete bid to tackle the slowdown of the languishing economy.

Finance Minister Nirmala Sitharaman on Friday roved the corporate tax rate to 22% from 30% in the arena of domestic companies ahead of the GST council meeting. Thriving to give a face-lift to the business sentiments and spur investments, the Finance Minister proposed a competitive 15% rate for new investments in manufacturing.

In effect, Nirmala Sitharaman laid down the figures of Rs 1.46 lakh crore fiscal boost signalling government to take the needful steps. This corporate tax cut for domestic firms came to the orders when the government released a statement of estimated revenue of Rs 1.46 lakh crore. Hence, the effective tax rate for the companies would be 25.17% inclusive of all surcharge and cess.

The biggest single-day gain in a decade was observed by BSE benchmark Sensex as the sentimental boost and potential impact on investments overshadowed fiscal concerns. Nevertheless the tax cut, the company would undoubtedly be eligible for the new tax rate only if they forego incentives and exemptions in force while the minimum alternate tax(MAT) was cut to 15% from 18.5%.

“To meet a situation of extreme urgency or unforeseen contingency in any particular case, Rule 12 of the Government of India (Transaction of Business) Rules, 1961, empowers the Prime Minister to permit or condone a departure from these rules, to the extent deemed necessary,” quoted the Handbook on Writing Cabinet Notes, prepared by the Cabinet Secretariat.

This big slash of tax cuts is put in force as a major intention of stoking economic growth that faced abruption to 5% in the quarter-end of June pacing really slow in the last six years. The background has been well prepared for the repercussions of this step in advance while the proposal was kept under the sheets for weeks. The government has been quite conscious of the steps they have been taking for making it up through an efficient revenue collection.

People also passed on hints that the fiscal-deficit could be readjusted but the budget target is yet to remain as 3.3% of the gross domestic product and is no way near 4%.

“The government is willing to adjust the numbers, but one should not underestimate this government’s capability to undertake efficiency measures on the expenditure side. People know how this government used Aadhaar to check any revenue leakages in flagship schemes such as MGNREGA. The government will control wasteful expenditure and enforce compliance to collect revenues,” the person quoted above said.

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