Of late, the markets have been in turmoil, buoyed by several factors, such as the surcharge introduced by the government in the budget, which has spooked foreign investors, compelling them to sell in massive numbers. Adding to the woe is subdued GDP growth, falling to as low as five per cent, as well as a sudden increase in the price of Brent Crude following the attack on Saudi Aramco's oil plants.
During the press conference held today by Finance Minister Nirmala Sitharaman, the corporate tax rate, amongst other things, has seen a major reduction all the way down to 25.17 per cent (including cess and surcharge) from the previous 34 per cent. Of course, it has come with a clause that no other deduction or incentive can be availed by a company opting for the reduction in the tax rate. For example, Section 35AD of the Income Tax Act allows a company to claim a deduction of capital and/or revenue expenditure up to 150 per cent for starting some specified businesses, such as the cold chain facility.
In line with this, the minimum alternate tax has also been reduced to 15 per cent from the previous 18.5 per cent and new manufacturing entities would see a reduced corporate tax rate of 15 per cent as well. The total loss, as claimed by the government, to the exchequer would be approximately Rs 1.45 lakh crore. This news has been received very well by India Inc., with Uday Kotak stating "Reducing corporate tax rate is a big bang reform. Allows Indian companies to compete with lower tax jurisdictions like the US."
Keeping this in mind, we have tried to gauge the impact of the reduction in the corporate tax rate from 34 per cent to 25 per cent and have taken the BSE 500 as a sample. We have come across that of the 500 companies, 335 companies will benefit. These 335 companies are those that have a five- year median tax rate above 25 per cent. However, we have capped the maximum benefit to eight per cent on a conservative note, owing to the difference between tax and book profits. Another interesting fact is that of the 335 companies, 211 companies are able to benefit 8 per cent. Based on the above calculation, there would be an additional Rs 46,470 crore profit after tax (FY19) for the BSE 500 companies. The following are the top ten companies who would benefit the most monetarily: