A government panel has recommended cutting the corporate tax rate to 25% from 30% for all companies and scrapping surcharges on tax payments, an official said on 20 August 2019, part of a major overhaul of the six-decades old tax act. India has one of the highest corporate tax rates in the world even after Finance Minister Nirmala Sitharaman this year cut the rate to 25% from 30% for companies with annual sales of up to Rs 400 crore.
- The panel headed by Akhilesh Ranjan, a member of the central board of direct taxes, delivered its report to Sitharaman. It was not made public and a finance ministry spokesman declined to comment on its contents. A finance ministry source who reviewed the report said it recommended an overhaul of the Income Tax Act.
- The committee has said the government should move away from surcharges on income and reduce corporate tax to 25%.
- India imposes a 30% corporate tax rate on domestic companies and 40% on foreign firms, plus a 4% health and education surcharge on total tax payments.
- It also charges a surcharge of 12% for domestic companies and 5% for foreign companies if their taxable income exceeds 100 million rupees, according to Deloitte, a global tax consultancy.
- The panel was formed in 2017 and tasked with bringing the income tax law in line with other countries, and incorporating best practices according to the needs of the economy.
- The finance ministry will study the report before taking a decision on its recommendations, the ministry source said, adding that they may be included in the government's 2020/21 budget proposals.
What is Corporate Tax?
- A corporate tax is a levy placed on a firm's profit by the government. The money collected from corporate taxes is used for a nation's source of income.
- A firm's operating earnings are calculated by deducting expenses including the cost of goods sold (COGS) and depreciation from revenues.
- Then, tax rates are applied to generate a legal obligation the business owes the government. Rules surrounding corporate taxation vary greatly worldwide, but they must be voted upon and approved by a country's government to be enacted.