Indian companies have to forego these exemptions to enjoy the $6 billion benefit from lower taxes

Indian companies have to forego these exemptions to enjoy the $6 billion benefit from lower taxes
Finance Minister Nirmala Sitharaman addresses a press conference after a review meeting as MoS Finance Anurag Thakur looks on, in New Delhi.Photo/Kamal Kishore)(
  • Indian Finance Minister Nirmala Sitharaman unleashed a euphoric rally in the country's equity markets with sweeping cuts in corporate tax rates.
  • Hope floats that the profitability of Indian firms will spike due to the government's ₹1.45 trillion stimulus.
  • The benefit to the bottomline of all listed firms in India is estimated at ₹44,000 crore.
Corporate India is celebrating the sweeping tax cuts announced by Finance Minister Nirmala Sitharaman on Friday (September 20). With the latest cuts, the effective corporate tax rate on Indian firms is less than many other countries including Brazil, China, South Africa, Indonesia, Mexico, France, and Korea to name a few.

"With new effective rate of 25.17% tax saving for our sample of 3446 listed companies could at least be ₹44,000 crore (about $6.3 billion), which is a substantial boon corporates waiting for business revival in stressed environment," according to a report by State Bank of India.

However, Indian firms will have to let go of some exemptions and incentives to enjoy lower taxes.

These are the incentives to forego for lower corporate tax rate in India
  1. Special provisions in respect of newly established units in Special Economic Zones
  2. Depreciation
  3. Investment in new plant or machinery in notified backward areas in certain states
  4. Tea development account, coffee development account and rubber development account
  5. Site restoration fund
  6. Expenditure on scientific research
  7. Deduction in respect of expenditure on specified business
  8. Expenditure on agricultural extension project
  9. Expenditure on skill development project
  10. Deduction in respect of certain incomes (section 80H to section 80TT except section 80JJAA)

Indian Finance Minister Nirmala Sitharaman has unleashed the market's animal spirits with a massive stimulus to end the country's economic downturn. The government has given up ₹1.45 trillion in revenue that will leave more money in the hands of businesses to invest and revive the economy.

Stock markets in India are on cloud nine hoping for more profits due to lower taxes. Sensex has jumped over 5%, the sharpest single day in many years. The Bank Nifty, the index of the country's top bank stocks, ended the day over 8% up.

These are the top announcements made by Sitharaman in a press conference that has sparked a historic rally in Indian stock markets.

  1. Firms have an option to pay income tax at 22% if they give up exemptions or incentives.
  2. The effective tax rate will come down sharply to 25.7% boosting profitability of companies.
  3. Any new domestic company incorporated on or after Oct 1, 2019, making fresh investment in manufacturing, has an option to pay income tax at 15%.
  4. Foreign investors have been exempted from the additional surcharge imposed in the latest budget.
  5. Minimum Alternate Tax reduced from existing 18.5% to 15% before surcharge.
  6. No tax on share buybacks announced before July 5, 2019.
  7. Money spent on state-run startup incubators or any central or state government agency will count as CSR.
Here’s what corporate tax rate looks like in different countries around the world

India Inc is going gaga over Nirmala Sitharaman’s corporate tax cuts