Impact of Corporate Tax Cut on Indian Economy Aarchi, Amartya Saha, Ankita Kumari, Anuradha Padhy, Anuradha Panda

International Journal of Recent Technology and Engineering (IJRTE) ISSN: 2277-3878(Online), Volume-10 Issue-2, July 2021 New Corporate Tax: Impact of Corporate Tax Cut on Indian Economy Aarchi, Amartya Saha, Ankita Kumari, Anuradha Padhy, Anuradha Panda from 18.5% to flat 15%. Now, let us understand what is Abstract: On 20th December, 2019, the Central Government MAT? MAT stands for Minimum Alternate Tax. It is a introduced the Taxation Laws (Amendment) Ordinance, 2019, provision designed to bring zero taxpaying companies into which created a favourable taxing environment for the the ambit of Income tax. There are some companies that do Companies. Through this Ordinance, section 115BAB, which not pay taxes taking advantages of the provisions of the covers all sorts of domestic companies, that is, any company formed and registered in India, was introduced in the Income Tax Income tax act and rules. These companies show the Act which offered a very low tax rate of 15% (17.5% including depreciation rate very high or they make certain adjustment surcharge and cess) to the new manufacturing companies. This in the balance sheet and show very less profit or no profit. So, Ordinance also reduced the Tax rate for domestic companies to to restrict the companies from taking the advantages and 22% (25.17% including surcharge and cess). Additionally under evade the tax, the government charges MAT. the new corporate assessment strategy, new organizations that set up assembling offices in India beginning in October and initiate Moving forward and comparing the tax rate of corporate creation before the finish of March, 2023 will be charged at a in India globally we can conclude from the chart attached viable pace of 17%. This move did cause a rise in the value of the below (Fig 1) that, the new corporate tax rates in India is stock in India, but through this paper, we plan to delve deeper into much lower than USA (27%), Japan (30.62%), Brazil (34%), how this new introduction affected the economy of India – and Germany (30%) and for the new firms the tax rate is ranging from the stock market to the value of rupees against similar as of Singapore (17%). The goal behind this reduction dollar, the idea behind introducing this Ordinance, while also touching upon what is Corporate Tax and the Corporate Tax is to turn India into investor’s hub. system that was present before the introduction of section 115BAB. Keywords: Corporate Tax, Taxation Laws (Amendment) Ordinance, Economy, Stock, Section 115BAB I. INTRODUCTION Recently in year 2019, our honourable Finance Minister Smt Nirmala Sitharaman declared that the government reduced the rate of tax for corporate. In this, paper we will see how this decision impacted the Indian economy, the future policies of government and every other sector. Coming to the point what the Government actually did! The government slashed the corporate income tax rate from 30% to 22% for all Fig 1 companies. If we include the surcharges and cess, the tax rate would come around 25.17%. However for the newer Now the question arises that what is the reason behind this st companies, which are set up after October 1 , 2019 will be decision? In the next few paragraphs we will be elaborating subjected to an even lower rate of tax that is 17%. The next the reasons behind this drastic change. As we all know that very crucial tax cut was on the MAT rate which is slashed India is a growing country. Our growth rate has been constantly increasing. India’s economy is currently going through its worst deceleration in last 6 years. As a result to Manuscript received on June 16, 2021. this, automobile sales have been falling, the manufacturing Revised Manuscript received on June 21, 2021. Manuscript published on July 30, 2021. sector is down and our exports are decreasing whereas * Correspondence Author imports are increasing. Seeing this we can conclude that our Aarchi*, BBA.LLB, KIIT School of Law, KIIT University, economy is crashing and the budget of FY 2019-20 also Bhubaneswar (Odisha), India. Email: [email protected] Amartya Saha, BBA.LLB, KIIT School of Law, KIIT University, increased the rate of surcharges for individual having taxable Bhubaneswar (Odisha), India. Email: [email protected] income from Rs. 2 Crores to 5 Crores and 5 Crores & above. Ankita Kumari, BBA.LLB, KIIT School of Law, KIIT University, So, seeing this decision, the stock market drastically fell. Bhubaneswar (Odisha), India. Email: [email protected] Thus in order to counter this continuous and gradual fall of Anuradha Padhy, BBA.LLB, KIIT School of Law, KIIT University, Bhubaneswar (Odisha), India. Email: [email protected] economy, the government