Corporate tax may be cut to 25 per cent for turnover up to Rs 500 cr

New Delhi: The finance ministry is looking at lowering the corporate tax from 30 per cent to 25 per cent for companies having a turnover up to Rs 500 crore from the current limit of Rs 250 crore.

At present companies with Rs 250-crore turnover pay 25 per cent corporate tax while those having revenues over Rs 250 crore pay 30 per cent tax. Though there is a demand for across-the-board rate cuts for businesses, that may not be possible in view of revenue considerations, but the threshold for paying tax can be raised to Rs 500 crore to cover more companies under the 25 per cent corporate tax rates and support the growth of these companies, said a finance ministry official, adding firms above Rs 500 crore could be still paying the existing 30 per cent basic corporate tax.

However, while extending the benefit of lower taxes to a large proportion of companies, the government has left out large corporations from this benefit.

Companies above Rs 250 crore turnover currently pay a basic corporate tax rate of 30 per cent. They also pay a dividend distribution tax at the rate of about 20 per cent. A minimum alternate tax (MAT) of 18.5 per cent is levied on the adjusted profits of companies where the tax payable is less than 18.5 per cent of their book profits. After including surcharges, the current effective corporate taxes are 33.9 per cent for domestic companies and 43.26 per cent for foreign companies. A domestic company has to pay the dividend distribution tax of 15 per cent plus a 12 per cent surcharge and 3 per cent education cess, which translates into an effective rate of 17.304 per cent.

In his Union Budget 2018 speech, finance minister Arun Jaitley had said the government will cut the corporate tax rate to 25 per cent from the current 30 per cent for companies having an annual turnover of up to Rs 250 crore and this would benefit 99 per cent of the firms which file taxes. In the financial year 2015-16, the government had announced a similar tax cut for companies with an annual turnover of up to Rs 50 crore, which benefitted 96 per cent companies which filed their taxes.

The government has a goalpost of a lower corporate tax rate. The government, in its previous budgets, had promised to simplify the corporate taxation regime by eliminating exemptions and deductions and cutting the corporate tax rate from the current statutory 30 per cent to 25 per cent and it has done so, the official said.