Government announces stimulus to pump prime the economy
The stock markets are witnessing fireworks ahead of the festive season as investors are cheering the fresh stimulus, considered by many as one of the biggest reforms in Indian economy since 1991. Sensex has zoomed more than 1500 points and Nifty has jumped more than 460 points on Friday. Indian rupee has also appreciated smartly against the greenback. Markets have reacted positively to the pump priming by the government with the fiscal measure announcements made by Finance Minister Nirmala Sitharaman in Goa on Friday. The Finance Minister has proposed to slash corporate tax for domestic companies and new domestic manufacturing companies. In an aim to boost the Make in India campaign, the Finance Minister announced several provisions inserted into Income Tax India Act.
Here are the major announcements by the FM –
1. Corporate tax slashed from 30 per cent to 22 per cent without exemptions and 25.17 per cent post surcharge. Earlier the basic rate was 25 per cent which used to touch 29 per cent after all the surcharges.
2. Domestic companies and new domestic manufacturing companies have now been exempted from Minimum Alternate Tax (MAT), giving MAT relief to those opting to continue paying surcharge and cess.
3. Any new domestic company incorporated on or after October 1st, 2019, making fresh investment in manufacturing, shall pay a MAT of 15 per cent. Effective tax rate for these companies shall be 17.01 per cent inclusive of all surcharges and cess. MAT reduced to 15 per cent. Earlier MAT rate was 18.5 percent and that went to nearly 21 per cent after all the surcharges.
4. In order to stabilise the flow of funds in capital markets, increased surcharge in this year’s budget shall not apply on capital gains made through sale of equity share in companies liable for STT in the hands of individual, AOP.
5. Total revenue forgone for reduction on corporate tax and other measures announced is Rs. 1,45,000 crore per year.
In an attempt to pump prime the economy, this fresh stimulus is expected to give demand a new leg-up. With lower corporate tax, the economy is expected to see a growth in investments and that could spur demand across the economy.