has taken this decision to cut down Anuradha Panda, BBA.LLB, KIIT School of Law, KIIT University, the corporate tax rate. Bhubaneswar (Odisha), India. Email: [email protected] © The Authors. Published by Blue Eyes Intelligence Engineering and Sciences Publication (BEIESP). This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/) Retrieval Number: 100.1/ijrte.B61190710221 Published By: DOI: 10.35940/ijrte.B6119.0710221 Blue Eyes Intelligence Engineering Journal Website: www.ijrte.org and Sciences Publication 44 © Copyright: All rights reserved. New Corporate Tax: Impact of Corporate Tax Cut on Indian Economy Now since the government has taken this decision, so we 115BAB is only applicable for new manufacturing will move forward and discuss that how this decision is going companies and was inserted in the Income Tax Act by The to affect the Indian economy. Below in Fig.2 we have the pie Taxation Laws (Amendment) Ordinance, 2019. Moreover, chart showing the percentage which the corporate tax this section is also only applicable on domestic companies. contributes towards India’s revenue both before and after of To get qualified to pay charge under this segment, the new this decision. assembling organization should be consolidated prior to October 2019 and should begin their creation before March 20232. And in case, a company opts for none of the above, then they can pay their tax at a rate of 30% with a surcharge of 7% or 12% as the case maybe, with a cess of 4%. This includes the companies that are availing exemptions, while all the other three sections call for the companies to not avail any sort of exemptions to be eligible to be taxable under the Fig 2 respective sections. For foreign companies, the tax rate is 40% of any income With this decision the government is losing 145,000 gained from their operations in India with a surcharge of 7% Crores every year, but this attracted the foreign investments or 12%, as the case maybe. And in case of any “Royalty and will help India in the long run. Also, the trade war received or fees for technical services from government or between China and USA gave a golden opportunity to India any Indian concern under an agreement made before April 1, and attracted those companies to India that were suffering 1976 and approved by central government”3, then the rate of from the trade war between US and China. Another important tax is 50% with surcharge. reason behind this decision was that government of India wanted to revive our manufacture sector. B. Tax evasion and tax avoidance Referring to the pie chart we can clearly see the Tax evasion is a criminal behavior wherein an individual difference, that earlier corporate tax was contributing around or element purposely tries not to pay a genuine expense 21% to the revenue while after corporate tax cut, the obligation 4. In simpler terms, tax evasion is when a person percentage of contribution has fallen to 19%. or a corporate body pays less than the amount, they are liable This paper will further deal in depth with impact of this to pay or complete nonpayment of the tax liability. Prime reduction in every major sector and whether this decision as example of such is the Karti Chidambaram case5 and the turned as a boon or a curse in this pandemic situation. blocking of the bank accounts of ByteDance by the Tax authority for alleged tax evasion6. Tax evasion is a crime and II. CORPORATE TAXATION IN INDIA anyone who commits tax evasion shall face criminal charges and may be subjected to fines as well, as mentioned under A. Corporate tax rate Chapter XXII. ‘Corporate tax is the tax which is levied on the income of “The following activities constitute tax evasion under the the domestic and foreign companies that arose in India’1. It is Indian law: levied on both the public and private companies registered 1. Concealing the Income under the Companies Act of 2013. The income of these 2. Claiming excessive expenditure companies is charged under a specific tax rate which is 3. Falsification of accounts regulated by the Income Tax Act, 1961. These rates are 4. Inaccurate financial Statements known as corporate tax rates. For domestic companies, this 5. Not reporting income tax rate is of 4 kinds based on section 115BA, 115BAA, 6. Storing wealth outside the country 115BAB and any other company that do not opt to pay tax 7. Filing false tax returns under these sections. If a company opts to pay their corporate 8. Fake documents to claim exemption7” tax under section 115BA, they shall be charged at a tax rate of If a person or a corporate body does not file their income 25% with a surcharge of 7% or 12%, as the case maybe and a tax returns, then they may be charged with a fine of Rupees cess of 4%.

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