India’s economic growth is sitting at a six-year low of 5% in the April-June quarter of the current Fiscal year (FY) and the government has taken a series of steps to boost nation’s lame economy. This means that India’s Gross Domestic Product (GDP) growth slumped to 5% in April-June quarter, lowest in 25 quarters, triggering downgrades in the estimates for the full year.
However, the government announced a slew of measures in three dosages which include real estate, export incentives, bank consolidation and sops for Micro, Small and Medium Enterprises (MSMEs) and the automobile sector. The first set of announcements was made on August 23 that included rollback of the enhanced surcharge imposed on foreign portfolio and domestic investors in Budget 2019-20. Finance Minister Nirmala Sitharaman had in her first Budget raised the surcharge on income tax paid by super-rich individuals.
The surcharge, levied on top of the applicable income tax rate, was hiked from 15 per cent to 25 per cent for those with a taxable income of ₹2-5 crore, and to 37 per cent for those earning more than ₹5 crore. This increased the effective tax rate for these two groups by 3.12 per cent and 7 per cent to 39 per cent and 42.74 per cent, respectively. It was followed by announcement with regards to consolidation or merging of 10 public sector banks (PSBs) into four on August 30.
According to the consolidation exercise, United Bank of India and Oriental Bank of Commerce are to be merged with Punjab National Bank, making the proposed entity the second-largest Public Sector Banks (PSB). Syndicate Bank is to be merged with Canara Bank and Allahabad Bank will be merged with Indian Bank. Andhra Bank will be merged with Corporation Bank and Union Bank of India.
This would be the second round of consolidation of PSBs. Earlier this year, State Bank of India had consolidated with it’s five associate banks and the Bharatiya Mahila Bank to form the biggest public sector lender. In another merger, Bank of Baroda had taken over Dena Bank and Vijaya Bank.
In order to promote growth and investment, a new provision has been inserted in the Income-tax Act with effect from 2019-20, which allows any domestic company an option to pay income tax at the rate of 22% subject to condition that it will not avail (of) any exemption/incentive. The effective tax rate for these companies shall be 25.17%, inclusive of surcharge and cess. Also, such companies shall not be required to pay MAT. New investments in SEZs on or before March 31, 2020 could be attractive whether or not the tax holiday benefit is availed of, with the reduced corporate tax rate of 15% for manufacturing companies and 22% for other segments.
The Government has also cut the corporate tax rates in an effort to promote growth and investment in the country’s dwindling economy. Finance Minister Nirmala Sitharaman said the base corporate tax rate would be lowered to 22% from 30%. The surprise move triggered a stock market rally, with the Sensex index jumping 4.5%.