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Corporate Tax in India Research Team | Posted On Wednesday, September 25,2019, 05:11 PM

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Corporate Tax in India



Corporate Tax is a direct tax levied by the Government on the income or net profit of a Company. This tax is imposed at a specific rate under the Income Tax Act. Corporates which are incorporated in India, those which earn revenue from India and then do business with it, foreign companies which have permanently established themselves in India, Corporates which have earned the title of Indian resident, just for the purpose of tax payment; all of them pay corporate tax in India.

What is a Corporate?

A corporate entity is an artificial person which has legal rights and duties as per law. It is an independent legal entity which is separate from shareholders.

What is a Domestic Corporation?

A domestic corporation is established in India and is registered under India’s Companies Act 2013. A foreign company is considered to be domestic if the Indian arm’s management and control is based wholly in India.

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Corporate Tax in India

The Government cut corporate tax rates last week to boost the economy, which is in the midst of a slowdown. The corporate tax rate was cut from an effective 35% (with surcharges and cess) to an effective 25.17%. The cut in corporate tax is a structural reform which has long term effects.

See Also: Union Budget 2019: A Tax on the Super Rich

New Corporate Tax Rates applicable from 1st April 2019:

Company Type

Corporate Tax Rate

Corporations not seeking exemptions

Effective corporate tax rate of 25.17%

Corporations  seeking exemptions

Unchanged at 30%

New Manufacturing Companies

Reduced from 25% to 15%

The Government slashed basic corporate tax rate from 30% to 22%. For new manufacturing firms it has been slashed from 25% to 15%. The aim of this move was to boost growth from a 6-year low of 5%. GDP was 5% for the June quarter. This move could cost the Government Rs 1.45 Lakh Crore in lost revenue.

Key announcements on corporate tax:

  • A domestic company pays income tax at 22% if it doesn’t seek tax exemption.
  • An effective tax rate of 25% which is inclusive of surcharge and cess. These companies don’t have to pay MAT. (Minimum Alternative Tax).
  • For new manufacturing firms which are incorporated on or after 1st October 2019, and start production before March 2023, the corporate tax rate has been slashed from 25% to 15%.

Sectors which benefit from corporate tax rate cut:

Auto Sector:

  • Automakers and automobile part manufacturers will benefit from the corporate tax rate cut.
  • Original Equipment Manufacturers or OEMs will pass on the benefits of a corporate tax rate cut to customers buying cars.
  • Automakers who want to start operations in India would benefit from corporate tax rate cut for new manufacturing firms. The rate has been slashed from 25% to 15%.

Maruti Suzuki cuts car prices, days after the government slashes corporate tax.


FMCG (Fast Moving Consumer Goods) companies would enjoy a 5-12% increase in earning after the corporate tax rate cut. FMCG Firms would pass on the benefits to the customers through price reductions. This would boost demand in rural areas. Hotels, logistics and liquor firms would benefit from corporate tax rate cut.

FMCG Companies would:

  • Set up new subsidiaries for capacity expansion.
  • Get third-party manufacturing partners to do the same.

ITC, Nestle, HUL and Britannia would see effective tax rate reducing from 30-35% to 25%. This is retention of cumulative earnings of Rs 2,000 Crores based on FY 2018-19 numbers. 

See Also: Union Budget 2019: Income Tax Changes

Oil & Gas

The oil and gas sector in India was taxed at an average tax rate of 33.4% for the financial year ended March 2019. Based on FY19 tax rates, Oil & Natural Gas Corporation Ltd., Indian Oil Corporation Ltd. and Castrol India Ltd. would save a lot in tax. Lower tax rate means the Companies enjoy higher cash flows for debt reduction and capital expenditure funding.


Corporate tax rate cut is good for construction firms. These Companies would move to the lower 25% tax regime which boosts earnings by 7-12%. Construction firms will see strong cash flows and better working capital.


Banks are a big beneficiary of the corporate tax rate cut. On an average, banks have an average tax rate of 32.5%. A lower corporate tax means improved cash flows, higher return on equity and banks can pass on the benefits of corporate tax rate cut to customers through lower lending rates.

Banks like SBI, HDFC Bank, DCB Bank, Federal bank, IndusInd Bank, Kotak Mahindra Bank and Axis Bank had consolidated tax rate FY19 in the range of 33% to 41%. This would come down to around 25.2%. This would boost lending in India.


Paint companies will benefit from a corporate tax rate cut. They could pass on the benefits to customers through price rate cuts. So, paints will soon be cheap. This would boost demand for paints especially in rural India.

Paint Companies like Kansai Nerolac, Berger Paints, Asian Paints and Pidilite had consolidated FY19 tax rate of 34.5%. The new tax rate of 25.2% means these paint companies can easily pass on the corporate tax rate cut to customers and boost the economy.

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