Lok Sabha Question No. 2274 (UNSTARRED), answered on 2019-12-02
Subject: Corporate Sector Tax Saving
Ministry: FINANCE
Asked by: K. Shanmuga Sundaram

## Government of India Ministry of Finance Department of Economic Affairs

## LOK SABHA UNSTARRED QUESTION NO. 2274

## ANSWERED ON - 02.12.2019

## CORPORATE SECTOR TAX SAVINGS

## 2274. SHRI SHANMUGA SUNDARAM K. :

Will the Minister of FINANCE be pleased to state:

- (a) Whether the  Government  is  able  to  fulfil  its  commitment  to  meet  the  fiscal  deficit target   this fiscal  despite the  huge  corporate tax cut involving a revenue loss of Rs. 1.45 Lakh crores and the falling indirect tax collections;
- (b) If so, what are the steps taken by the Government to augment the income from other sources;
- (c) The steps taken by the Government to ensure that the corporate sector tax savings is invested in new venture or the companies will declare heavy dividend from the tax saving; and
- (d) Whether the Government will demand the RBI to transfer the interim dividend which was not recommended by the Bimal Jalan Committee after the transfer of surplus reserve of Rs. 1.76 Lakh crores; and
- (e) If so, the reasons thereof?

## ANSWER

## MINISTER OF STATE FOR FINANCE (SHRI ANURAG SINGH THAKUR)

(a) The FD target for 2019-20 has been budgeted at ₹7,03,760 crore (3.3  per cent of the GDP) as per Regular Budget 2019-20. The Government manages its Fiscal Deficit through regular assessment of revenues and expenditure with all the Ministries / Departments of the Government  of  India.  A  half-yearly  review  of  fiscal  deficit  targets  is  undertaken  by  the minister-in-charge  of  the  Ministry  of  Finance  of  the  trends  in  receipts  and  expenditure  in relation  to  the  budget  and  the  outcome  is  placed  before  both  Houses  of  Parliament  as  per Section 7 (1) of the FRBM Act, 2003.

(b) Total  expenditure  for  BE  2019-20  is  estimated  at  ₹27,86,349  crore.    The  actual expenditure in the first half of 2019-20 is 53.4 per cent of BE (₹14,88,619 crore which is the same  as  Comparative  Period  of  Previous  Year  (COPPY)  as  a  percentage  of  GDP.  Total revenue expenditure incurred in H1 of 2019-20 was 53.1 per cent of BE, which is marginally lower  than  COPPY  (53.3  per  cent  of  BE),  implying  that  budget  control  is  being  strictly exercised to ensure that expenditure is kept under control.

Measures for expenditure management -

1. Budget Management: Assessment of Revised estimates for the Budget is being done strictly  factoring  the  unspent  balances  lying  with  Implementing  Agencies.  Budget ceilings will be rationalised on the basis of above.
2. Rationalisation  of  Schemes  through  merger  of  scheme  /  sub-schemes  with  similar objectives within Ministries and across Ministries.
3. Rationalisation  of  Autonomous  Bodies  by  creating  environment  for  increase  in user/Service charges and fees levied by ABs and gradual reduction of GoI support.
4. Cash Management: Ensuring Just in time releases to grantee/Implementing Agencies (IAs) under Central Sector, and Centrally Sponsored schemes.
5. Realistic projection of demands and planning within budget through providing rolling expenditure  allocations  in  the  medium-  term  through  Medium-Term  Expenditure Framework Statement.

(c) The  Taxation  Laws  (Amendment)  Ordinance,  2019  (Ordinance)  promulgated  on 20.09.2019 amended the Income-tax Act, 1961 (the Act) and the Finance (No.2) Act 2019 (the Finance Act) to, inter alia, reduce the corporate tax rates. Section 115BAA inserted in the Act read with section 2 of the Finance Act provides that an existing domestic company may, at its option, pay tax at the rate of 22% plus surcharge at 10% and cess at 4%, if it does not claim  any  incentive  or  deduction.  The  effective  rate  of  tax  for  these  companies  comes  to 25.17%. These companies would also not be subjected to Minimum Alternate Tax (MAT)

Further, section 115BAB has also been inserted in the Act to provide that a domestic company (set up on or after 1st October, 2019) engaged in manufacturing or production of any  article  or  thing,  which  commences  manufacturing  by  31st  March,  2023,  may,  at  its option, pay tax at the rate of 15% plus surcharge at 10% and cess at 4%, if it does not claim any incentive, deduction.   The effective  rate  of  tax  for  these  companies comes  to  17.16%. These companies would also not be subjected MAT.

Also, in order to ease the burden of MAT on the companies which continue to avail incentives, section 115JB of the Act has been amended to reduce the existing rate of MAT from 18.5% plus surcharge and cess to 15% plus surcharge and cess.

The steps taken to reduce corporate taxes as above are likely to increase the profits after tax (PAT) and hence surplus available in the hands of the corporates. This implies that the corporates will have increased surplus to make fresh investments to augment capacity, or to distribute the increased surplus to shareholder in the form of dividends.

- (d) No such request has been made to RBI.
- (e) Does not arise

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