Here's how Indian companies can halve their effective tax rate

• Any new domestic company incorporated on or after Oct 1, 2019, making fresh investment in manufacturing, has an option to pay income tax at 15%.
• The effective tax rate on Indian companies will be about 17% once the surcharge is added.
• This is the biggest tax reform in India in many years and as big as the one rolled out by Donald Trump in US in 2017.

The Indian government's ₹1.45 trillion stimulus has sparked a historic rally in Indian markets. The sweeping cuts in corporate tax rates in India will boost profitability for all Indian firms. Not just that, any company in India can bring down its tax liability to half.

Finance Minister Nirmala Sitharaman said that any new domestic company incorporated on or after October 1, 2019, making fresh investment in manufacturing, has an option to pay income tax at 15%. The effective tax rate will be 17.01% once the surcharge is added compared to the nearly 35% that is the rate currently. The only condition is companies will have to give up exemptions and incentives.

One can set up a new subsidiary and avail the new tax rate, Sudhir Kapadia, partner at EY, told a television channel. The only condition is that it has to be fresh investment. "This is as big as the tax reform in US in 2017," Kapadia added referring to the massive tax cuts announced by Donald Trump after he took over as American President.

This will provide an incentive for companies to route their fresh investments into new companies and the government would hope that this will generate more employment.

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