The mini-budget of tax measures came just a day after the Centre announced credit carnivals in 400 of the 731 districts in the country to re-ignite the consumption demand.
At 2:00 pm, the Sensex was at 38,313.65, higher by 2,220.18 points from the previous close of 36,093.47 points. The rupee rose as much as 0.9% to 70.68 against the dollar, its strongest since August 9. GST on hotels charging Rs 1,001 to Rs 7,500 per night per room has been brought down to 12% from current 18%, she said.
Foreign firms that have Indian subsidiaries or joint ventures with Indian companies would also enjoy the lower corporate tax rates, Sitharaman said. The effective tax rate for existing units, after considering surcharges and cess such as Swachh Bharat cess and education cess - which are levied on top of the income and corporate tax rates, will be 25.17 per cent as compared to 34.94 per cent now.
The MAT clause will be waived for the new companies as well. The company is required to pay the higher of the sums calculated under the MAT formula and the income-tax calculations. This benefit is available to companies which do not avail any exemption/incentive and commences their production on or before 31st March, 2023. Officials said the revenue impact on account of the tax cut has not been estimated as the tax cuts applied to several industries. "It will give a great stimulus to #MakeInIndia, attract private investment from across the globe, improve competitiveness of our private sector, create more jobs and result in a win-win for 1.30 billion Indians", he said on Twitter.
"Today, we propose to slash the corporate tax rates for domestic companies and also for new manufacturing companies".
"A new provision has been inserted in the Income Tax Act from financial year 2019-20 (beginning April 1) which allows any domestic company an option to pay income tax at the rate of 22 per cent subject to the condition that they will not avail any exemption or incentive", Sitharaman told the media ahead of a GST Council meeting in Goa.
Though the loss in gross tax revenue would be Rs 1.45 trillion, the Centre's net loss would be almost Rs 84,000 crore, as 42 per cent of the loss would be borne by the states.
Similarly, the rupee surged by 66 paise against the USA dollar to 70.68 soon after the announcement before closing at 70.94, a gain of 40 paise.
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"India Inc. looks forward to a roller coaster festive season tax bonanza to ride the tide of positive sentiments". On the other hand, TCS and NTPC were trading in the red.
The latest round of tax cuts may also be underwhelming for the economy, said Shilan Shah, senior India economist at Capital Economics.
"This is a significant move by India to reassure the business community that the Modi government is not hostile to their interests", said Sadanand Dhume, a resident fellow at the Washington-based American Enterprise Institute.
Amit Shah said the Modi government is committed to making India a manufacturing hub and slashing corporate tax rates would make the country's markets "much more exciting" for potential investors.
The budget had put fiscal deficit at 3.3 per cent of the GDP. A measure of banking stocks climbed 7 per cent, the most in six years, boosted by private sector lenders ICICI Bank and HDFC Bank.
The 10-year benchmark bond yield rose to 6.84% from 6.57% before the finance minister's announcements.
Sitharaman ducked questions about the fiscal deficit at her news conference.
She said that no tax will be charged on share buyback by listed companies that announced such a move prior to July 5.