Advantage India

New corporate income tax rates shape an attractive investment environment

Winds of change

On 20 September, 2019, Finance Minister, Nirmala Sitharaman announced the largest reduction in corporate income tax (CIT) rates in the last three decades through the Taxation Laws (Amendment) Ordinance, 2019. The announcements now bring India’s corporate income tax rate closer to the worldwide average statutory CIT rate of 23.03%. The corporate tax rate cut makes return on investments made in India attractive. Further, a stable government, a liberal FDI regime and improvement in the ease of doing business rankings indicate that India is fit for future. These favourable factors pave the way for cementing India’s status as a attractive manufacturing destination against the backdrop of existing global trade dynamics.

Implications of the new corporate income tax rate cut

Existing Domestic Companies

Effective CIT rates slashed for existing domestic companies from 34.94% to 25.17% from FY20 onwards.

Minimum Alternative Tax (MAT)

For domestic companies opting for concessional rates, certain exemptions, deductions, allowances (including additional depreciation) will not be available. Minimum Alternative Tax (MAT) will not apply in this case and accumulated MAT credit cannot be utilised.

Manufacturing Companies

For new manufacturing companies, applicable effective CIT rate is 17.16%. No MAT is applicable.

Reduction of effective MAT

Reduction of effective MAT rate from 21.55% to 17.47% for domestic companies not opting for the concessional tax rates. They will continue to enjoy the benefit of specified deductions / incentives, where applicable.

Tax on distribution of profits (DDT)

Tax on distribution of profits (DDT) applicable for new manufacturing companies and other domestic companies.

Ease of doing business in India has improved over the last few years. The country jumped 65 spots in four years from 142 in 2015 to 77 in 2018, as per World Bank’s Ease of Doing Business index.

Increasing India’s competitiveness in the global landscape

At 25.17% (17.16% for new manufacturing companies), India’s CIT rate is competitive when compared with the worldwide average statutory CIT rate. Earlier, India had one of the highest corporate tax slabs (34.94%) among large global economies.

The new CIT rates benefit

  • new business operations being evaluated in the region
  • expansion of existing Indian operations and
  • existing status quo operations.

The corporate income tax rate cut when viewed in conjunction with incentives at the state government level and the indirect tax incentives and schemes, present a favourable investment climate. New foreign investments (including expansion in certain cases) can benefit from incentives provided by various state governments, and an investor may expect some incentive package along with local infrastructure support. Such incentives provided by the state governments are not restricted by the CIT rates.

A stable government, a new CIT rate benefiting business, a liberal FDI regime and improvement in the ease of doing business rankings indicate that India is fit for future. When viewed alongside the country’s young talent pool, and the large unified domestic market, India as an investment destination is an attractive proposition. Given the global trade dynamics, investing in India is a compelling case for a regional or global manufacturing base.

Contact us

Gautam Mehra

Partner and Leader, Tax and Regulatory Services, PwC India

Tel: +91 22 6689 1155

Sanjay Tolia

Markets Leader, PwC India

Tel: +91 22 6689 1321

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