Stocks

Cos with high tax incidence to gain most

Srividhya Sivakumar | Updated on March 12, 2018

Even as the Finance Minister raised the Minimum Alternate Tax on booked profits to 18.5 per cent from 18 per cent, he brought relief to a wider universe of companies by lowering the surcharge on income-tax.

The surcharge levied on corporate tax paid by companies has now been lowered to 5 per cent from the earlier 7.5 per cent. The move would help reduce the tax liability of India Inc by roughly 77 basis points.

Marginal Impact

The relief on the tax outgo, however, would not be very significant.

For instance, the drop in surcharge would lead to a lowered tax outgo of roughly over Rs 2,400 crore for CNX 500 companies on their FY10 numbers. This is roughly about 0.7 per cent of the total profit before tax reported by these companies last year.

So while the tax savings would go straight to the bottom line, its impact on the companies' profit margins would only be marginal.

For domestic firms earning a total income of over a crore a year, the tax incidence from the next fiscal would drop to 32.45 per cent from the current 33.22 per cent.

Incidentally, only last year the surcharge had been lowered from 10 per cent to 7.5 per cent. In contrast to this, the tax liability for MAT companies would increase marginally to 20.01 per cent from 19.93 per cent due to the hike in MAT rates.

Note that domestic firms earning total income of over a crore in a year have to pay corporate tax of 30 per cent. Aside of the corporate surcharge, an education cess of 3 per cent is also imposed on companies.

Not much relief

There may be some companies with a high tax incidence that would gain more substantially from these provisions, however.

For instance, while the PSU bank major State Bank of India would save about Rs 110 crore from this move, for the mid-sized private manufacturer of tyres, Apollo Tyres, the tax relief would only be about Rs 3.3 crore.

The move, therefore, may only be mildly positive for India Inc, which incidentally was wishing away the corporate surcharge in its entirety in pre-Budget wish-list.

Published on March 01, 2011

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