Financial services sector could potentially be the biggest beneficiary of the recent reduction in corporate tax rates, according to a new study by CARE Ratings.

The study is based on 2,377 companies from the aggregate sample of 3,170 companies which had positive profit before tax. The cumulative earnings before tax were about ₹8.84 lakh crore in 2018-19. Total tax paid by these firms was ₹2.37 lakh crore last fiscal with an effective tax rate of 27.5 per cent.

“If these companies had paid tax at 25.17 per cent, the industry would see a savings of ₹41,555 crore,” CARE Ratings said in the report released on Wednesday.

The study found that banking, finance and insurance companies could see total tax savings of ₹17,679 crore, followed by iron and steel firms with tax savings of about ₹2,528 crore and FMCG companies with about ₹2,500 crore in tax savings.

“Tax savings from the financial sector are unlikely to be channelled for fresh investment which rules out around 42 per cent of total tax savings,” the report said.

However, to the extent that these surpluses are transferred to the reserves which are considered when calculating the capital adequacy ratio, the ability to lend for banks would increase, it further noted.

Based on 2018-19 data, close to ₹12,000 crore would be savings of private banks which can at a CRAR of 10 per cent deliver credit of around ₹1.2 lakh crore if fully transferred to reserves with no other conditions changing, the report further said.

Finance Minister Nirmala Sitharaman had on September 20 announced a slew of tax measures for India Inc including reducing the effective tax rate for domestic companies to 25.17, provided they do not take any incentives. For new manufacturing firms, the effective tax rate will be 17.01 per cent inclusive of surcharge and cess.

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