TLI staff
Offering a bunch of concessions to boost sagging economy, the Modi 2.0 government has announced lower 15% corporate tax for new domestic companies making fresh investment in manufacturing sector.
Companies registered on or after October 1, 2019 would be eligible for the concessional income tax rate provided they do not claim any other exemptions or incentives.
“In order to attract fresh investment in manufacturing and thereby provide boost to ‘Make-in-India’ initiative of the Government, another new provision has been inserted in the Income-tax Act with effect from FY 2019-20 which allows any new domestic company incorporated on or after 1st October 2019 making fresh investment in manufacturing, an option to pay income-tax at the rate of 15 per cent,” Finance Ministry said in a statement.
The government has brought in the Taxation Laws (Amendment) Ordinance 2019 to amend Income Tax Act, 1961 and effect the lower tax rate.
But given that there is already excess capacity in the market, the move is unlikely to be much of a help to boost GDP which slipped to six-year low of 5 per cent in the April-June quarter of current fiscal. As much as 25-30 per cent capacity in the manufacturing sector is currently going unutilized with low demand locally. Weakening global trade has added to the woes as order for supply from overseas markets has come down.
The inventory pile-up has forced traders and retailers offer deep discounts. The lower Wholesale price index (WPI)-based inflation reflects producers have lost their pricing power. In last August, the WPI-based inflation came in at 1.08 per cent, much lower than 4.62 per cent registered the same month last year.
“Given the stress in the real estate sector and manufacturing sector capacity utilisation hovering in 70%-76% range since FY14, Ind-Ra believes revival of private investment demand will be a long drawn process,” India Ratings and Research (Ind-Ra) recently said in a report.
The Fitch group firm revised downward India’s FY20 gross domestic product (GDP) growth to 6.7 per cent (six-year low) from its earlier forecast of 7.3 per cent.
The consumption demand has been badly hit especially after Modi government’s signature economic reform demonetisation which all of sudden sucked high-value of notes amounting to 86 per cent of total cash in circulation. As money is considered life blood of the economy, ever since the note-ban the GDP has been faltering.
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