Budget 2020 sees corporate tax reduced to 22% from earlier 30%

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Union Finance Minister Nirmala Sitharaman presented her second budget on Saturday. Ahead of the budget, there were great expectations from her to deliver on Narendra Modi’s vision of a $5 trillion economy. As such, the provisions in the budget regarding corporate taxes are crucial towards achieving that objective.

In tune with the Corporate Tax cuts announced in September 2019, Nirmala Sitharaman on Saturday announced proposed reduction of tax rates on cooperative societies to 22 per cent plus surcharge and cess, from 30 per cent at present.

In addition, Nirmala Sitharaman also announced the abolition of Dividend Distribution Tax(DDT), pegging the revenue forgone due to its removal at Rs 25000 crores. The Finance Minister said that the removal of DDT will encourage corporates to invest more.

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Defending the loss of substantial revenue due to corporate tax slashed in September 2019, the Finance Minister Nirmala Sitharaman assured that the recent loss of government treasury will reap huge returns in due course. “Corporate tax cut and benefit derived by new companies, as well as improved GST collections will improve revenue generation & give the comfort to bring down fiscal deficit next year, with disinvestment too improving,” Sitharaman said.

The measures announced in the budget are consistent with the trajectory of the second term of the Narendra Modi government. In September, last year, Corporate Tax Rates were slashed by a significant degree in order to boost the economy. In a bid to give an impetus to the ‘Make in India’ campaign, a provision was inserted in the Income Tax Act with effect from 2019-20 which allowed new domestic company incorporated after 1st October 2019 to make fresh investment in manufacturing with an option to pay income tax at the rate of 15%.

Sitharaman had also announced that domestic companies can also pay income tax at the rate of 22% if they do not avail any incentive or exemptions. Following the move, the effective tax rates for these companies, including surcharge and cess came down to 25.17% from earlier 35%. To provide relief to companies availing of concessions and benefits, the FM had brought in a MAT relief by reducing it from 18% to 15%.

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