What is corporate tax?     

Corporate tax is a tax imposed on the net income of the company. Companies, both private and public which are registered in India under the Companies Act 1956, are liable to pay corporate tax.

For Domestic companies

Tax at the rate of 30%.In addition to that, surcharge at the rate of 5% is levied if net income is in the range of Rs 1 crore to Rs 10 crore. If the net income exceeds Rs 10 cr, surcharge at the rate of 10% is levied. Education cess of 3% is levied on the sum of income tax and surcharge irrespective of the level of net income.

For Foreign companies

Royalty or fees received by them in a predefined time-frame are subject to tax at the rate of 50%. Other income or the balance is taxed at the rate of 40%. Surcharge at the rate of 2% is levied if the net income is in the range of Rs 1 cr to Rs 10 cr. If the net income exceeds Rs 10 cr, the surcharge is increased to 5%. Education cess of 3% is levied on the sum of income tax and surcharge irrespective of the level of net income.

Recent update:

On September 20, The government slashed the corporate tax rate to 22% from 30% for existing companies, and to 15% from 25% for new manufacturing companies. Including a surcharge and cess, the effective tax rate for existing companies would now come down to 25.17% from 35%.  

Benefits from tax cut:

The government’s announcement has resulted in a lowering of Rs 1.45 crore revenue for the exchequer. On the tax front, the lowering of the rate has brought India at par with most of the countries in the Asian economy. It is also seen that of the 25000 companies that made a profit in fiscal 2018, around 1000 companies that have a revenue of over Rs 1000 crore fall in the tax bracket of 27+% taxation. The lowering of the rate shall benefit these companies hugely, thereby creating room for private Capex and the distribution of profits to shareholders.

• Boost ‘Make in India’ which attracts investment in India.
• Boost in investment may create more jobs.
• Makes Indian companies competitive.
• Companies may raise incentives to revive consumption.

Impact on various sectors:

Consumer-focused sectors stand to benefit the most. On the other hand, export-linked sectors such as Information Technology, Pharmaceutical would see the least benefit in terms of savings. This is primarily because the companies in these two sectors already enjoy lower effective tax rates.

Below is the summary of sectors which will benefit the most and the least from this tax cut.