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Tax S(h)avings

The BFSI sector is the biggest gainer from the recent cut in corporate tax rates

Tax S(h)avings

Illustration by Raj Verma

In the fourth tranche of measures announced to tackle the economic slowdown, corporate tax rate for domestic companies that do not avail of any tax incentive has been slashed to 22 per cent from 30 per cent (or 25 per cent) earlier. Effective corporate tax rate after surcharge now amounts to 25.17 per cent. A CARE Ratings study looks at the impact of this new tax regime on 2,337 companies from a sample of 3,170 companies which had positive profit before tax (PBT) in FY19.

The cumulative PBT of these companies were about Rs 8.84 lakh crore and the total tax paid was Rs 2.37 lakh crore with an effective rate of 27.5 per cent for FY19. Of these, 1,192 companies paid taxes at a rate higher than 25.2 per cent. If these companies had paid tax at 25.17 per cent, the industry would see savings of Rs 41,555 crore. The big gainers would have been banking, financial services and insurance (BFSI) companies. These companies account for 42.5 per cent of the total savings at Rs 17,679 crore, followed by iron and steel, FMCG and mining with a share above 5 per cent.


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